Perspectives - Is Support for Domestic Production Possible in Iran?

Ayatollah Ali Khamenei, the leader of Iran, set a new slogan for the upcoming year at the beginning of 1397 (2018), similar to previous years. This slogan has been economic in recent years. The Supreme Leader stated that the main issue of the new year, like previous years, is the "economy and the livelihood of the people." He named 1397 as the "Year of Supporting Iranian Goods" and said that if national production accelerates with collective effort and follow-up, many of the people's livelihood problems and issues of employment and investment will be resolved, and social harms will significantly decrease, according to him. In the first reaction to the Supreme Leader's remarks, Eshaq Jahangiri, the Vice President, announced that no government agency has the right to purchase foreign goods with government budgets. The Supreme Leader had also named 1391 (2012) as the "Year of National Production, Support for Iranian Work and Capital." Khamenei's emphasis on the economy comes at a time when some experts consider the activities of economic and military institutions under his supervision as part of Iran's economic problems. In this week's program, we addressed the issue of supporting domestic production and posed the question to two experts: Is it even possible to support domestic production in Iran? This week's guests are Kamran Dadkhah, a university professor and economist in Boston, USA, and Ahmad Alavi, a university professor and economist in Sweden. Mr. Dadkhah, we have heard all of Mr. Khamenei's remarks. How much do you agree with his statements? How much do you think we should support domestic production? The statements made by Mr. Khamenei and generally by Iranian leaders are only useful for themselves and have no value. Therefore, what I am discussing is not based on his words. These Iranian leaders were the same ones who wanted to provide free water, free electricity, and free buses in Iran. Even Mr. Ahmadinejad, who caused havoc in the country, now talks about freedom, etc. Therefore, I have no comments on his words. But the reality is that a government must support domestic production and the internal economy. However, this support has a very specific meaning: first, security must be established, competition must be possible, innovation must be possible, and investment must be allowed. People must be free to choose and carry out their work. Second, support means not allowing foreign goods to come in and compete under unfavorable conditions. How is this done? One way is to artificially keep the value of the rial high by keeping the dollar's value low, which means the government subsidizes foreign producers. Currently, by keeping the dollar price low, it is possible for "smuggling brothers" to take these oil dollars abroad and bring in cheap Chinese goods, filling the entire Iranian economy with them. Therefore, when we talk about this, [its necessity] is that the possibility of excessive imports from foreign countries must be prevented, and subsidies should not be provided by keeping the dollar's value low. You can see that China keeps the yuan's price low to advance its economy, and Europe and America have raised their voices over this issue. Meanwhile, Iran is doing the exact opposite. The last issue I want to mention is that if we want to have a strong economy, corruption must not exist. If it is possible to reach any money by paying off individuals or through activities like the IRGC's productions or the Astan Quds, why would anyone need to take risks and invest? Lastly, I would like to add another important point. If the government truly wants to support domestic production, it is essential to create a good infrastructure in terms of roads, communications, and relations with other countries. If you look back over the past forty years, at all these stages, the Islamic Republic has struck at Iran's economy, which today could have been one of the top economies in the world, one of the top fifteen or twenty economies, but has fallen into this miserable state. Let's ask the same question to Mr. Alavi. How much do you agree with Mr. Dadkhah's statements? Do you agree with supporting domestic production in Iran or not? Of course, the points my esteemed colleague raised are accepted by many or all economists. That is, real mechanisms must be created, and certain conditions must be established in Iran's economy to genuinely make it production-oriented, and of course, slogans alone cannot achieve this. Ironically, the institutions managed by Mr. Khamenei, such as the judiciary or the Foundation of the Oppressed or the Executive Headquarters of Imam's Command, should be examined to see what they have done so far while he is now calling for the economy to become production-oriented. Furthermore, it should be noted that this slogan is not new. In modern Iran, which may date back a hundred years, this slogan has been raised, and governments have not succeeded in implementing it. Why? Because this is the issue. That is, governments or heads of state have raised the slogan but have not been willing to comply with the necessary and sufficient conditions for making the economy production-oriented. If Mr. Khamenei is interested in making Iran's economy production-oriented, he must first understand that the concept of becoming production-oriented in our time differs from the concept of becoming production-oriented a hundred years ago. It should be emphasized that becoming production-oriented is impossible with anti-foreign sentiment or national or religious chauvinism. Becoming production-oriented is only possible when the issue of improving the living standards of individuals within the country and citizens is raised, and improving consumption is discussed, all within the framework of the interests of the Iranian people. He should be asked, well, if Iran's economy is to become production-oriented, then within the framework of which social group's interests? Within the interests of the government or, for example, the Leader's household, or the people? If it is to be so, then this production must be done within the framework of the people's interests, and first, rent-seeking must be eliminated from Iran's economy. Of course, many of the institutions under his management are responsible for and function in rent distribution. And of course, military de-institutionalization. Is he willing to accept that Iran's economy should be de-institutionalized from military influence? Many of the institutions managed by the Leader of Iran are responsible for and function in rent distribution. And of course, military de-institutionalization. Is he willing to accept that