The Forum for Partners in Iran's Marketplace

January 2020, No. 93


ďOil Free EconomyĒ
the Only Way to Save Iran

If we havenít followed the path China, Turkey, and the UAE have taken in recent years, the resulting imbalance in our economy is the outcome of government mentality and rent-seeking activities.

What happened in China during the inauguration of the Daxing international mega airport has once again drawn the attention of the public to Iranís failures in achieving development; but there is hardly anyone who could provide answers to these important questions: A response similar to what Ali Dadpay has given. The prominent Iranian university professor believes that the government in Iran has confused the economy with groceries.

Noting that the problems Iran is facing today originate from the mentality of the government and the society about the economy, Dadpay said the main cause that Iran has not made progress and the inability to launch large scale projects is the endless oil rent.

Associate professor of economics and finance at St Edwards College, Austin, Texas, US, believes neither wrong policymaking nor legislative issues are a major cause of Iranís backwardness; the cause is rather oil and its easy-to-use revenue as a strong incentive to drive the government out of tax and the societyís interest to get their share.  

Policymaking, adhering to long-term goals and objectives, competing with regional neighbors and global and regional competitors, or building political economyÖ What is really the main driving force behind the massive growth in Iranian counterparts such as Turkey, India, the United Arab Emirates, China and Malaysia that every year we are witnessing the Iranian economyís stagnation in creating new infrastructures and on the other side we witness the inauguration of Starfish mega airport in Chinaís Daxing?

I do not see the root cause of these problems in the weakness of the Iranian economy, but rather in the weakness of the government. Ironically, the economic elements in Iran are very capable, and in recent years have formulated various projects and mega projects that have been fallen into disrepair only because of lack of support or interest or even direct and indirect obstructions of the government and government institutions. If the government accepted the axioms, we would have a very powerful 80 million-strong economy with 15 countries sharing land and sea borders. Thousands of Iranians are actively involved in these countries and have shaped Iranís relations with these states. A brief look at Iranís economic map shows that private-sector activists from Dubai to Baku, Tbilisi and Baghdad have established economic ties with these countries without government support.

We have both the capability and the potential to design and deliver mega projects. Now, if there is no incentive in our country to succeed in super projects, it is rooted in the structure of statesmenís motivation and the governmentís mentality. If we havenít followed the path China, Turkey, and the UAE have taken in recent years, the resulting imbalance in our economy is the outcome of government mentality and rent-seeking activities. The governmentís constant effort to keep prices down artificially is an attempt to conceal its performance and focus on consumption rather than prioritizing economic growth. In practice, governments in Iran have been more involved in the economy than in economic expansion. That is why super-projects are neither a priority for the state nor a place for statesmen to evaluate the success of the state. 

But many believe that given the propaganda aspects of implementing these projects, the Iranian government should be keen to build public and welfare infrastructures in the country. How true is this statement?

I donít agree. There are no major projects in Iran because the government does not need to open such projects. When Imam Khomeini International Airport (IKA) was inaugurated, could the government make full use of its cargo and passenger capacity? What is really needed to spend billions of dollars building huge airport complexes like what we see in Dubai, Istanbul or Beijing? We have already deployed the IKA at one-fifth the capacity and in this context, comparing the volume of cargo potential at the IKA and Dubai Airport is more like a joke. In such circumstances, the government does not feel the need to move in the same way as the governments you refer to. If the private sector wants to take action they will prevent it. The goal of Iranian governments has always been to control the economy rather than expand it. 

In the last four decades, we have seen relatively few projects that we have been able to construct fully and in a timely fashion and incorporate them into an ultrastructure. Where are the drawbacks?

We look at a project as bread! For a long time, the well was drilled in Iran to earn bread, not water! In Iran, the project budget line is more important than the project itself. Since the government is not an active private sector and does not have the private sector outlook on the economy, it does not care about monetization of large projects after inauguration, so anyone who implements the project has no hope of project income after inauguration. This is the cycle that has taken place in Iran and the result is that the government and the contractor can extend the project implementation time to the benefit of the project.

The only way we can solve many of these problems is to cut back on oil revenues and oil to meet the economic realities that exist everywhere in the world.

Let me give you an example. We have for many years believed that Iran tourism has a high potential for revenue generation and that it is necessary to use this potential to build a hotel. But you can only build a hotel when its income horizon exceeds the hotelís construction horizon! In government projects it is often the construction project itself that has the bread and butter for the contractor and the beneficiaries so it is not surprising that the process will continue forever. Many inside the country now say that the United Arab Emirates and Qatar have established international airlines by copying from Iran. They are right!

