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June 2020, No. 94


Economy

Iranian Economy’s Meager
Productivity Share


In the book “My Battle”, Adolf Hitler makes it clear that the future of Germany is tied to the East, that is, the Soviet lands.


Saeed Leylaz,
Economist


 The Soviet Union is remembered in the world with unique symbols such as the idea of ​​equal bread, the aggressive government, decisive politicians, overwhelming military power, but overwhelming poverty: Words that in the literature of systemic collapse draw us to a mysterious corridor.

The same is the pain of all justice-loving governments that by increasing their size in the public arena, civil society is marginalized and monopolized. In this way, helplessness becomes so overwhelming that a sudden collapse, like a flood carries everything and everyone with it. To discuss this, we interviewed Saeed Leylaz, an economic analyst on the achievements and economic failures of the largest communist government in history.

 

Some see the Soviet technical and technological success as an indication of its economic success. How true is this argument?

In the Soviet Union, there was a very clear picture of the inevitability of fascism attack and Western capitalism and they thought that the disintegration of the Soviet Union was the ultimate goal of emergence of fascism in Europe. To escape this inevitable fate, the Soviets signed a non-aggression treaty, or Molotov-Ribbentrop, which is nowadays referred to as a black spot in Soviet history, while being one of the brightest acts that could have been carried out to prevent that inevitable attack. They were able to get a good opportunity.

In the book “My Battle”, Adolf Hitler makes it clear that the future of Germany is tied to the East, that is, the Soviet lands. With this clear picture of the future, the Soviet decision to achieve the Western style wonderful breakthrough takes only 10 years, and in 1937 they officially proclaim the victory of socialism. Not only is the socialist system established, but the Soviet Union turns to an industrialized state from a medieval peasant state: A country that bears the brunt of World War II. Interestingly, it was the West that defeated Hitler’s Germany while the Americans entered Europe only eight months before the end of World War II, until they were convinced that the Soviet Union would definitely defeat Germany and take over all of Europe they did not enter Europe.

 

Was the Soviet Union really an economic superpower?

Not at all! Alongside the Soviet economy, there are other major issues that are prominent. The Soviet Union entered a bureaucracy in such a way that Leon Trotsky predicted in the late 1920s in the book “The Permanent Revolution” that the Soviet Union would collapse as a result of bureaucracy. In his book “State and Revolution”, Lenin says that “the state machine will fail in a communist system, but since we have not yet reached a communist system, we must take the state machine and turn it into a tool of bourgeoisie repression by the proletariat.”

Just like the Iranian experience, the Soviets created a parallel entity alongside any existing government entity. It dissolves the White Army and creates a Red Army and launches popular mobilization forces. And this bureaucracy, which occurs due to ignoring free market mechanisms, given the very young Soviet population at that time goes to the extent that by 1984 the number of Soviet government employees stands at about 18 million (about six times the current Iranian economy) and forms one of the largest states in the world.

Trotsky predicts that this bureaucracy will become the hanging ropes of the Soviet government, which it did. The second cause of the Soviet collapse is the resemblance of socialism to a utopian system. A system whose frameworks are not based on human instinct but on a human basis and based on specific human readings. A Utopian system needs people who are thorough, educated, and clean, but that is not practically possible. Freedom and equality are enemies of one another, and the basic problem of the Soviet Union was that it wanted to establish equality, but it killed freedom, and when freedom was killed, the impetus as the engine of progress would be removed from society. The socialist system has an inherent contradiction that does not occur except in a utopian state.

As a result, when the Soviet Union collapsed in the wake of that dreadful bureaucracy, by the mid-1980s, the number of paid pensioners exceeded the total active labor force. Under this condition the Soviet government could no longer maintain and manage the situation. The Marxist ideology was quite contrary to the nature of the American liberal system, which would enter only where its interests are served: The mechanism that led to the boom of the economy in the United States and created domestic private giants. What happened in Soviet Union was exactly the opposite.

 

What are the lessons of the Soviet collapse from the perspective of economic management for policymakers in other countries?

Any planning system, since it produces special effects and implications that are beyond human expectation, comes only from God. In 1397 (March 2018 – March 2019), the guaranteed purchase price of wheat from farmers in Iran was kept constant compared to other changes, prompting the government to buy three million tons of wheat less even though wheat prices had risen five percent. For this reason, farmers preferred to smuggle their crops, which made the government to control the movement of wheat between the provinces, something that leads to corruption of the monitoring agency.

