Usually, everyone likes to sell what they have at a higher price to other people and buy what others have at a lower price.
When someone’s only asset is their labor force and they can only earn money from it, it is clear that they are in favor of raising salaries and lowering prices. But when they have other assets besides labor, in addition to salaries, they are in favor of increasing the value of those assets. However, they do not agree with increasing the price of other assets.
When someone is a producer and has to pay wages and interest, and buy raw materials, it is clear that they are against increasing wages, the interest rates and the price of raw materials, but they will not oppose the increase in the price of their manufactured product.
In this framework, those who have more or better quality assets have more bargaining power and will gain more wealth, and this will fuel economic and social inequalities, Parviz Khoshkalam Khosrowshahi prefaced an article for Ecoiran with this note. A translation of the text follows:
In such an environment, there will always be objective or mental tension and conflicts between the owners of more assets of higher quality and the owners of less assets with lower quality. The minimum is that both sides of the transaction are worried that the deal may be done at a lower or higher price than what is suitable for them.
When we consider the number of daily transactions, we see how deep and wide the dimensions of this tension and conflict could be.
Two Ways of Economic Management
To remove the tension and conflict, one idea is to hand over the ownership or allocation of the productive assets in the society to the government, so that it can allocate them based on the needs of the society and distribute manufactured products to everyone in a fair way.
Naturally, in such a system, everyone should work within their capacity or talent, while everyone will be paid according to their needs. The problem with this idea is that it ignores differences. In such a system, people will not use all their power or talent in performing their job, because they get paid more or less the same as those who don’t have considerable ability or talent, or don’t use it enough.
In other words, the important problem of such an economic system is the suppression of people’s motivation for creativity and more effort; because they are not given a reward commensurate with their talent, effort and hard work, and if it is awarded, it will be at the discretion of the government, which is not guaranteed to be proportionate. Therefore, in such a system, creation of wealth and, as a result, economic and social development, will not be desirable, and the society will remain at least relatively poor. Nevertheless, the tension and conflict expressed through the more or less equal distribution of what it is or what is being produced will be eliminated at least for a while. Of course, another conflict and tension will take root in the minds of people who have great ability or talent, and will turn them into desperate or rebellious people or immigrants.
Another idea to manage the tension and conflict that have been raised is to leave the determination of their outcome to the markets so that assets could be exchanged according to the power and desire of owners. But it would require the government to balance the bargaining power among asset owners and help in the fair distribution of income and wealth, along with the supply of goods or services that are not produced and offered in the markets. It is clear that in such a system, suppression of people’s motivation to use their maximum ability or talent for the growth and development of the activity in which they are employed will be eliminated, because receiving a proportional reward is largely guaranteed. Also, the creation of wealth and economic and social development, which ultimately improves the welfare of the society, is realized.
The first idea pertains to state economy and second idea to free economy. Human experience shows that none of the two ideas are absolutely good or bad, and each of them has advantages and disadvantages. However, objective observations show that, in general, the second idea or free economy, despite all its problems, has been more or less successful in ensuring the economic and social well-being of societies, and therefore many societies in the past few decades, at least in the field of policymaking, accept the above-mentioned premise and act accordingly.
Iranian Approach, Current State of Affairs
But in our society, especially in the past 45 years, the conflict between the two ideas continues fiercely, not only in the academic and intellectual fields, but also in the arenas of politics, public opinion, and the media, in a confused manner.
What is happening in practice is an amalgamation of both ideas, of course with more and deeper tendency towards the idea of state economy (although sometimes with a free market appearance) even when politicians and policymakers chant the slogan of free economy. In fact, our politicians and policymakers, depending on the circumstances, sometimes embrace the idea of state economy without mentioning it, and at other times turn toward free economy without acknowledging it.
With regard to the free economy, the approach happens mainly in words and not in action, and generally to justify some urgent and inevitable measures, such as adjusting the price of gasoline or foreign exchange rate. Tensions related to this conflict and the resulting uncertainties are one of the most important obstacles facing the development of productive investment, which is the result of economic and social disorders in the society.
With the lapse of a century of this conflict in Iran, the time has come to end it persuasively at the level of public opinion, because one of the necessary conditions for Iran’s economy to be on the track of favorable and sustainable development is to achieve a universal and sustainable understanding in this field.
In the past half a century, regardless of the economic discourses that have been highlighted in the public arena, the mechanism of state economy with a variety of methods such as the government’s indirect control over the ownership of enterprises, or state interference in the affairs of enterprises under the pretext of regulation, has been ongoing and an important part of the current situation is its outcome.
This understanding can be reached by choosing the mechanism of the free economy in policymaking and making a real and strategic commitment to its implementation while effectively addressing the concerns and worries that exist in this connection in large sections of the society. In the meantime, supporters of the idea of state economy should know that supporters of free economy are not necessarily those who think free economy is more in their favor, rather many of them are generally in favor of this idea because they consider it easier and more stable to improve the welfare of Iranians for the reasons stated above.
Supporters of the free economy should also understand that those who favor the state economy are not necessarily in favor of rent-seeking and the subsistence and distribution economy, but they are concerned about poverty and the resulting economic and social gaps and the defaulting of credit promises that are promised to be fulfilled in the name of a free economy with cash costs, especially since many times the failure to fulfill such promises has been experienced.
Both among the supporters of the free economy and proponents of the state economy, some promote such ideas only to gain benefits, and therefore they usually follow that idea not with all its entailments, but in a selective way, and only highlight parts that are beneficial to them and overlook the other parts. But the way to deal with this group of people is not to reject all correct and useful ideas, even if they are favored by this group of people.
Believers in both ideas, especially the idea of free economy, should be careful not to be used as a tool to theorize policies or plans that, despite the appearance, have nothing to do with their idea, because experience has shown that such negligence deprives the society of trust in that idea and in its theorizers.