This is the same strategy of the Iranian aviation industry in the late 40ís and early 50ís that, using Iran Air and airport design, were intended to become a transit hub for travelers between Asia and Europe. Well we couldnít do it, but they could. People who constantly criticize this question do not once ask if we were able to solve the problem of the foreign transit passengersí hijab (Islamic dressing). Well we couldnít solve this! We were unable to provide conditions for those foreign travelers who did not wear hijab in an enclosed building at the IKA in order to receive transit income. Then how do we expect to solve our big issues or do a mega project? 

What is the main policy making and decision making of governments in these countries? Is it merely the public interest that influences policy making or does the need for new revenues and the attraction of investment to increase production drive the design and implementation of mega projects by powerful government, administration, or actors?

In all of the countries mentioned, the government in its macro management has taken into account critical issues such as expertise and commitment or scientific and technical capability while also considering economic realities. Together, these countries and governments do not fall into the trap of self-deception. I personally believe that the Iranian society is extremely unfair about the reasons for development in the UAE. Because it ignores the realities of this sector and considers only the petrodollars as a factor in its development.

In fact they have separated their way from ours for decades. We and the UAE have a lot of oil money, but they have invested the money and resources, expanded their trading and transactions, boosted their private sector with oil resources, and focused their macro goals on making their economy bigger and wider. But we not only did not develop but reduced our private sector with oil resources. It is a convincing proposition that since the rise to power of Mohammad Reza Shah, the private sector has been steadily shrinking. Why did that happen? Because the government has introduced its oil money as a substitute for the private sector, it is expanding its economic role every day. On the other hand, the government in all the leading countries mentioned here knows exactly the meaning of economics. 

What changed the perceptions of Chinese and Turkish rulers that made their policy making more purposeful in line with the modern world?

When we read the history of China, we are shocked by the deaths of 65 million Chinese as a result of government blunder. From time to time, the Chinese government realized that it could no longer afford to pay for its mistakes, so it tended to adopt a model of free economy to provide its people with food and water. The subtle point here was to cut off the hope of the extraordinary power of the state created in the minds of Chinese statesmen. They realized that the government was neither capable nor had the resources to do all the work.

Therefore, to solve the problem it focused on the ability of all members of the society: An incident overlooked in the analysis of free market economies and competition theory. In these economies, one person does not do all the work but the final goods are the result of the collective efforts of all people and strata (insiders and outsiders). It is here that it becomes a public mentality that the game is defined for all and has room, so that the individual benefit or economic benefit puts the individual and the firm on the right track. Something that has been the opposite in the state economy and the government wants to do everything on its own to make a profit, but it canít. In todayís Iran, doing an economic activity is not an everyday occurrence but a concession from the government to someone close to the government. In this situation it is natural that because of the interests of certain people, a large part of society is not even allowed to do business. 

How decisive is the complex relationship of the political system and the economic system in experiencing similar conditions with China in Iran? Is there a time for a change of course by the government in Iran?

The only way we can solve many of these problems is to cut back on oil revenues and oil to meet the economic realities that exist everywhere in the world. I do not know and do not imagine that this would be possible in Iran. This is a practical and political issue. As long as our definition of power is focused on controlling peopleís behavior, that jump will never happen, and the government or political system will never be honest in bringing everyone into the game with every vote and opinion. We are in a situation where a minority in the community is taking advantage of the oil rent to consolidate their position, and issues such as mega projects or the development of national ultra-structures are being discredited. We have been writing articles and stories about the potentials of the Iranian economy for years, but our potentials remain as illusionary as ever, never realizing the color and size of regional competitions. As long as we use oil rents in this social equilibrium and receive many benefits without paying for it, we will not be able to break the current situation. 

And where do you think the starting point for the new trend is? Suppose we wanted to get on a road that Turkey, China and the UAE had already gone. What changes should our policy, mentality, and decision-making take?

It is an all-encompassing task and requires a wide range of changes. The first step is to change the fight against corruption, along with removing the role of government from projects. When these two occur then we must move to decentralization and allow each region of the country to implement its own economic strategies and, based on its strengths and potentials, seek to attract investment to increase employment and productivity. We need to create the conditions in the country for individuals and groups to do their jobs and flourish without the need for the government. Iranís economic development needs government support, but with a monopoly state and this pervasive and interventionist government it will only reach a dead end.


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  January 2020
No. 93