The Forum for Partners in Iran's Marketplace

June 2018, No. 87

Q & A

Iran Needs a Major Economic Revolution Today!

Part of the economic problems clearly goes back to the Constitution. When they drafted the Constitution, they did not get help from leading experts on the day’s economic issues.

Before the revolution to date, we have left behind 12 development plans, but we still have problems in our economy. Criticizing the nature of programming in the economy, Dr. Jamshid Pajouyan believes this method of programming should be abandoned. He believes this outlook about the economy in the world is obsolete. The faculty member at Allameh Tabatabaei University compares the method of economic programming in Iran to that of the former Soviet Union, while disapproving of some of the economic purport of the Constitution. “Part of the country’s economic problems goes back to the Constitution. When they were drafting the Constitution, they did not get help from leading economic experts. The drafting of the Constitution was more influenced by the groups that were influential at the time, like the leftists.”  

According to the economist, “our Constitution was influenced by certain dominant points of views at that time, including division of the economy into three sectors: public, private and cooperative. This is foolish!”

In the following interview, Pajouyan discusses a number of issues such as the requirement for changes in the economic provisions of the Constitution, institutionalism in the economy, the need to promote economic liberalism, the negative impact on the economic trend by the leftists and the need for a major economic revolution in Iran. 

We have already completed six development plans, but we still do not see any promising prospects in the Iranian economy. What do you think are the reasons?

It would be better to say we have formulated 12 development plans, because we had six plans before the (1979) revolution. However, the texts of these plans are available. At the end of each plan, the economic situation can be evaluated in order to see if these five-year development plans have accomplished even 20-30 percent of their goals.

Economic plans are considered to be unreliable because they cannot foresee. For example, the current state of affairs demands an increase in production of certain products that can be exported. Five years ago, this issue was not predictive; therefore, it was not included in the development plan. That’s why the development plan is silent and worthless. In my opinion, a great stride should be taken in the economy. Despite the experience of more than 50 years of planning in Iran’s economy and the near zero result of these plans, this approach toward the economy must stop and no more development plans should be written. Instead the economy should be based on a series of strategies and goals and attempt should be made to achieve the goals through different tools and formulating a roadmap. 

In your opinion, what is the relationship between the economic problems and the Constitution?

Part of the economic problems clearly goes back to the Constitution. When they drafted the Constitution, they did not get help from leading experts on the day’s economic issues. The drafting of the Constitution was more influenced by the groups that at that time had influence, such as the leftists. Of course later, at least some of the Constitutional sabotage was corrected by the order of Leadership. Like Article 44 which was based on a Left and Communist line of thinking. He ordered the start of privatization and specification of the state and private sectors.

Today the biggest problem of the economy is that we want to solve our structural problems with macro policies.

This shows that our Constitution was influenced by a number of specific views that had been imposed at that time. One example is the division of the economy into three sectors: public, private and cooperative. This is stupid! Economy has very clear and transparent theories that tell us what activities the private sector does and what activities are done by the public sector. Production sector cooperatives went bankrupt wherever they were formed (like Israel and the Soviet Union). Now these production cooperatives are generally obsolete. Of course, there are still cooperatives operating in different sectors (other than manufacturing and industry).

But the scope of these cooperatives is also determined by a roadmap based on economic theories, not at roundtables or by voting. The activities of these cooperatives are set by the most knowledgeable economists who design the roadmap, such as in the United States, UK, Germany and other advanced countries; of course, we do not have this in our country. We are currently the owner of an economy that has been in recession for many years. Businesses are closed one by one. These firms do not even have the ability to pay their workers’ salaries.

For this reason, we are seeing protests in the country which are economically motivated but could turn political and security oriented. But why this is happening? Do we have little resources? Are we not rich? Don’t we have specialization? Isn’t it true that Iranian businessmen in the US and in California are so successful that they shut down their workplace on the occasion of the New Year and for their sake? So, we have enough human wealth and sufficient resources. But why should the country be in such a state of affairs? Why should we stand at the bottom of the global list in terms of general social and economic indicators? That’s because our economic management is thoroughly erroneous.

Today the biggest problem of the economy is that we want to solve our structural problems with macro policies. Nowhere in the world is such macro policies associated with the structural problems of the economy. The problem of allocating resources, market problems, and so on, cannot be solved by implementing and applying macro policies. Why should our industry’s return stand at 6%-7% but our trade return stand at 400%? So, under these conditions how could we expect investment in the industry?

So instead of changing the rules, we need a major economic revolution in Iran!

Yes; of course, we need a major economic revolution in a way that when someone commits an economic crime he would be sentenced to death. This is what is called great economic revolution! If two or three corrupt persons in the field of economy are put on trial many things would be put in order. When a president is impeached because of the deep recession occurred under his administration, he knows that he needs to change those around him who make weak economic decisions in order to solve the problems. They themselves know that it is possible to solve the structural problems of the economy through microeconomic policies -- policies that change the allocation of resources; these policies will save us from economic sinkhole not extension of 250 million rials to applicants to purchase cars! By doing so, we deepen the recession. The Parliament has never taken action to question the officials’ wrong economic policies! Payment of loans not only has not resulted in production but contributed to further recession. Has anyone been reprimanded? 

In order to improve the situation, two ideologies have lined up against each other today, namely the institutionalists and liberalists. Do you think the problem of the economy is the choice of economic line of thinking?

You see, this debate is outdated. We sometimes talk about things that belong to the past, like the same institutionalism in economy. This thought (institutionalism) dates back about 50-60 years ago when Professor Friedman raised a new debate in economy, saying that economics was a science that was predictable like physics and chemistry, and in this respect was different from other disciplines of the humanities. By looking at the community, you will witness different ways of thinking, cultures, and ethical behaviors. In terms of literacy and dealing with different issues of life, members of the society act differently from each other. But they share the same view when, for example, the price of an apple goes up they will not buy it. They make this decision irrespective of ethnicity, color, race, etc. The economy, therefore, has the potential to predict.

When this issue was raised, sociologists, namely the same institutionalists, said it must be determined to what institution did the economy belongs, because institution provided us with special possibilities to examine. In my opinion, this is absurd! On the other hand, learning mathematical economics is difficult for some economists! For this reason, these people were avoiding the new face of the economy. These people were the same institutionalists. As you see, we can talk for hours about issues in the field of sociology or the like.

But this is not the case with economics, especially in the mathematical economics. That’s why people who did not know anything about it took another direction and became institutionalists. When the Nobel Prize goes to the economy, nobody can say that the economy is not predictable. Economists predicted the economic future and were able to build models in this regard, and institutionalized policies to address future economic challenges. The question now is what does the institutionalist economy mean?! Obviously, the institution can also affect some people’s behaviors. Undoubtedly geographic locations can be effective. Someone in the south of the country is not thinking about buying heaters and coats. But in Ardebil (in the northwest), everyone is looking to buy coats and heaters.

But in anyway, this discussion has nothing to do with the debate on institutions. This makes sense for the same economic goals of individuals. Because the south is hot and they want to keep themselves cool and the northwest is cold and they want to keep themselves warm. All of these people follow the same model; therefore, the debate of institutionalism is now obsolete. People who cannot analyze mathematical economics and modeling do not have the ability to predict economic problems and practical solutions; for the same reason it’s possible for them to still talk about the institution. But this is not a case for debate in the world today!


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  June 2018
No. 87