Iran is a country of great resources and considerable potential. It should have been one of the major world economies, but it isn’t.
Why is the rate of Iran’s gross domestic product and economic participation so low but the unemployment rate so high? Undoubtedly, the root cause of these problems lies in Iran’s ailing economic system.
Minister of Roads and Urban Development Abbas Akhoundi believes that the Iranian economy is an offshoot of mercantilism and has nothing to do with the competitive market economy.
Instead, it is a monopolistic system ruled by special interest groups with support from political powers.
The second perspective toward Iran’s economy is presented by Iranian economist, Ali Mirzakhani. He describes Iran’s economy as a “modern manorial system”, a refurbished version of an outdated system in the country’s history.
How Did We Reach This Point?
Since 30-odd years, those who were mainly influenced by Marxism argued that “Islam’s economic system is a socialist one”. Far from the truth. Yet such a mindset led to the nationalization of domestic manufacturing companies, factories and banks, which bled Iran’s economy dry of efficiency, innovation and entrepreneurship.
The wave of privatization in the 2000s also failed to bring about any positive change. We bore witness to a telling example of such a system lately after the bankruptcy of Iran’s oldest home appliance manufacturing company Arj.
Playing with the socialism card did not end there. The previous government decided to hand over cash subsidies to people.
Which of these two decisions is in compliance with the Qur’anic verse: “And that the human being attains only what he strives for?” (An-Najm:39)
The important thing is to give everyone the chance to work, produce, innovate and enjoy the fruit of their own labor. We need to take note of the fact that each individual receives 450,000 rials (around $12.8) on a monthly basis, whereas the astronomical salaries and bonuses of a person in charge of a public organization happens to be in thousands of billion rials.
The world is evolving toward a global economy. Impressive achievements have been gained by countries that promoted exports and not those which insisted on replacing imports or those who rode on the platform of reaching self-sufficiency.
We need to remember that Prophet Muhammad (PBUH) had a hand in trade. Even today, which of the top economies are self-reliant? The US, China, Germany or Japan? None.
What’s important for a country is to have interaction with the whole world. International relations are not brotherly or romantic relationships. All states look out for their own interests.
We even saw that our so-called friendly countries fob us off with their subpar goods during the sanctions regime. They even blocked our funds. Having relations with all countries enables us to turn to a new partner when one asks for more than their fair share.
In short, if Iran is eager to find its right place in the world economy, it needs to wean itself from state-run economy, promote the private sector and rebuild its economy based on free market principles. This is no mean feat.
Undoubtedly, the implementation of the Joint Comprehensive Plan of Action was a practical step in that direction, but it still has a long way to go.
What Should Be Done?
Iran’s economy is in need of a structural reform. Firm, swift measures should be taken, since hemming and hawing is bound to thwart reforms.
First, price controls should be discarded and prices should be determined by the market.
Some may argue that government pricing aims at protecting low-income individuals. Wrong. Take gas prices as an example: Who benefits more, laborers who commute to work by bus or the privileged few who own more than one car?
The most important price that should be determined by the market is the foreign currency rate. The government should allow the exchange market to determine the exchange rate based on supply and demand.
The problem is that, thanks to oil revenues, the biggest provider of foreign currency is the government itself. Ministries and their affiliated organizations should buy foreign currency they need from the exchange market and at market rates. This would reduce the chances of manipulation of exchange rates by means of speculation.
There is no question about the importance of ease of doing business and protecting investors, particularly foreign investors. All investments carry some degree of risk. But protecting investors and entrepreneurs means their assets should be beyond the reach of authorities.
Mousa Ghaninejad, an Iranian economist, said investigative journalism must be officially recognized through a parliamentary ratification. Iranian economists are expected to shed light on people who promote socialist economics and the government must release reliable statistics regularly.
Months into the new Iranian year (started March 20), detailed figures on last year’s gross domestic product have yet to be released. However, only one organization should be tasked with collecting data.
That both the Central Bank and the Statistical Center of Iran are reporting on the goods and services Consumer Price Index is misleading—economically, technically and legally.