Iran's economy should be de-institutionalized from military influence? Ahmad Alavi also stated that the state's involvement should be reduced, and investment should be directed toward research, development, and innovation instead of international adventurism. Additionally, another condition for making Iran's economy production-oriented is that tensions must be reduced in the international arena so that Iran's economy can operate outside the ideological and political frameworks that he envisions. Why? Because we need these conditions for the economy to become production-oriented. Furthermore, Iran's economy is not the economy of the Mossadegh era, which could be made production-oriented based on nationalism or emotional appeals; rather, it must be production-oriented considering international comparative advantages and capabilities. No country's economy can become completely self-sufficient based on slogans and organized against foreign entities or outsiders. Therefore, to summarize, [for it to become production-oriented] conditions are necessary that are not available; ironically, the Leader's household and he himself are obstacles to the economy becoming production-oriented. Mr. Dadkhah, Mr. Alavi mentioned the military and stated that military de-institutionalization is necessary. You also referred to this issue in your remarks. We know that the IRGC plays a role in most economic contracts and has significant rent-seeking in this area. What do you think the solution is? Is it possible for the IRGC to be removed from economic contracts? As many have said, even Mr. Rouhani has said this, these are brothers who have money, can detain people, and have weapons. As a result, the economy that has been created is a mafia economy. And under normal circumstances, it is not possible for this to be corrected, especially since those in power, those who have command and leadership, have their interests tied to this. They are filling their own pockets and those of their relatives and their children. In appearance, something is said, they say if you want to be treated, go to the Astan Quds. But when they themselves get sick, they immediately go to Germany for treatment. Therefore, a series of statements are made. Given that the IRGC has weapons and power and has infiltrated various places, this is not easily achievable. The reality is that the only possibility that exists is if a war occurs, if a massive collapse happens, and issues are resolved in a different order. Otherwise, this will continue. We can look at other countries, at the former Soviet Union. They committed those atrocities. Then when the regime collapsed, Putin came and fixed those issues. Germany is another example. But Germany suffered a massive defeat, and after World War II, Erhard rebuilt the German economy on a different foundation. Therefore, if I were to predict, the possibility that the IRGC will relinquish its interests under normal circumstances does not exist unless a significant event occurs outside the IRGC's power that corrects these matters. Mr. Alavi, you mentioned the IRGC. The other issue is sanctions. Iran has been under sanctions for years, and this has affected its economy. Can you tell us about the impact of these sanctions? These sanctions are not new and are mostly politically rooted. The Iranian regime's motivation for exporting the revolution has been present from the beginning and led to a war, a war that if someone speaks privately with these people, I doubt anyone would defend it. After that, there is the repression of internal forces. These internal tensions are one of the factors for capital flight and the inability to attract investment. Besides these internal tensions that we have had and still somewhat exist, we have also had external tensions. After all, these people wanted to export a certain type of clerical Shiism to the region or even African countries. This is, of course, not limited to their governments; it is not limited to the global community, which in our time, again beats the drum of sectarianism. Because the experience of sectarianism shows that sectarianism is incompatible with development, progress, improved living standards, and consumer welfare. These tensions, as I said, have caused capital flight and the inability to attract investment, and have even led to more sanctions and isolation for Iran. All of these conditions have led to Iran's economy shifting from a normal economy aimed at increasing and improving living standards, increasing per capita income, and economic growth, to strengthening military power. We are currently witnessing two bureaucracies in Iran: one is the bureaucracy of the Supreme Leader's office, which includes Friday prayer leaders and their affiliates in cities, and the second is the military force. No country can optimally allocate its resources to production with two bureaucracies, two military forces, and no country can emphasize productivity while creating internal and external tensions that lead to capital flight and the inability to attract investment. As we have examples from South Korea, even Sweden, one of the important factors in Sweden's economic development was its non-involvement in World War I and II. Swedish economists all emphasize this view. Even other countries. Because the goal of a war economy is something, and the goal of a normal economy - which is public welfare - is something else. These tensions, of course, have led to Iran's isolation, and this year, in the new year, we are hearing whispers of new sanctions. Given this international adventurism, given the motivation to export this clerical Shiism to other countries, and [given] this internal and international tension, how can a domestic producer focus on improving production quality or entering international markets? In practice, Iran's economy is an isolated economy, and therefore the condition I mentioned earlier is not available for it to become production-oriented, and ironically, there is a contradiction in Mr. Khamenei's statements, which is that on one hand, he emphasizes exporting the revolution and anti-Americanism and anti-Westernism, and on the other hand, he wants a productive economy. We do not have any empirical evidence in the world that such an economy can be made productive; theoretically, there is no reason to argue that such an economy can follow the path of becoming productive amid these internal and external conflicts. Today, we cannot assume that we are a tribe and have built a wall around the tribe and want to live there. The world is a unified world, and we must be connected. If Iran's economy is to progress, it must have relations with other countries and the possibility of exports must exist.