Price is perhaps the key economic variable that indicates the scarcity of resources. Any manipulation, under any name and excuse, of this variable gives a false signal to economic players on the supply and demand sides and disrupts the markets.
This was stated by Mehdi Feyzi, a lecturer at Ferdowsi University of Mashhad, in an article for the Persian economic daily Donya-e-Eqtesad. A translation of the text follows:
Any market intervention on the part of government should be as minimal, unrelated to pricing and limited to cases of market failures.
Iran’s economy, however, is accustomed to maximum pricing that, economically speaking, doesn’t need government intervention; even many people who have suffered from the pricing policy for years urge the government to control the market.
Nevertheless, when it comes to improving the business environment and competitiveness, economic policymakers reduce their job to carrying out a pricing policy, which is a clear case of governance failure.
Governance failure refers to any inefficiency of processes, specifically the failure of the efficiency of policies. Unfortunately, the Iranian economy has experienced the failure of both market and governance over the past decades.
Economic surgery currently underway is being performed in markets that have not failed and didn’t need government intervention in the first place. Any so-called economic surgery that does not require the government to return to its original job and insists on manipulating markets where the metaphorical invisible hand works well is doomed.
Economic surgery in the current form is being performed in markets that have not failed and didn’t need government intervention in the first place
[The invisible hand is an economic concept that describes the unintended greater social benefits and public good brought about by individuals acting in their own self-interests. The concept was first introduced by Adam Smith in The Theory of Moral Sentiments, written in 1759.]
In other words, any new policy in the markets through government intervention and pricing will exacerbate the failure of economic governance and continue to plague the government in the future.
To better understand this issue, let’s look at the housing market: The costs of housing account for a significant share of the household budget; home prices have registered high growth in recent years (according to reports published by the Statistical Center of Iran, home prices doubled in the Q1 of 2021-22 compared with the same quarter of the year before). However, all these economic pressures did not lead to public protests because they did not consider the government to be in charge of pricing in the housing market. On the other hand, much lower price increases in other markets have led to protests, as people hold the government responsible for the price hike in those markets.
When rising nominal prices in Iran’s inflationary economy lose their true meaning again, mandatory pricing will require back-to-back surgeries in the coming years. Improving economic governance is not conceivable, with successive economic surgeries in the current form and under the inflationary conditions of the economy; it will be achieved by improving economic governance. Only then, one can learn from the consequences of the past command economy and further reforms.
A surgery on Iran’s economy depends on the approach of surgeons who, despite all scientific studies and experiences, still insist on price manipulation.
