Economy, Domestic Economy

A Clarion Call

A Clarion Call
A Clarion Call

In our Saturday issue (Sept. 27, No. 18) we carried a piece ‘Gov’t Economic Roadmap - Will it Help End the Recession’. This is a follow-up to that article.

Both political pundits and economic observers are cognizant of the fact that the Rouhani administration has mobilized all it can to improve the business climate and give meaning to free enterprise after ages of unwanted nationalizations and undermining the private sector, or whatever remained of it. It is an open secret that over the past eight years the state, as a matter of policy, piled up an increasing number of loss-making companies that expanded its already burgeoning payroll, not to mention the bloated bureaucracy and the gravy train.

Up until the summer of 2013 the little that was offered in the so-called ‘privatization process’ reportedly ended up with vested interests. Cases of downsizing, though few and far between, were reported in the mass media, but what it actually brought to state coffers is anybody’s guess. Small wonder that the government is sinking in red ink with a mountain of internal debt along with a long list of affiliated companies and personnel that it now wants to get rid of.

Then there has been the omnipresent burden of the cash and other forms of subsidies (food, health, energy, transport…) to which Iranians have long become used to. The fact of the matter remains that in today’s world there can no more be something for nothing. True, the government has so far not said in as many words that the masses need to tighten their belts. But for all practical purposes the well conveyed message of the ‘resistance economy’ is plain and simple: learn to live within your means.

As such, it is understood that the government’s short-term stimulus package must meet the needs of longer term planning. The emphasis on creating the tools for both work and trade in the plan that has a long-term nature, shows the true intention of the policymakers. They have shown that they are not in favor of short-term gain in the anticipated growth prescription.

Probably if government specialists had suggested a recovery model satisfying an early relief strategy it would have been better received and might have been more rational and acceptable to the political and economic gurus as well.  For government politicians too seeking quick fixes to secure the safety of their ‘vote banks’ and who care less about the ways and means to guarantee long-term economic remedies it would have been an ideal solution.  

Even though the roadmap has been designed for the coming year and a half in the framework of the national economic plan, government policymakers have shown their adherence to principles, avoiding the tried and tested shock therapies which could improve the economy soon but have a very short shelf life.  They have chosen the path of implementing economic reforms that help push long-term growth.

With an exemption of the issues mentioned earlier with respect to improving the business climate, pricing and deregulation, reducing the time for acquiring permits for economic activity in the long-list of government bureaucracies is of major significance. In most if not all cases the assessment time for applications may need to be cut by one third.  The adoption of this policy is obviously desirable and has long been acknowledged by most observers, but remains to be seen when the state and government establishments will deliver. Time is of essence and by extension translates into efficiency and higher productivity, to say the least. This of course must not lead to increasing the layers of the already bloated bureaucracy.  Higher productivity is an important paradigm for economic growth and sustainable development.

In political terms the roadmap is not responsible for addressing the litany of shortfalls of various government establishments. It’s necessary for the government to make it crystal clear for its subsidiaries the need to determine the root causes of economic ills and take corrective measures to address administrative problems and bureaucratic practices, and create a harmony with the roadmap to achieve better growth rates.

Apart from creating the pro-business environment, stability of macroeconomics, is considered as another factor that helps to improve the economic conditions that has often been mentioned in recent economic debates and journals. Doing so is among the primary duties of the government that coincides with its anti-inflationary agenda. This is because when the government intends to create stability in the economy and by avoiding shock therapies tries to control inflation, rather automatically a suitable environment emerges for the growth and expansion of national manufactures.  

However at this juncture it should be noted that when it comes to key industries, criticism could be directed at the government’s economic roadmap. Emphasis in the plan on boosting production and export of oil and petrochemical products draws criticism. Although this may help in adding points to economic growth, but could hardly be comprehended how it will operate as the locomotive pulling other segments of the economy in its forward march. One need not be a genius to understand that the oil sector neither creates significant number of jobs for the army of unemployed nor has strong bonds to other key segments of the economy.

Likewise, the strong emphasis in the plan of action to the driving factors, major industries and magnifying the ‘invisible arm’ of the state as the engine of growth  can  elevate risk factors for the present and potential players in the non-state  economy. For a whole set of valid reasons politicians and policymakers need to concentrate on the three aforementioned paradigms: creating and promoting a business-friendly environment, macroeconomic stability and minimizing financial bottlenecks.

 After that the economy in and of itself will find and interact with the major industrial sectors that have an effective role in economic growth patterns.

The day of reckoning is not very far away. Subsidizing the economy with oil revenues is simply not, and should not be, an option. As the subsidies are gradually phased out, other supporting mechanisms are being instituted to help those at the bottom end of the economic ladder. This is a practice seen in other developing countries when prohibitive subsidies are discontinued or rolled back.

Reality is slowly, but steadily, catching up with millions of Iranians, especially fixed-wage earners. Manufactures are also in the same boat and coming to grips with the need to producing without subsidized energy.

How the latter will remain in business and at the same time compete with cheaper imported goods will be of immense interest to both friend and foe who in the coming months will closely monitor Iran’s economic direction. Simply put, the production sector too has been informed in no uncertain terms that the entire gamut of subsidies is a luxury the county can ill afford.

Similarly the government too cannot, and should not, take relief in only ending the subsides. The billions that were (and still are) being poured into the controversial cash handouts will now have to be utilized efficiently by adjusting it into production mechanisms to end the recession and help create much-needed jobs, especially in the provinces and at community levels.