Titus Livius (59 B.C.-A.D. 17) the Roman historian
once said that men are only too clever at shifting blame from their own
shoulders to those of others. These days Mr. Ahmadinejad, the man the West loves
to hate, is in hot waters in Iran. He is
blamed for almost everything that has gone wrong with Iran. Iranian
newspapers and politicians of all colours are lining-up to criticize his
leadership and economic policies. He is blamed for everything from shortage of
dialysis machines in some clinics to high inflation and provocative speeches.
Some politicians are even talking about impeaching not only some of his
ministers, but also the president himself.
What a difference a year
makes. It was in mid 2005 that Ahmadinejad won a land-slide victory (62%) in the
presidential election. As a presidential candidate he had promised to improve
the lives of the poor and the lower classes by "putting petroleum income on
people's tables". His campaign motto was "it is possible and we can do it".
Son of a blacksmith,
Ahmadinejad was the fourth child of a working class family with seven children.
He was brought up in the rough and poor neighbourhoods of south Tehran. He is therefore familiar with the
problems facing the poor families and has tried to fulfil his election promises
to them by increasing the minimum wage (under pressure was later reversed), the
pensions, consumer loans for low-income families, loans for small enterprises in
underdeveloped regions, and other popular projects. He has also been travelling
around the country approving construction projects and distributing largesse.
This lavish spending has
increased the double digit inflation rate even more and has caused concerns
among politicians and economists that his economic policies coupled with his
hard-line stance on nuclear dispute and approach to foreign policy may damage
the country. Some economists argue that while the country's economy is being
pressured externally (sanctions), the government is spending money as though
there were abundance of resources.
The Iranian senior
economist Dr. Masoud Nili of Iran International points to an ever expanding
government budget and increasing dependence on the oil revenues as a serious
problem for the country. He argues that:
"in 1998, average oil
price stood at 10.8 dollars per barrel and oil revenues grew fourfold in about 7
years. Meanwhile, state budget in 1998 was less than 71,000 billion rials, but
Iran's budget for 2006 has been estimated at 600,000 billion rials; that is,
while oil revenues have quadrupled over a 7-year period, state budget has
increased eightfold during the same period.
Before 2002, government
spent an average of 15 billion dollars in foreign exchange. The figure increased
to 21 billion dollars in 2003, to 30 billion dollars in 2004, and to 36 billion
dollars in 2005. It seems that the figure will reach 45 billion dollars in 2006,
which is indicative of serious budgetary dependence on
The Third Economic
Development Plan aimed at reducing government's dependence on oil revenues to
less than 12 billion dollars, but it actually soared to more than 40 billion
dollars in 2006. Therefore, the government's budget experienced such a great
leap in 14 months from January 2005 to march 2006, when the government was
determined to offer Majlis with a budget supplement. Considering this reality,
one can conclude that the country witnessed one of its biggest financial
developments in the Iranian year, 1385."[]
As inflation is rapidly
approaching critical levels, economists and politicians have began to sound the
alarms. There are now open calls for impeachment of several government ministers
and although not openly mentioned, the moderates and some conservatives would
like nothing more than impeaching the president himself. The rallying cry for
the opposition is "the economy"; a clever point of attack since they know that
no president no matter how wise or prudent, can solve the existing economic
problems of Iran without a comprehensive
restructuring of the economy; something that many special interest groups and
powerful economic entities are against. The following are some of the problems
Iran has a very young
population. Almost 47 million of the nearly 70 million Iranians are bellow the
age of 25. That is 67% of the population. Of this 47 million, 25 million are
between 15 and 25 years old.
Theoretically, a country
with abundant natural resources and a young educated workforce should have no
problem in economically growing rapidly. Alas Iranian economy, like most other
oil dependant economies, is to a very large extent government owned and
controlled. Hence all the pressure on the economy automatically becomes
political pressure on the government.
For instance, the
inflationary policies of the current government is the direct result of the
government's desire to reduce poverty and hence the growing inequality in
Iran; which in itself is threatening
not only the social fabric of the society but also the stability of the regime.
In October 2006, the supreme leader of Iran Ayatollah Khamenei in a letter to
the President and Cabinet demanded a reduction in the class gap. He stated
"Because of the class gap
that has remained from former regime, now our country needs economic justice
more than anything. The government should make profits more in this situation
and move toward declared goals and mottos. The achievement of justice is too
difficult and requires many preparations such as geographic and classic justice,
justice in economic and cultural affairs, justice in substituting officials and
granting responsibilities and justice in judgments. The execution of justice
must be logically within the Islamic frame. According to article 44 and notes
(A) & (B), the state should decrease its interferences in economy."
