Applying measures to control and reduce transaction costs is vital for the development of Iran’s economy, says Nasser Zakeri, an economist, in an article for the Persian daily Shargh.
A translation of the text follows:
Transaction costs are expenses incurred when buying or selling goods or services, including brokerage fees, transfer of ownership charges, various taxes, attorney's fees and transportation costs.
Generally, the sum which the seller receives for transferring the ownership of their goods is less than what the buyer pays for acquiring those goods. The downtrend in transaction costs is one of the achievements of the development process worldwide.
Also, it can be seen as a facilitator of the development process, as it increases the profits gained from a deal for both parties [seller and buyer] and encourages them to have more business dealings. Therefore, it is an undeniable necessity to reduce transaction costs and increase the profit of traders.
Once you look at the course of economic development in Iran over the past decades, you see many episodes of reduction in transaction costs but surely, decision-makers failed to propose a comprehensive plan to curtail transaction costs. For example, middlemanship has increased significantly at the national level over the past few decades, such that brokerage has thrived while the manufacturing sector remains highly restricted.
On the one hand, the growth of brokerage has led to a rise in the prices of goods and services, reduced the purchasing power of consumers and the income of producers, depriving them of the profits they could make and discouraging them from engaging in the manufacturing sector.
Examples of High Transaction Costs
The following examples indicate the excessive growth in transaction costs and the creation of obstacles in the way of economic development.
The establishment of centers for replacing car license plates spares buyers and sellers of secondhand cars the trouble and costs of going to notary offices. In doing so, both sides of the transaction can save time; the deal also imposes a lower cost on them. However, some officials recommend people to finalize the deal in notary offices, probably with the intention of helping them to earn an income!
The boom in real-estate market in the past few decades has increased the number of real-estate agencies; there are 135,000 licensed real-estate agencies in the country, suggesting that there is one real-estate agency for every 195 households. Under the current economic conditions, the increase in the number of real-estate agents will have a negative effect on the purchasing power of home buyers. After all, these agents are bound to “interfere” in the natural flow of transactions to earn money. As a result, transaction costs for both the seller and the buyer increase. Without doubt, the traditional system of distribution of goods and services in the country strengthens the role of middlemen.
Despite effective measures taken so far, the producer’s share of the retail price is still minimal when it comes to the supply of agricultural products; brokers grab the lion’s share of the profit. In all economic fields, small producers have to pay high transaction fees to be able to survive. This system even resists new forms of dealings that reduce transaction costs. Opposition to the expansion of online taxi networks over recent years is the best proof of this claim.
The rule of brokerage and imposition of transaction costs are noticeable even in the fields of sports and arts. The hiring of a new coach for a certain team, for instance, is a source of enormous profits for middlemen. At times, however, a deal turns into a big financial trap; foreigners look at the behavior of Iranian officials in awe, wondering how they pay millions of dollars to buy the services of a second-rate coach.