As a result, the farmers in order to avoid the imposition and counter the monitoring system were forced to use their wheat as livestock feed. Each 9 kg of wheat was priced at approximately 140,000 rials. In contrast this produced 1 kg of meat that the farmer and livestock breeders could sell for 500,000 rials on the market.

This was also the case in the Soviet Union, where the seeds were sold by the government and this sparked retaliation by farmers. The socialist government was under the pressure of death and life from the outside and about 15 million farmers were involved in the conflict domestically. The result was unpromising. This situation is inevitable when you get out of the natural mechanisms of the economy by forcibly resolving bureaucratic problems.

 I am not opposed to “any” government interference in the economy, and I believe that in many cases, when the social structure of countries is fragile, such interference is inevitable. The more the government willfully or unwittingly intervenes in the economy, the more it will spoil corruption, which was what actually happened in the Soviet Union. When the coup against Khrushchev and his liberation thesis took place, it was a coup against the emerging new class coming out of Khrushchev’s policies.

No one, like a Marxist, understands that when economic liberalization occurs and 25 percent of the country’s food production is done by a group that has taken advantage of this economic freedom, a socio-political effect emerges in the society, and this society can no longer be sustained by a single-party system. For this reason, when the coup against Khrushchev began, Soviet economic productivity began to wane. Double-digit economic growth is suddenly monolithic, and by the second half of the 1970s, economic growth plummeted to two, three percent, and even zero, while in 1985 about 102 million people retired and only 100 million active work force exists. This is a mirror of the future of Iranian society.

 

How close is the Iranian economy to the Soviet economy in terms of management, and can there be a wakeup call or warning for Iranian economic policy-makers from the Soviet experience?

This is definitely a warning for our country. Iran’s economy is the most communist non-communist economy in the world. In the non-communist countries of the world, we have one of the most communist ways of governing the country. I am not against social support for the lower classes. If we want a 100 percent free economy, then the proletariat will be free to hit under the playing table. One cannot ignore the fragility of the social structure, but if as a result of rising oil revenues, governments feel they can run the country without people’s help and productivity, its inevitable consequence is that the economy will collapse in terms of productivity. Between 1970 and 2012, the share of productivity in US economic growth averaged 39 percent, in China 31 percent and in Iran nine percent.

Now, if we add 2012 to 2019 to Iran’s share the total will not reach even seven percent, and the share of productivity in the Iranian economy is negligible. These statistics mean that all of Iran’s economic growth has been largely through the “drowning” method and capital injection. While up to 40 percent of the world’s economic growth comes from productivity today. This productivity is not achievable in a system with undisputed domination. The guaranteed purchase of wheat in 1397 (2018/19) confirms this claim.

While the government is under economic sanctions, it is natural that it should pursue a policy that would increase wheat production, but with a specific bureaucracy deciding who should do what, it acts exactly the opposite. When productivity disappears and oil prices fall accordingly everything is disturbed. So the government has to quit the society, but as soon as oil prices rise, the government forgets everything.

On the whole, the collapse of the Soviet system cannot be examined with a one-sided, one-dimensional view. The Soviet Union is the most peculiar human event in resource allocation, and the move was so brilliant that after World War II, some Western institutions and even Harvard University in the United States promoted the necessity of planning in Third World countries, and the Plan and Budget Organization in Iran is an experience of this kind. The planning experience in Iran is the second such experience in the world. The achievements of the Soviet Union were so brilliant that they penetrated the heart of the American academic system and their think thanks to such an extent that the Third Plan of the former Shah of Iran was written in 1340 (1961/62) by Western institutions.

 Only two people in the world predicted that the Soviet system would collapse at its peak; Friedrich von Hayek in his book “Individualism and Order” in 1935 claimed the system would suffer structural and inherent problems. The other was Leon Trotsky who in an outlook different from Hayek’s predicted the Soviet Union would face structural problems and collapse.

In 1920, Trotsky says that if we were a hypothetical god and could have guessed all the relations of goods and services, a socialist system would be in place, and if not, it would be doomed to failure. In spite of this astonishing progress, which brought about 18 to 20 percent economic growth a year, in the Soviet Union they ignored structural problems and hurdles. In fact, this experience should be considered as a package because the Soviet Union is the greatest effort of human history to create an ideal society that failed.

 

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