State-Centric Economy

Among the ten economic constraints of Iran mentioned at the beginning of this discussion, this article examines the first constraint, which is dedicated to the "state-centric economy." The issue of the government's role in the economy has been one of the most important and, at the same time, controversial chapters of social sciences over the past two centuries and continues to be one of the factors creating political conflicts here and there. The classical political economy school, of which the Scottish economist Adam Smith is one of the most renowned founders, reduces the role of the government to its sovereign duties (police, soldier, and judge) and considers an economy efficient that follows only the interactions of the market without government intervention. The market, from his perspective, is the intersection of supply and demand for goods and services and leads to optimal resource allocation and rational division of labor by providing the ground for a permanent exchange between producers and consumers. This is a theory that was formed under the title of "economic liberalism" or "market-centric economy" in early 19th century Western Europe, and since then, a great number of the world's brightest thinkers have either defended or opposed it. In stark contrast to classical liberalism, the theory known as Marxism-Leninism entrusts the organization of the economy entirely to the state, which, as the representative of the proletariat, seizes power from the bourgeoisie through revolution and monopolizes all means of production in the name of the "toilers." The October 1917 event in Russia, which has reached its centenary, established the most complete form of a state that not only took over sovereign duties but also emerged as a state entrepreneur, merchant, and banker, replacing the market and its role in the economy with centralized planning. Following the economic failure of the "socialist camp" and major transformations in China's economy and the fall of the Berlin Wall, the "market-centric" economic model has practically become the only existing model in the world, without the criticism against it diminishing. In both developed countries and emerging and developing economies, liberalism continues to be accused of exacerbating social inequalities and sacrificing public interests at the altar of private interests. We leave the discussion of these issues for another opportunity. We only emphasize that becoming "market-centric" is not an end goal but a means to enhance societal welfare. The market does not have answers to all issues, and, on the other hand, economic, political, and social life without the presence of the government is naturally not feasible. Imposing dogma and ideology on the relationship between the government and the market does not yield anything but the creation of unproductive polarization in society. Nevertheless, one should not turn a blind eye to reality. All the countries that are today considered "developed," from Sweden and Denmark to the United States and the United Kingdom, are fully committed to three common principles of "market-centric economy." These three principles are respecting private property, accepting and encouraging free initiative in creativity and investment, and combating anti-competitive practices. Is there a country in the world that has succeeded by having the government seize enterprises and banks, denying private investment, obstructing individual creativity, and preventing free competition? The painful experience of Iranians is that they are aware of various failures of state economies around the world. But more importantly, they have felt and continue to feel the very painful experience of the failure of a state-centric economy in their own country with their own skin and bones. Have all these external experiences, especially internal ones, finally reconciled the people of Iran with a free economy and its requirements? There is no doubt that today supporters of a market-centric economy in Iran can defend their views more freely, without fear of being accused of advocating exploitation and colonialism. The "cultural weight" of supporters of a socialist economy is no longer heavy enough to launch intellectual terrorism as in the past. The world has changed, and the younger generations of Iran, like the youth in many other countries, show more interest in what is happening in Berlin, New York, and London than in the ideologues of shared economy. Despite all these changes, resistance against freedom in general and economic freedom in particular is not insignificant in Iran. This resistance cannot be solely attributed to the Islamic Republic's governance. Easing the path for business for both women and men, unleashing youthful energies, activating talents in the service of creating real wealth, living locally while being global, the desire to become wealthy through effort and creativity, falling and rising again... all these are values that still face not only stubborn political and administrative obstacles in Iran but also cultural barriers. Does this resistance have roots in the ancient Iranian culture? Does the widespread promotion of socialism in the decades following the Constitutional Revolution, and especially the hostility of a large segment of intellectuals and political currents towards the foundations of a market-centric economy between September 1941 and the Islamic Revolution still weigh heavily on economic thought in Iranian society? Whatever the answer may be, it seems that Iranians have not yet accepted the reality that transferring the heart of the economy from the government to a real private sector is the only way to save their ancient civilization. They also need a government that is small, agile, wise, and clean, which can create the necessary legal and political conditions for business freedom and can fill the market gap wherever necessary. Today in Iran, there is neither a modern private sector that creates wealth nor a twenty-first-century government. Instead, Iran's economy is under the control of a bloated, costly, inefficient, and corrupt government that has lost its self-confidence, let alone enjoying the trust of citizens. A government with these characteristics controls a very large portion of the economy, and even in the very limited sectors that escape its direct control, it intervenes permanently. In international assessments, Iran ranks among the unfree countries in terms of economic freedom. The American Heritage Foundation, in its latest annual report (February 2017), ranks Iran 155th among 180 countries based on economic freedom indicators. To measure the degree of economic freedom, the Heritage report relies on twelve quantitative and qualitative factors classified into four main groups: rule of law, size of government, regulatory efficiency, and market openness. Even among the fourteen countries examined by the Heritage Foundation in the Middle East and North Africa, Iran ranks second to last based on the same indicators. To determine the weight of the government in a country's economy, the country's budget is compared with its gross domestic product. In Iran, the total budget (composed of the government's general budget and the budget of state-owned enterprises) is about eighty percent of the gross domestic product. In particular, state-owned enterprises in Iran consume a very large portion of available resources. These companies have become a bottomless pit for the country's economy instead of creating wealth, and every year, in exchange for their payments to the government (in the form of taxes, dividends, and special profits), they receive more funds under the title of current expenditures and capital asset credits from the government, and they are one of the factors creating budget deficits. Additionally, a significant portion of the money market facilities that should ideally be available to real private investors is given to state-owned companies. Alongside the multitude of state-owned companies that consume national resources, there are companies operating under the control of the Revolutionary Guard and various foundations and headquarters, which, as Ali Akbar Nategh Nouri puts it, have become "a lion without a mane, tail, and tears." The bloated bureaucracy of the ruling monopolists over state and quasi-state units has such power that it has so far blocked any transformation aimed at extricating the privatization process from its current paralysis. This process, which began about twenty-six years ago, has practically failed, and perhaps only thirteen percent (and according to some, two to three percent) of state-owned enterprises have been transferred to the real private sector. Ali Tayebnia, the former Minister of Economy, described the implementation of this process as "a disgrace," and Abbas Akhoundi, the Minister of Roads and Urban Development, referred to it as a "joke." President Hassan Rouhani has also stated that this so-called "privatization" has transferred economic enterprises from a "gunless government" to a government that "has both guns and media and has everything, and no one dares to compete with them" (referring to the Revolutionary Guards). The state bureaucracy in Iran has also become severely bloated. The number of government employees (both civilian and military) has increased from one million two hundred thousand in the Islamic Revolution of 1979 to four million today, or, in other words, it has increased by 3.33 times, while during the same period, Iran's population has increased by 2.16 times. In other words, Iran's bureaucracy, which was already heavy under the previous regime, has become even heavier over four decades. It is worth noting that during this same period, many countries around the world have significantly reduced their administrative apparatus using new data processing and telecommunications technologies and organizational techniques. On the other hand, pension funds have practically gone bankrupt, and a very large portion of the four million five hundred thousand pensioners of these funds actually receive salaries from the government instead of pensions from them. Given the crushing cost of paying salaries to employees and pensions to retirees, how much of its resources can the government allocate to infrastructure and construction projects? This costly bureaucracy wastes the energy, creativity, and lives of hundreds of thousands of Iranians who should be dedicated to creating real wealth, in offices filled with government employees. According to Bijan Namdar Zanganeh, the Minister of Oil of the Islamic Republic, there are one hundred thousand surplus employees in the ministry's domain, all of whom were hired during Mahmoud Ahmadinejad's eight-year presidency. Fereydoun Asadi, the head of the energy group at the Parliament Research Center, assesses the number of surplus employees in the Ministry of Oil to be much higher. He states that before 1979, "the National Oil Company extracted six million barrels of oil daily with thirty-five to forty thousand employees, but now (in 2016) it extracts less than four million barrels a day with two hundred sixty to two hundred seventy thousand employees. This means that the workforce in the oil sector has increased approximately 6.8 times." The situation is not any better in other government organizations. For instance, Ali Larijani, the Speaker of the Islamic Consultative Assembly, describes half of the employees of the state broadcasting organization as surplus, and the Ministry of Energy also reports a surplus of twenty-six thousand employees. Beyond the quantity of the Islamic Republic's bureaucracy, what is the quality of it? Abbas Akhoundi, the Minister of Housing and Urban Development, answers this question: "The reality is that the expert body of the government has disintegrated from within, as the elite individuals have either retired, passed away, or due to the lack of scientific management in the country during the eight years of the ninth and tenth governments, have either been sidelined or migrated to other countries. Only a shell remains of the ministries, and its core has been fractured. The honorable, noble, and skilled individuals in the first and second layers have all left the government, and the best forces are now composed of those who were once third-rate forces." The issue is that this bureaucracy, which has fallen into despair and barrenness, contrary to Mr. Akhoundi's claims, is not merely a product of Mahmoud Ahmadinejad's era. For about four decades, hundreds of thousands of elite and expert individuals eager to build Iran have been trapped in internal and external exile. Ironically, this very bureaucracy, as described by Abbas Akhoundi, holds the fate of Iran's economy in its grasp and, by trampling all market laws, issues commands and directives for its management. The guaranteed purchase price of wheat is determined by the command of this very group, as are energy prices, train and airplane ticket prices, and major macroeconomic variables, including interest rates and exchange rates.