Hesam Jaladati
Iran’s economy is caught in a painful paradox. The country has a vast pool of educated talent, ranking high in science and engineering graduates, yet its growth prospects remain bleak. The IMF projects GDP growth of just 0.3% in 2025, with inflation above 43% and unemployment close to 10%. These are not temporary setbacks but symptoms of a chronic institutional failure. One telling indicator is that 40% of Iranian software developers plan to emigrate—a disappointing signal from the very sector expected to drive innovation-led growth.
This paradox mirrors the lessons of the 2025 Nobel Prize in Economics, awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt for explaining how prosperity arises from knowledge creation, innovation, and the relentless replacement of the old with the new. Mokyr, a historian of economic thought, describes growth as an historical anomaly—an outcome of societies that protect free inquiry and open competition. For Mokyr, “useful knowledge” meant the interaction between scientific inquiry and practical invention — a dynamic that powered the Industrial Enlightenment. When institutions fail to sustain this exchange, talent remains dormant and innovation withers.
Iran’s weakness lies precisely here. Despite strong human capital, it lacks the institutional foundation needed to convert ideas into productivity. The 2024 Global Innovation Index ranks Iran 64th overall but dead last—133rd—in the institutional pillar. Poor policy stability and weak rule of law discourage long-term investment and reward short-term rent-seeking. In such a climate, creativity yields frustration rather than growth.
The theory of “creative destruction” developed by Aghion and Howitt illustrates why. Economic progress depends on a constant process of renewal—new technologies replacing outdated ones. In Iran, this cycle is blocked. The automotive sector, dominated by state-backed monopolies, resists innovation through tariffs and subsidies, sustaining inefficiency at enormous social cost. The banking system, instead of reallocating capital to dynamic enterprises, perpetuates these inefficiencies. When failure is subsidized and success penalized, the incentive to innovate disappears, and with it, the drive of the country’s most capable minds.
Real recovery requires courage—the courage to allow destruction. The government must abandon its command-and-control mindset and focus on creating a predictable, rules-based environment that rewards innovation and risk-taking. Simplifying regulations, enforcing contracts, protecting intellectual property, and removing distortionary subsidies would clear the way for genuine competition. The private sector, too, must pivot from imitation toward deep-tech innovation and long-term investment.
South Korea’s story offers a cautionary parallel. Its early state-led industrialization succeeded because it invested heavily in R&D and education. Yet today, its conglomerate dominance has itself become a drag on innovation. Iran should learn both lessons: build human capital and research capacity, but resist entrenching new monopolies. Sustainable growth will not come from what the government builds, but from what it permits to be dismantled. Before rebuilding, Iran must allow the kind of creative destruction that every thriving economy is built upon.
A longer version of this article was first published by Donya-e Eqtesad daily.
