The world has tested subsidization programs many times and countries continue to implement support policies in different ways.
These programs were launched in the years after the First World War and continue to this day. The policy of giving subsidies to households has been carried out in Iran for many years now. But instead of resolving public livelihood problems and reducing inequality and improving welfare, subsidization programs in Iran have benefited certain groups. This is while support policies in the world are designed to help low-income groups. These were stated by Ali Sadvandi, an economist, in an article for the Persian daily Donya-e-Eqtesad.
A translation of the text follows:
Any analysis regarding Iran’s support policies should begin with understanding the unsuccessful distribution of coupons in the 1960s during the Iran–Iraq War. Perhaps, the distribution of coupons was inevitable in the midst of the war and other problems of that period. Ultimately, the failure of coupon distribution prompted policymakers to think of an alternative.
In 2010-11, the government began the payment of monthly cash subsidies. As per the initial plan, heavy subsidies on food and energy were removed and instead all Iranians were individually paid 450,000 rials [about $1 at the current exchange rate] per month. The cash subsidy policy helped reduce poverty and inequality, and achieved its intended goals but unfortunately, the value of money in Iran dipped with the passage of time and inflation.
Cash subsidy was not supposed to remain unchanged at 450,000 rials despite the rising inflation. But this is what actually happened; the cash subsidy lost its value thanks to inflation.
Best Solution
Post-revolution experiences suggest that distributing cash subsidies is the best solution to livelihood problems, as they help reduce poverty and inequality.
At present, new subsidies are being introduced in the name of targeted distribution. They, however, are far from being targeted; the only purpose the new form of subsidy, the so-called “electronic coupon”, is expected to achieve is the consumption of a specific product, which will definitely be detrimental to the society.
All individuals in the society have different needs. According to the science of economics, people themselves know better how to spend their money; there is no clear political justification for a government to decide on what people buy. In addition, the government should not be patronizing and make decisions about people’s nutrition. History has proven that such policies are ineffective and doomed to fail. The government can provide people with cash and then people themselves will decide on how to spend it.
At present, the government is paying hidden subsidies in the energy sector. The hidden subsidies mainly benefit households who fall in the 10th income decile, the 100th percentile (the wealthiest of the wealthy) in particular.
The subsidies were initially offered with a lofty goal, i.e., to boost production, but this policy gradually derailed from its main goal, and finally ended up in favor of the richest. These people took the resources they gained from the subsidies out of the country. In short, the payment of subsidies led to capital flight and aggravated the energy crisis. It is necessary to rethink support policies such as subsidies in a systemic or general way to navigate the ship on the right course.
People in the first three income deciles do not receive enough food, but the government would be ill-advised if it opts for distribution of food commodities. Unfortunately, we have seen in recent years that some people define new projects and schemes, and line their own pockets.
Presently, the project is to subsidize the excess price of goods and it is not clear when this system will reach a dead-end. If a subsidy is to be paid, it should benefit all members of the society.
