Invisible Hand Is Indisputable!
It is really surprising that some critics of the current economic
situation attribute the current failures of the government to the
outcome of free economy thinking.
A look at Mr. Hassan Rouhani’s administration in the 11th and 12th
governments shows that since the beginning of its formation, the government
has not had a coherent and integrated economic team, and there have been
different opinions on the issue. During this time we saw that there was no
coordination between the activities of the Ministry of Finance and Economic
Affairs, the Central Bank, the Management and Planning Organization (MPO),
and the Ministry of Industry, Mine and Trade, while there was no trace of a
coherent thinking in these organizations individually. Therefore, we have
seen virtually no achievement one could attribute to the application of a
clear and consistent approach in the cabinet.
Instances such as reducing the inflation rate and stability in FX market in
Rouhani’s first term should be defined in the form of overflow of a
political breakthrough, because after the nuclear deal (Joint Comprehensive
Plan of Action) was signed, there was great optimism about the future. Also,
positive expectations reduced the turbulences inherited from the former
government in macro indices. If we put aside these cases, virtually no other
economic achievement can be attributed to the government.
Rouhani’s first government did not make tangible changes in reforming the
system of targeted subsidies, adjusting the price of energy carriers,
improving the business environment, and many other things. Last year, under
Rouhani’s second government, we faced challenges that showed continued delay
in making structural reforms in the economy. The accumulation of the
problems left from the Ahmadinejad government, the dramatic increase in
liquidity over these years, stabilization of the exchange rate despite
two-digit inflation, the inadequate business environment and the lack of a
sustainable economic prosperity along with external pressures, have created
turbulences in macroeconomic variables, and have taken us back to the early
days of the 11th government and the difficulties of those days.
Under these conditions, some people think a reshuffle of high-level economic
officials is the way to come out of the impasse; but it is necessary to
reiterate that, in principle, the displacement of individuals is not
important; what should change is the line of thinking that controls the
decision making process of the government. For example, according to some
news reports even from the very beginning, at the level of some ministers,
an agreement was reached on the creation of a secondary foreign exchange
market and crossing the 42,000 rials per USD, but had faced the opposition
of high-ranking officials, including the President himself.
Another example is the price of energy carriers where no change has occurred
and Oil Ministry experts have not been able to convince the government to
correct prices and this has faced the resistance of the MPO.
Therefore, changing the economic team would not be effective because the
final decision makers would not change their approach, and since final
decisions require their agreement it is their economic line of thinking that
In the current situation, the most important requirement is for the
government to admit that it cannot control the economy through an imperative
approach and as long as it refuses to accept this fact, no policy would
yield result. When Mr. Es’haq Jahangiri (the First VP) stated that the
exchange rate (USD) approved by the government was 42,000 rials per USD and
that the government would not accept any other rate, this clearly showed how
ignorant were the top decision makers about the reality of the market
mechanism! This is similar to saying that as of tomorrow you would not
accept the law of gravity in physics! The market has nothing to do with our
beliefs and continues to operate under its own mechanism. The prerequisite
for all structural reforms is to accept the basic rules of the economy, and
without it, no proper policy can be implemented.
Strangely, these days there are talks that some high-level government
officials have said that it is not logical to speak of a free economy under
the status quo, and that the situation required the government to exercise
more control over different markets. Regrettably, it must be said that this
remark shows how poor is their economic knowledge! That a politician states
that “we are not in a position to accept the law of gravity” lacks
scientific logic. Unfortunately, in the field of humanities and economics
this is not the case, and politicians easily refute the laws governing these
sciences. Which economist has claimed that economic laws are not effective
in economic war conditions, and under what logic? Based on which book or
reference such a claim is made?
The truth is that wherever and whenever politicians have tried to replace
economic laws with their own will in the form of imperative government
instructions on the pretext of state of emergency, they have failed.
Wherever and whenever they have denied the invisible hand of the market
(economic laws) they have been slapped with the same hand! The problem is
that the government would pass the pain of the slap to ordinary people like
you and me.
It is really surprising that some critics of the current economic situation
attribute the current failures of the government to the outcome of free
economy thinking. If these critics are honest and fair, instead of resorting
to cliché and leveling charges against certain individuals should explicitly
state which government policy has so far represented the implementation of
free-market thinking. And with what mechanism has this policy created this
chaos and turbulence?
The mere presence in the government of a few prominent personalities
advocating free economy or the election campaign slogans of the President
which were not realized should not encourage some people to beguile people
through rowdyism and commotion and attribute the appalling outcome of the
comrades’ leftist policies at the MPO and other government institutions to
implementation of free economy recommendations. These behaviors can only be
a sign of non-compliance with ethics and prioritizing factional interests
over the realities and public interests.