Iran’s economic growth, excluding oil, stood at 4% in the fiscal 2021-22 and was slightly higher when oil sector was included, the Central Bank of Iran reported.
Given the statistics related to the first half of 2022-23, last year’s economic growth will be more or less the same, or slightly lower. With regard to the method of calculating these variables, particularly when you remember, for instance, the lack of transparency regarding oil export data, we should note that the figures on economic growth rate are not synonymous with better welfare for most people (the middle to lower class).
Mousa Ghaninejad, veteran economist, began his article for the Persian daily Donya-e-Eqtesad with this note. A translation of the text follows:
Government employees and private sector workers who had a fixed income have obviously lost an important part of their purchasing power in the last two years; they have become poorer because the inflation imposed on them has outstripped the increase in their income.
The purpose behind naming the new Iranian year after “Inflation Control and Production Growth,” is the same fact. In other words, the 4% economic growth has not benefited all people, for whatever reason, so the growth rate needs to be much higher. Here the question is how to accelerate production growth?
Expertise Takes Backseat to Loyalty
Iran has all the necessary tools to achieve rapid growth potentially, but for the reasons I will explain below this potential fails to actualize. The first and most important explanation is perhaps the view of politicians and policymakers who simply believe that possessing potentials, which is necessary, is the only prerequisite for growth, i.e. it can be realized with any strategy and policy.
This dangerous delusion has led to slacking on the part of policymakers, so much so that the criterion of “expertise” has been practically put aside and only “loyalty” has become the main criterion for appointing those in charge. Replacing expertise with loyalty is a grave mistake that not only makes the planning system ineffective, but also deprives the whole system of true loyalty.
Expertise is an objective, rational and quantifiable matter, therefore, the likelihood of making a mistake while determining it is low whereas loyalty is an internal matter and there is practically no criterion to measure it except for a person’s outward adherence; there is no criterion to detect people’s loyalty to higher authorities.
It is clear that when the subjective and inestimable issue of loyalty becomes the criterion for landing positions, power and wealth, hypocrites will gain privilege in the political and economic system. It is no wonder that most embezzlers and the financially corrupt have always been these hypocrite loyalists who attack the roots of morality in the society.
There is no doubt that informed economic policymaking, which itself requires specialized knowledge, is the first step toward production growth. But unfortunately, since the government of Mahmoud Ahmadinejad onward, a volley of destructive sloganeering once again cast a shadow over the decision-making system of the country, such that even the efforts made by the government of Hassan Rouhani failed to right the ship. Such a system has again emerged in the government of Ebrahim Raisi in a new form, as it turns a blind eye to the costly experiences of the past and once again puts unspecialized and inefficient individuals in charge of affairs.
Distanced From Economics
A look at the policies of the government shows that it has distanced itself from the principles of economics and clings to contradictory and inefficient ideas that have been tested and failed many times before. Knowing that the stability of the main variables of macroeconomics, inflation in particular, is a necessary condition for investment and production growth does not even require specialized knowledge. But the economic decision-makers try to lower the parity rate of foreign currencies through administrative fiat instead of dealing with the problem by sticking to solutions specifically laid out by economics.
The argument of government theorists is that, contrary to all the findings of economics and human experience, the inflation rate is contingent on changes in the foreign currency exchange rates, not the other way around. Poor Iranian people have to pay for these new claims that are not only the product of ignorance and disregard for the principles of economics, but also pose a challenge even to a totally closed and isolated economy, where currency parity is not an issue and inflation will likely reduce the purchasing power of people.
There is no doubt that the government’s interventions in the economy, especially when it comes to mandatory pricing, is a major hurdle to the production sector.
Mandatory pricing distorts the price information system in the market by sending false signals unrelated to the scarcity of resources and goods that are reflected in the relative prices. Mandatory pricing confuses producers and gives way to inefficient allocation of resources. The interest rate on bank loans, which is apparently set to support production at a very low level, compared to inflation that leads to the creation of rent and windfall profits for professional rent-seekers linked to political powers. Such a move results in noting but the waste of financial resources and corruption.
It should be noted that the main source of these loans is people’s deposits in banks. Given the mandated, low interest rates, people’s money lose their purchasing power in the face of high inflation. That has no other meaning than the shrinkage of people’s assets for the benefit of the government and influential borrowers.
In short, production growth won’t be materialized by sloganeering and inventing anti-scientific and anti-intellectual theories and methods. It may be possible to “convince” the common people temporarily, but it should be known that reality is stubborn and eventually imposes itself on everyone.
Production growth depends on informed economic policymaking that does not come to pass except through appointing knowledgeable and expert people at the helm of affairs who make decisions based on the latest scientific findings. This is the first step toward rationality and correct decision-making.
