Domestic Economy

UBI: Iran’s Meat, Switzerland’s Poison?

Business & Markets Desk
UBI: Iran’s Meat,  Switzerland’s Poison?
UBI: Iran’s Meat,  Switzerland’s Poison?

Many Iranians were baffled by the Swiss rejection, in a nationwide referendum, of a monthly grant of 2,500 Swiss francs for every adult and 625 francs for a child under 18.

This is because Iranians have been receiving a monthly cash subsidy of $12.4-about 6.7% of the minimum wage in Iran-since 2010.

What is the significance of the Swiss "nay" as opposed to the Iranian "yea" to the Universal Basic Income plan—an unconditional government payment given to all citizens as a supplement to or replacement for wages?

President Hassan Rouhani's Cabinet has tried, since the beginning of its tenure in 2013, to persuade the well-off to opt out of the program. The president made a public plea in a live TV program, asking high earners to withdraw from receiving cash subsidies.

Rouhani noted that the environment, energy, healthcare, agriculture and industry are the main sectors where revenues generated from the so-called Targeted Subsidies Plan must be allotted to.

Yet, two months later, close to 73 million of the population registered once again, to receive the cash subsidy and only 2.4 million people opted out.

Some experts believe that given the economic conditions of the country, the reaction of Iranians in this case was only sensible and a comparison between the Iranian and the Swiss decisions is out of place. Others believe there are reasons underlying these contrasting decisions that need to be scrutinized.

> Questions Iranians Don't Ask

"One of the main questions opponents of the UBI plan in Switzerland put forward was how and from what source was the plan to be funded? This is a question Iranians avoid asking. In other words, from whom is this money to be taken and to whom is it going to be paid? What are the economic and social consequences of this huge money transfer in the country? In fact, Iranians like to believe that the monthly cash subsidies they are paid are the money derived from oil revenues and are thus, their inherent right," the Persian weekly Tejarat-e Farda quoted economic analyst Hossein Rahdari as saying.

But what was the aim of the Targeted Subsidy Plan in the first place, asks Rahdari, to give each Iranian their portion of oil money, or to redistribute wealth in favor of the poor?

"Like most policies pursued in the country, there are discrepancies between the way the policy is executed and the goals it aimed to achieve. If the target of the plan was to redistribute wealth in a way that the poor would benefit, then why do people in the capital receive the same amount of cash subsidy as do people in the remotest villages?

"And if it is people's share of oil money then how come they are still paid $12.4 after more than six years, when the oil price has declined by close to $60 a barrel over the period?"

The economic expert puts forward other questions-rhetorically-that he thinks must be asked: Can a government whose financial powers have diminished under years of sanctions and the plummeted oil price provide money to finance such a huge program? Are we going to miss out on developments with regard to investment, job creation, education and security because the country is spending a major part of its revenues on the plan?

If Iranians did not have oil and gas resources to rely on and were to pay taxes like the Swiss, would they be prepared to give away their money for the government to redistribute it between the penniless? And last but not least, if the cash subsidy plan were to be repealed, will Iranians give in to the empty promises of populists in the future and vote for them in the upcoming elections to accelerate the plan again?

> The Trust Issue

Economist Hossein Abbasi is of the opinion that both nations have made wise decisions.

"The Iranian "yea" and the Swiss "nay" are both sensible reactions to the behavior of the entity in charge and in control of money. People in Switzerland put their trust in the government and are positive that the money is never mismanaged or misused, and in the long run, the society's prosperity level will rise. Therefore, in a collective decision, they opted for long-term prosperity rather than immediate but temporary benefit. This kind of outlook to the issue does not come about unless there is a transparent and efficient government at the head of things," he said.

According to Abbasi, Iran's case is a bit different in that people do not completely trust the government's management methods and believe if this enormous source of money is not directly given to them, it would be wasted or misused elsewhere.

"Underlying a public request to take control of revenues, there is always evidence of the inefficacy of the incumbent authority in charge," he said.

Jafar Kheirkhahan, another economist, echoes the same sentiments, stressing that state characteristics in Switzerland and Iran are different.

"The Swiss government is one that is open, transparent and accountable towards the measures and actions it takes. Members of all social strata play a role in decision making and are taken into account when policies are designed. The Swiss have trust in the authorities who they believe are chosen based on meritocratic principles. There is, by definition, an inverse relation between the amount of government corruption and people's trust in that government.

