The discussion of government intervention in the economy and the limits of this intervention is a point of dispute among different economic schools and it falls into the category of political economy.
In fact, the first formal school of codified political economy, that is the school of mercantilism in the 16th century, aligned with the trade revolution, emphasized the reduction of government intervention in the economy and the strong presence of the market and the private sector, and provided a strong foundation for the emergence of classical political economy, Vahid Shaqaqi-Shahri opened an article for the Persian economic daily Donya-e-Eqtesad with this note. The translation of the full text follows:
The complementary reading of the political economy of speculators, that is to say the school of naturalists [or physiocrats], also emphasized the freedom of the economy and non-interference of the government in the economy and indicated that the economy, like nature, reaches equilibrium according to its internal mechanisms. Therefore, the political economy of physiocracy can also be called laissez-faire political economy.
In classical political economy [1776 to 1871 AD], the reduction of government presence in the economy, along with the functioning of market mechanism and the self-regulation of the economy, encouraging the spirit of individualism, emphasizing the motive of personal interest and its coordination with the collective interest, coordination of efficiency and competition, dominance of full-fledged laissez-faire approach and similar cases were obvious features.
However, gradually, as opposed to the classical notions of the economy, other concepts of political economy also appeared, which criticized the classic notion, or started designing an alternative paradigm for it. The Socialist and Marxist model of political economy emerged as one of the serious critics and a strong alternative to the classical political economy. In this model, the laissez-faire approach of the automatic and self-regulating economy was rejected, and instead of the belief in the harmony between individual and social interests, the conflict of interests was raised.
From a legal viewpoint, public ownership replaced private ownership, and the products and economic values created were considered the privilege of the labor force. Keynesian political economy also criticized the neoclassical paradigm from another angle and Keynesians linked the root of economic problems to the demand side and believed that the economy will not reach equilibrium automatically; to achieve full employment and solve macroeconomic issues, the presence and intervention of the government will be justified.
Considering the evolution of economic schools and the attitude of those schools in the role of self-regulation of the market and the economy, or the need for government intervention in the economy and the market, it should be noted that in an economy based on state regulation, the centrality of balance rests with the market and supply-demand forces.
The strengthening of a competitive system in the economy provides the ability to create balance and transparency in the market, and the competition resulting from the market mechanism, while improving the quality of manufactured products, also determines the most appropriate and fair price in the market.
Two Opposing Attitudes
The above-mentioned economic schools, from speculators and naturalists to the classical and neoclassical economic schools, are based on the idea that by providing competitive conditions in the economy, the supply and demand forces have the ability to regulate the market, and the government’s intervention in the market and the imposition of pricing and production quantity are not required.
From this perspective, the government is obliged to provide competitive market conditions and any interference and imposition of price and quantity regulation will disturb the market equilibrium and create the consequences of rent and price manipulation and degradation of the quality of manufactured products.
At the opposite end of this approach, the necessity of government presence and market intervention is raised to such an extent that proponents believe that because of market failure, supply and demand forces are not able to balance the market and the government should intervene to protect the consumer. They believe that due to the nature of profiteering, producers seek to increase and manipulate prices and earn more profit; therefore, in this type of attitude, the nature of market and its failure provide the necessary conditions and basis for the command economy.
Predominance of Command Economy
The historical experience of Iran’s economy indicates the predominance of the command economy approach and at different junctures, the imposition of prices has been considered. The institutionalization of Iran’s economy has also been formed based on the approach of command economy.
In fact, institutions such as the Consumers and Producers Protection Organization and other bodies for monitoring the performance of the market have been established to monitor and control the market and to prevent price deviation.
In the author’s viewpoint, the absence of competitive markets, the extent of monopolies in industrial sectors, the government and the private sector give-and-take, and the development of a quasi-state economy have prevented that formation of competition in the Iranian economy. This has promoted the formation of command economy and the development of regulatory institutions.
In summation, the historical experience of Iran’s economy, at least in the past few decades, indicates the failure of the command economy approach. It has had no result other than fostering mistrust, aggravating rent and corruption, distorting the pricing mechanism and reducing quality, while increasing the cost of [not very efficient] monitoring institutions.
