Implications of Economic
in Iran Today
insecurity in the economic literature differs from what is considered at the
community level. Hussein Abbasi, a member of the US Department of Economics at
the University of Maryland, emphasizes that if we confuse the boundaries of
economic insecurity with economic concerns, then government policies and
interventions will go astray. It is as if the government, by allocating
foreign exchange (42,000 rials per USD) last year for travel, virtually
donated cheap foreign travel to those who were not economically insecure. If
the definition of economic insecurity extends to this gender of prosperity,
then the group that is literally in economic insecurity will be neglected.
Abbasi explains the concept of economic insecurity in the following interview.
If we specifically want to talk
about the last two years of the Iranian economy, have the consequences of
economic insecurity been more for the downstream groups?
Yes, when the economic situation is good,
everyone will benefits, and when the situation is bad, everyone will lose. The
problem is that if there is a rent, when the economic downturn is in place, a
very small group may benefit enormously, making the nation very angry and they
have the right to be. When there is a rent, this always happens. The root
cause of these issues is either government control or the existence of double
prices at some point in the economy.
At the point where the government controls and
takes over the distribution of a resource, it is the source of the rent, and
in bad circumstances, the rent goes to “cousins” and people are angry. In bad
circumstances, people naturally have assets that can be used as risk cover,
such as gold, home, venture capital, and so on. Those who do not have these
assets fall into the trap of economic insecurity.
Unfortunately, in the last half century,
governments in Iran have proven that they do not think directly about the
distribution of income. Government policies are consumer welfare policies that
the lower classes may use as bread subsidies and may only suffer losses, such
as fuel and gas subsidies. Consequently, in bad circumstances, given that the
government has no ambition to identify the group that really suffered from
economic insecurity, policies may also be policies that do not cover the lower
The government goes ahead with the same trend
and formula as “Dear Consumers! I will provide you welfare.” No matter how
much the government was told that if you give 42,000 rials per USD for each
commodity, it would not be possible to set the price at the same rate and we
saw the result.
It seems that whenever the
external threat to the economy of Iran and the country is affected, economic
security is at stake. What is the origin of these threats: inside or outside?
In economic dimensions such as the Iranian
economy, you cannot answer this question very explicitly. We are not a village
to die of starvation if we are sieged. We are a big economy of 85 million. Of
course the external threat will work and there is no doubt about it. Without
connecting with the world, we are getting worse every day. But our
deterioration may be at a negative 10 percent growth rate, maybe at zero or
even positive one or two percent. There is a distinction between the two.
Without outside contact, you cannot have more
than two percent economic growth. But when you have an external threat, the
economic growth rate slips to zero or minus one percent; when you are in the
wrong forex policy the growth rate is negative 9 percent. That is, considering
any external threat, you must multiply the degree of economic imprudence to
determine its outcome. If your degree of economic imprudence is low, the
effect of the external threat is low, if the degree of economic imprudence is
high; the effect of the external threat is high and people pay the costs.
Can we witness the presence of a ‘Kamal Darwish’
in the Iranian economy under the current circumstances?
That inflation is an economic issue is 100
percent true. Inflation was once unknown to economists, but its time in the
world is now over. Among our economists at Iranian universities you can find
at least 20 Kamal Darwishes under 40 years of age. But we take our Kamal
Darwishes from the decision-making circle. We have no problem with shortage of
Kamal Darwishes. The problem is with the politician who has put his hand in
Look what the President said in one of his
recent remarks: “Economy is not books; some think economy is books.” With such
a line of thinking at its highest level, no Kamal Darwish and even no Milton
Friedman can do anything in Iran. For example, they made the bad economic
decision about the foreign exchange rate and removed anyone who disagreed with
them and then said they all agreed. Later, however, the media announced three
opponents of the meeting, one of whom was Dr. Masoud Nili. You don’t find any
Kamal Darwish like Dr. Nili who understands Iran’s economy.
Apart from Dr. Nili, you can find 20 Kamal
Darwishes at Iranian universities, each of whom can perform better than the
government’s economic team. The question is not the presence of a Kamal
Darwish; it is about a politician who must understand that economics has
principles and must be governed by these principles, and until that happens,
Milton Friedman himself can do nothing for the Iranian economy.