The reduction or elimination of poverty, inequality and unemployment is the main goal of development, which individually have a clear correlation.
Easing inequality is desirable, yet low inequality is not synonymous with a suitable livelihood and welfare. A comprehensive welfare would be achieved only when per capita income increases and inequality decreases simultaneously. Therefore, in the absence of high per capita income, low inequality implies the poverty of all individuals and households. That’s why policymakers should improve national production and income while reducing inequality, otherwise the improvement of welfare won’t materialize.
Morteza Afqeh, an economist, prefaced his article for the Persian-language economic daily Donya-e-Eqtesad with this note.
A translation of the article follows:
Several tools have been introduced for measuring income distribution, of which the Gini coefficient is the most commonly and widely used. It is a quantitative index between zero and one. The closer the index is to zero, the more equal the distribution of income becomes, while the closer it is to one, the greater the inequality.
According to data provided by international organizations, the lowest Gini coefficient has been posted by societies that have been able to maintain it in the range of 0.25 to 0.35, thanks to the intervention of their governments. European countries, Canada, Australia, New Zealand and Japan are the countries that have a high per capita income besides a low Gini coefficient, which is indicative of high economic welfare of the majority of their people.
In contrast, many African countries register a Gini coefficient higher than 0.5 and very low per capita income, which shows that their people suffer from a poor quality of life.
Over the years leading to the Islamic Revolution and despite the rise in oil prices and per capita income, Iran’s Gini coefficient stood at a relatively high figure of 0.55. Following the revolution, this index declined to 0.4, fluctuating between 0.38 and 0.42 in the past four decades. In addition, the per capita income has been much lower over this period compared with the 1970s, as a result of mismanagement and frequent fluctuations in oil revenues.
Factors Behind Income Inequality
Several factors contribute to the surge in income inequality; the continued prevalence of inflation is one of them.
“Plan and Budget Quarterly” has published a research on the effects of inflation on income inequality. It shows that there is a direct relationship between consumer inflation and income inequality. In some groups such as ‘food’, the rise in inflation has a great impact on widening income inequality while the decline in inflation has little effect on reducing income inequality.
According to existing theories, low-income people spend a greater share of their income on food, therefore the increase in inflation of food items will increase inequality. The mechanism of inequality in Iran has become complicated in recent years, the detailed analysis of which requires more time.
In fact, over the past three decades, the trend has made the gap between the rich and the middle- and low-income people more visible. Also, the gap within income deciles has become wider. Therefore, the Gini coefficient cannot provide an accurate analysis about the income gap and its negative consequences.
In Iran, there is a yawning gap within the 10th decile, the wealthiest income decile. The 10th decile includes a small fraction of the super-rich with unimaginable wealth compared with other wealthy households as well as middle- and low-income deciles.
You can also see a wide poverty gap in the first and second deciles, i.e., the people and groups in these deciles are poor, but they do not suffer from extreme poverty (meaning the absence of income to even meet food needs).
Among other characteristics of income distribution in Iran is the shrinking middle class in recent years, especially following the reimposition of sanctions in 2018-19 and the continuous jumps in inflation rates of over 30%.
Given the ineffective economic governance, if the sanctions regime continues, the unusual income gaps between and within deciles will deepen and we’ll see more social and political unrests like what we saw in 2017-18 and 2019-20.
If the establishment turns a blind eye to poverty and inequality and the current social, cultural and political discriminations, we should probably expect more protests and tensions that will inflict irreparable human and financial losses on the country.
If we fail to fix the faulty structures of the decision-making system and the selection of government officials, we’ll see much bigger and wider human and financial damage.