But reducing poverty
and the gap between the rich and poor in the current economic system is
extremely difficult. In a normal liberal economic system the government's
revenues come mostly from investments and taxes. Tax revenue is supposed to
cover most of the government's budget. Tax coupled with social security is also
an instrument of wealth distribution. But collecting taxes is something that
requires a formal and transparent economy, not to mention information on who
earns what. Iranian government can only collate information about what it's
companies and some large corporations earn. The rest is a made up of series of
guess works. For example, Bazzaries (Traditional merchants) seldom declare their
true net worth or income to the authorities, and the authorities have no system
of finding out the true income of these individuals and companies. Another
problem is the informal economy. For example, major part of Tehran's economy, a city
of almost 12-15 million people, runs on an informal, off-the-book system, making
taxation extremely difficult. Then we have the various tax exempt charity
foundations that are involved in almost all aspect of the economy.
In Iran, by some
estimates, the Bonyads (charity foundations) control over 30% of the economy and
yet pay no taxes at all []. They are involved in
everything from vast Soybean and cotton fields to hotels to soft drinks to
auto-manufacturing to shipping lines to..... These foundations represent vast
economic empires that are neither taxed nor are directly under government
As charity organisations
they are supposed to provide social services to the poor and the needy. Yet
since there are over 100 of these organisations operating independently, the
government doesn't know what, why, how and to whom this help and assistance is
given. Lack of proper oversight and control of these foundations has also
hampered the government's efforts in creating a comprehensive social security
system in the country.
These organisations also
compete with other private actors in the country. Private companies find it
exceedingly difficult to compete with such large corporations, since they
(Bonyads) have both the political and financial muscle to compete in any given
market segment for as long as they like without considering the profitability of
their ventures. These Bonyads, by their very presence, are hampering healthy
economic competition and growth.
Another problem facing
the government is the subsidies. Subsidies in general are either paid in cash
(like food-stamp in US) or child support allowance in Norway, or are
paid to the manufacturers of goods/services to reduce the actual prices of
goods/services. In the former case, the subsidies are targeted at a particular
group, such as unemployed or families with children. In the latter the subsidies
cover the whole of the population. This means that a person, regardless of
his/her financial situation will benefit from those subsidies.
One of the most pressing
issues in Iran today is the mushrooming energy
use and the amount of hard currency that is going into subsidies. The government
imports over $7 billion dollars worth of petrol per year. Yet the price of a
gallon of petrol is only 33 cents. This subsidy does nothing more than encourage
smuggling of petrol to the neighbouring countries where prices are higher. It
also removes any incentive for the consumers to save on their energy
consumption. These subsidies also create an environment in which manufacturers
become complacent and not only do not conserve energy in their production
activities, but also do not try to build energy efficient appliances and
machines; simply because their consumers do not pay attention to the product's
energy consumption. Based on energy consumption, Iranian made cars, freezers,
refrigerators, etc. will not be able to compete with the similar sized Japanese,
American or European products.
Red Tape and
In Iran, if you
want to do anything such as changing money at the bank or starting your own
business or anything else for that matter, you have to fill-out many forms and
spend hours going from office to office. Often a paper has to be signed by
different individuals in different offices in different building in different
areas of the town. One can easily spend several days trying to get different
officials' signatures for anything from starting a business to getting a driving
Much of the government's
information collection and processing is still paper-based and there are
virtually mountains of files being kept in offices around the country.
Computerisation is under-way, but for the time being millions of hours of
people's time are being spent taking forms from offices to offices, increasing
inefficiency, traffic and frustration.
Couple this kind of red
tape with state owned industries and you get a sure way of turning billions into
millions. Government run industries
usually are less efficient than the privately owned industries. Couple this with
political interference, nepotism, cronyism and general corruption and you get
industries that produce goods and services of questionable quality at the
highest possible prices. Since the losses are covered by the government, the
pressure to improve is minimal. The losses are either covered through the budget
or through loans by state owned banks. In other words, the funds that could have
been made available for economic growth through the private sector, is tied-up
in keeping inefficient and loss-making industries alive. For instance it is
calculated that each year over one billion dollar worth of electricity is wasted
due to the inefficiency of the Ministry of Energy.
"Some 30,000 Gigawatt
hour electricity equal to the total electricity generation of some 30
Boushehr-like nuclear power plants is wasted annually in Iran.
