Economy, Domestic Economy

An Unusual Case of Command Economy

An Unusual Case of Command EconomyAn Unusual Case of Command Economy

Iran has an unusual strain of command economy, an eminent Iranian economist said.

Mousa Ghaninejad made the statement in an opinion piece, published in the website of Tehran Chamber of Commerce, Industries, Mines and Agriculture.

Of the two basic categories of economic systems, a market economy works by allowing direct interaction between consumers and producers who are pursuing their own self-interest. This is while command economy advocates allocation of resources by the government or an agency appointed by the government.

Ghaninejad’s analysis is translated as follows:

Economists generally recognize two polar extremes in the organization of economic systems: free market economy and command economy. Countries are usually classified across a spectrum between these two ends.  

Practically, neither end is real and the economic systems of the countries are determined by how close they are to each extreme. This comparison provides the tool for evaluation of the governments.

For instance, Hong Kong’s economy is one of the closest to the free market and North Korea hovers around the opposite end.

[According to the latest Index of Economic Freedom, Hong Kong’s economy retained this title for 22nd year in a row in 2016.]

Many factors are at play to explain why each country occupies a certain spot on this spectrum, including the values and ideologies prevailing in that country or the impact of historical events on their developments. Economic systems are not boxes on supermarket shelves for nations to choose, rather they are a compilation of socio-historical variables. This does not mean that they are unchangeable, as they can be geared toward either side (free vs. command economy).

Many such changes have been documented in history but we need to take account of the cultural and institutional framework within which these changes have been carried out.

Recently in a referendum, Swiss voters overwhelmingly rejected a proposal to receive a basic income, whether they worked or not. They saw it against their cultural values and their nation’s interests.

Some in our country idealize about the mixed economy of the Scandinavian countries and believe they have taken the best out of the free market model and remedied the shortcomings of command economy to synthesize the most advanced economic system on earth.

Recommendations on modeling Iran’s economy after such systems would result in repeating past mistakes, not to mention the fact that the judgments made on Nordic models are flawed in the first place.

Here we need to clarify the ambiguities surrounding command economy.

In the above classification, a country like Sweden might be placed in the middle of the spectrum, far from Hong Kong and its free market. But in reality, both Sweden and Hong Kong run their economies by the book of free market. What makes these two economies different is the system of resource distribution.

In Sweden, as much as half of the GDP is distributed out of market system, based on the rules of command economy. This ratio is by far lower in Hong Kong and the US. The distribution of resources is influenced by complex cultural and historical factors and not the system of money making.

Both these advanced communities produce wealth based on the rules of market economy. Failure to take notice of this fact might lead to soliciting ill political advices.

If we were to use the allocation and distribution of resources as a yardstick for classifying economies, Sweden outweighs Iran in following command economy, which is wrong and misleading.

Iran’s economy is an unusual case of command economy. In Iran, the government is the owner of natural resources such as oil, gas and mines. It possesses and runs the major economic entities of the country, directly or indirectly.

In our country, unlike advanced nations such as Sweden, you have to tackle dozens of administrative hurdles to launch an economic enterprise in the private sector. Once your efforts come to fruition, scores of foundations, tax and social security organizations claim a share. Producers who don’t have a knack of “getting along” have to kiss production goodbye.

As if these obstacles are not tough enough, government offices in charge of pricing can tighten the noose around producers’ neck on the pretext of combating overcharging and fighting inflation. Simply put, in our country, all economic activities in all their stages are controlled by bureaucrats.

The real challenge facing the Iranian economy is the government sway over the entirety of economic system. Unfortunately, it is now being wrongly understood that a front of economists are promoting a laissez-faire economy, while the other group of the so-called in-the-know put forth the advanced form of Nordic model, in which the government plays a more significant role.

Laissez-faire, despite its implications, runs counter to freedom. A system free of rules and regulations would ultimately lead to the domination of the strong over the weak and the demise of freedom.

On the other hand, excessive government regulations [which is the case in Iran] would impede the effective implementation of rules in the true sense of words, eroding freedom in a different way.

It is quite an art to strike a balance between these two, which is what developed countries have pulled off.

The establishment of an efficient economic system calls for liberating the economy and throwing off the shackles of excessive rules and regulations. These rules play into the hands of overreaching bureaucrats, leaving no option for the business owners but to resort to bribery and administrative corruption to get their rights.

Under the circumstances, deregulation is not an alternative to the rule of law, but it is the only means of enforcing it.