"Also, in Switzerland, abidance by the law is a virtue that is strictly adhered to. This brings about a beneficial give-and-take between the government and people, allowing the officials to make decisions, the benefits of which would become evident in the long run. People will wait for policies to bear fruit with peace of mind."

Kheirkhahan noted that this is exactly where Iran lags.

"The low level of trust people generally have in the government renders officials incapable of making profitable long-term decisions for which people have to pay short-term costs," he said.

> Legatum Prosperity Index as Proof

Legatum Prosperity Index, published by the Legatum Institute—an international think tank and educational charity focused on promoting prosperity, ranks 142 countries worldwide in terms of wealth and wellbeing. It measures the countries' success against a broad set of metrics covering the areas of economy, governance, entrepreneurship and opportunity, health, education, safety and security, personal freedom and social capital.

The governance metric comprises of the sub-indexes of government stability and efficiency, rule of law, efficacy of rules and regulations, political rights and limitations, trust and validity of elections, trust in the armed forces and judiciary system, and trust in national governance, among other things.

In 2015, Iran ranked 122nd in terms of governance, while Switzerland ranked first. The huge gap suggests that it is only natural for the two nations to go separate ways.

Also in economy, which evaluates indices of five-year growth, trust toward financial bodies, employment conditions, economic prospects, lodging and adequate food, inflation rate, foreign direct investments, unemployment rate, market size and more, Iran ranked 105th, whereas Switzerland stood in second place.

Iran's overall ranking that year was 106, while Switzerland was placed second.

It was only in the last Iranian year (March 2015-16) that the Ministry of Economy and Financial Affairs released figures concerning the outcomes of cash subsidy payment in the country.

The latest data revealed that the Iranian population had become poorer and the purchasing power of Iranian families decreased by 1.5% during the first stage when the Targeted Subsidy Plan was executed.

> Iranian Vs. Swiss Financial Literacy

The knowledge and understanding of the Swiss regarding financial concepts such as inflation and interest rates, investment, savings, risk and retirement programs are at a much higher level than that of Iranians.

In 2014, in the Standard & Poor's Ratings Services' Global Financial Literacy Survey—the world's most comprehensive global measurement of financial literacy-more than 150,000 adults in 148 countries were interviewed. The data was collected by Gallup Inc. and analyzed by the World Bank Development Research Group and the Global Financial Literacy Excellence Center at George Washington University.

The people under study were tested on their knowledge of four basic financial concepts: risk diversification, inflation, numeracy and compound interest. Respondents who could answer three or more out of the five questions were considered financially literate.

"The Swiss managed to rank 15, but only 20% of Iranian respondents were able to pass the test and thus, Iran ranked 130. This shows people in Switzerland are well aware of the benefits and consequences of their financial choices. They know that they need to pay for a bad decision sooner or later. For instance, the Swiss people and government both know that a rise in basic income can result in an increase in tax rates," Kheirkhahan says.

Moreover, the Swiss society does not suffer from a drastic class conflict, according to the economist.

"Maybe, the plan for a universal basic income can be of help to societies such as ours where there are deep gaps in the financial status of the population and not all people have access to opportunities and facilities for elevating their life quality. By paying cash subsidies, the government can ensure that the vulnerable population can resist financial shocks and instabilities and can lead an honorable life," he said.

> Raising People's Awareness

Ali Asghar Saeedi, social economist and lecturer at the University of Tehran, believes that if the government informs people of the costs and benefits of its actions and policies, more favorable outcomes can be expected.

"Intellectuals play a great role in such cases. People listen to academic, intellectual and religious figures. We in Iran have only heard of the results, but the media in Switzerland raised people's awareness and informed them of the pros and cons of this program prior to the referendum. The issue had been discussed from different angles and people were ultimately convinced that a universal basic income will not benefit them," he said.

Yet, the former government in Iran started executing the program, which many considered a populist move, without consulting the citizens.

"Unfortunately in Iran, the intellectuals are not concerned with social policies. I believe that if it were possible right now for experts and researchers to be able to speak to people and explain the consequences of receiving cash subsidies to them via radio, television and other media, Iranians too would perform better in a referendum such as the one carried out in Switzerland," Saeedi said.