Some 18.5 percent of the electricity produced in Iran is wasted
before it reaches to consumers due to technical problems and mismanagement in
the Energy Ministry, a former supervisory body in the ministry told
Electricity wastage is
not the only problem. Iranians use and waste water like never before. According
to deputy head of Iran Water Resources Management Company for planning and
economic affairs, Alireza Daemi, Iranians use almost double the amount of water
as Europeans use. "It is no secret that water consumption level in Iranian
metropolitan areas is higher than the average rate recorded for most developed
cities in other parts of the world. For example, the per capita water
consumption in European cities is 140 litres per day, while the related figure
in Iran nears 300 litres. By raising
public awareness on the cost of producing water, the government hopes to
encourage people to rethink their consumption patterns. This is more like a
cultural gesture. The UN Third-Millennium Development Goal for the water sector
indicates that setting the value is one of the strategies for correcting water
consumption models" Daemi further said that a major challenge for the government
is to put in place optimum water consumption patterns in the household sector.
"Potable water wastage in Iran is higher than the global rate,
while the industrial sector is failing to properly manage its waste often
allowing it to trickle down to rivers, causing irreparable damage to the
Voltaire once said that
when it's a question of money, everybody is of the same religion. When it comes
to corruption Iranians are no different than Saudis, Egyptians, Americans or
Norwegians. Religion of corruption is the same all over the world: money and
power. Corruption is usually the result of three things, lack of transparency,
lack of regulations or too many regulations. Paradoxically, you'll find all
three conditions in Iran.
Transparency is vital in
fighting corruption. In Norway for example, everyone's total
declared income and taxes paid is available to the public. All government
contracts are similarly open to scrutiny. Also at the end of every year, banks
issue each of their customers an end of the year statement, detailing how much
money they have in their account(s). The customer is required by law to declare
that to the government. In such
circumstances, it is very difficult for someone to earn anything without paying
taxes or hiding how he/she earned that money in the first place. No one is
exempt. I know how much the Norwegian prime minister earned last year and what
his net worth is. Unless he uses dummy companies, keep cash under his mattress,
or carry a suitcase of cash out of the country (not possible because of high
security levels at the airports), he has no way of avoiding declaring his
income. This and other rules and regulations limit the level of corruption in
Norway is ranked 8th
in Transparency International's Corruption Perception Index. Iran was ranked
105th out of 163. The most corrupt nation was Haiti (163rd).
or its Corruption Perception Index does not show any sign of improvement. In
2003 when Iran was first included in the list,
it was ranked as the 78th out of 133 countries examined. In 2004 it was ranked the
87th out of 145. In 2005 it was ranked 88th out of 158
countries and in 2006 it occupied the unenviable 105th
The lack of transparency
is one of the most important problems facing Iran. Only
through complete transparency in financial affairs of the government and Bonyads
(charity foundations) that Iran can begin to clean itself of
this scourge of corruption. Corruption increases inefficiencies and hampers
economic growth. Corruption eats at the social fabric of the society, changing
people's perception of important values such as honesty, loyalty and hard work.
Lack of financial
regulations such as the ones described from Norway has
allowed people to amass fortunes without anyone asking how these people have
earned so much money in such a short time. Large sections of the economy
(Bonyads) are beyond scrutiny. Other important sectors such as the traditional
Bazzars are also opaque and often operate without proper supervision and
regulations. There are virtually millions of people who do not pay taxes and
hence operate outside the formal
While lack of regulations has
allowed individuals and chosen corporations to avoid taxes and scrutiny; the
small private companies are being suffocated by myriad of paperwork and forms.
In Iran, like in many other countries,
it is the small companies that create the jobs and the economic growth. Yet they
are being squeezed as never before. They have to deal with bureaucracy on one
side and the competition from large, unregulated and supervised corporations on
the other side. It is then not surprising to see that many choose to invest in
real estate instead of manufacturing, transportation or farming. Getting
necessary permissions, licences etc, is a nightmare. And god help you if you
want to import components or raw materials necessary for your
Recently the Judiciary asked people
(through advertisements) to report the wealth of the government officials to the
said authority. []
This financial scrutiny is based on the amended article 142 of the constitution,
where the wealth of the Supreme Leader, the President, his cabinet members,
other high officials and their families are to be examined by the judiciary both
before and after their period in office. This is fine as long as the results are
presented to the public.
Iranian government is one of the
biggest employers in Iran. It is involved in oil, gas,
mining, construction, electricity generation, telecom, transportation and lots
of other industries, many of which have not made any profits for a long time.
These companies are a major burden on the government's budget and on the
economy. Privatisation seems to have been accepted as a solution to the problem.
That is until Ahmadinejad came to power.
Ahmadinejad's idea of privatisation
was vastly different from the previous governments. He wants to distribute the
shares of the companies equally between the people, while others would like to
sell the companies to the highest bidders.
"The member of Tehran Chamber of
Commerce (T.C.C.) representative board in an exclusive conversation with T.C.C.
news site said: "The justice share is not a part of privatization. Maybe the
result of division of 80 per cent of government share between people equally, is
satisfactory but the people can not manage even 10 per cent of these shares
because they have not expertise in management. So the government will manage the
"The main purpose of privatization
is the change of management to increase returns and create additional value in
economy for more development", he added.
He said: "The government is against
the privatization. The reason for delaying in this process is related to the
reluctances of officials."
"The privatization is a double side
process: the private sector that should invest in economy and purchase the
companies, and government sector that should accept to delegate its properties.
Now the government throws a monkey wrench into privatization process. The
government must be restricted for investment and can only invest in especial
field such as security and information ", he added." []
The problem with normal
privatization in Iran is that majority of people do
not have the money to participate in such auctions. Who has the money? The
Bonyads and others who already have a stranglehold over the economy. Without
proper laws and safeguards, privatization may lead to creation of huge
monopolies in the country. We must not forget the Russian experience, where
privatization was seen by the people as wholesale theft of the country's
resources by a few individuals.
Privatization is the best solution
for Iran, but it can only be done after a
systemic revision of laws. Anti-monopoly laws have to be strengthened and some
large state owned companies have to be broken into parts before
Government must also strengthen its
social security services before any large scale privatisation can take place.
Any privatisation will definitely lead to large scale lay-off of part of the
work-force which can lead to social upheaval. The country is already suffering
from high unemployment and under-employment. Any sudden increase without social
safety net (such as unemployment benefits, retraining programs, etc) may well
result in large scale protest against the government.
Prior to any privatization,
government owned companies have to be turned into limited liability companies
with government as the majority share-holder. These companies should then be
managed like other private companies. When the proper social security system
along with anti-monopoly laws are in place, then the shares of these companies
can be sold to the public. It would not be a bad idea for the government to have
a closer look at the Nordic system of privatization.
Iran with its tremendous
natural resources and a young educated population has the potential to become an
economic power house for the whole region. It has the potential to grow at 8 to
10 percent per year for the next two decades. Yet, year after year it grows at a
mediocre rate and even that growth is dependent on the price of oil. The country
suffers from lack of transparency, lack of regulations where it counts and over
regulation and heavy bureaucracy where it isn't needed. In other words,
Iran suffers from systemic problems
that can not be addressed piecemeal.
The current high inflation, unemployment, underemployment and corruption
are symptoms of these systemic problems.
Ahmadinejad's economic policies
certainly can be blamed for the current increasing inflation and unemployment.
But he can not be blamed for everything that has gone wrong in
Iran. Factionalism, push and pull
from special economic interest groups, pervasive corruption, smuggling, bad
management of state owned companies, badly planned subsidies, lack of
comprehensive social security and health plan, lack of proper system for
economic information collection and taxation are just a few of the problems that
have existed long before Ahmadinejad became president.
The first step in the right
direction is to improve the economic data collection system of the country. It is vitally important for the
government to know who (individuals and corporations) earns what. Only through
access to this information can the government create a workable taxing system.
Only through this can the government begin to reduce corruption, target
subsidies, reduce inequality and plan for the future.
The next step is to create a
comprehensive social security system where people do not have to rely on charity
foundations. These foundations have to be sold-off and the proceeds included in
a social security fund for the country; other wise over time, these entities
will become so powerful that they will become the effective rulers of the
The Iranian economy is now in stable
condition going towards critical. As long as United States is threatening Iran, and with Iraq as an
example of what can happen, people are willing to accept any kind of hardship.
But once that threat is removed, people will demand an improvement in their
standard of living, something that current economic system is unable to deliver.
In the current economic environment, increasing salaries only increases
inflation and unemployment.
The last three Iranian presidents
have tried to tweak the system in various ways to optimise it without any
success. They all had learned men advising them on the best way to manage this
sick economy. Yet none succeeded.
It is perhaps time for learning from others. The current learned people
in Iran may be masters of squeezing all
that is possible out of the current economic system, but that is not enough. It
is time to change the economic system and try new things. It is perhaps time to
become a learner again, for as Eric Hoffer (writer) once said "in times of
change, learners inherit the Earth, while the learned find themselves
beautifully equipped to deal with a world that no longer
About the Author: Dr. Abbas Bakhtiar lives in
Norway. He is a management consultant
and a contributing writer for many online journals. He's a former associate
professor of Nordland
Copyright Abbas Bakhtiar, all rights
... Payvand News - 1/25/07 ... --