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October 2019, No. 92


Management

Ways to Deal with Absolute Poverty!


The statistics released by the MRC indicate an increase in the population below the absolute poverty line.


Why the number of people living under the poverty line has doubled?

In response to this question, Davoud Souri, economist, says: “The reason for the spread of poverty obviously relates to us and our economic policies. Instead of promoting the policy of economic boom, developing the economy and creating employment and income, we have stifled the economy and would not allow its growth and development.”

Souri, a university lecturer on economics, says: “Oil export has been our only channel of income generation over the past years. This incorrect internal policymaking has caused all external pressure and threat to affect the main source of our economic revenues, disrupt the flow of wealth and income to the country and bring a new shock to the economy.” He says that in these economic fluctuations, the first group to suffer is wage earners and the salaried employees of the private sector because the business environment directly affects all activities in this sector.

In contrast, the public sector wage earners and salaried employees are less likely to be affected by economic shocks. In other words, the government disrupts the business environment with the main harm inflicted not on public sector employees but on the private sector, he says, adding that currently one out of two persons in Iran lives under poverty line. “The statistics are worrying and set a record in the world class and even in our own economy.” He emphasizes that the key to solving the problem of poverty is not a golden and miraculous key and the solution to reduce poverty is not simple. What follows is an interview with Souri:  

The Majlis Research Center (MRC) recently released a report showing that in 1396 (2017/18) 16 percent of the population lived below the poverty line but the figure reached 23 to 35 percent a year later. What has caused the number of people living below the poverty line to double in about one year?

The poverty line has several definitions and is examined from multiple perspectives. But what the MRC considers as the basis in its report is the absolute poverty line and its income concept. That is to say households should have enough income to meet their least needs. Minimum needs too are determined according to community standards. Namely, with due attention to the consumption model of the community and the household size, it is determined how much minimum living standards are and on that basis absolute poverty line is determined. This line means that people under the line do not have the minimums of life and the health of these people is at risk.

The statistics released by the MRC indicate an increase in the population below the absolute poverty line. But in reviewing these numbers, we should consider two points. First, the last available statistics on households’ budget relates to the calendar year 1396. As a result, what is said about poverty statistics this year is based on statistics of 1396. But the statistics for the year 1397 (2018/19) can be predicted. It means that the poverty rate has been predicted through the previous information and examination of indicators such as inflation, exchange rate, unemployment and economic growth rates.

The target rate in 1397 is between 23 and 35 percent, and the figure projected for 1398 (2019/20) is about 50 percent. It is said that about five deciles will go below the poverty line. An increase in inflation and a drop in the economic growth rate are two variables that clearly show the poverty rate will increase.

What happens that in just one year, the population under absolute poverty line is doubled?

It is true that population has doubled under the absolute poverty line in one year, but the process of poverty deterioration is not a sudden and one-year process. This shows that the society has become poorer. If we assume that the population of 80 million is above a line, over the past few years, the concentration of these people has risen around the poverty line. It is true that in the year 1396, only 16 percent were under the absolute poverty line, but many more people were around this line and were not considered poor, but by implementing some policies and changing the indicators, they have gone under the poverty line as well. 

Why the society gets poorer? Some consider the sanctions to be responsible for our economic problems as they have affected the climate of the economy, while others believe that sanctions have less effect and wrong government policies are the main factor.

In the past few years, the status of our economic indicators has not been favorable. Inflation has increased and this trend is expected to continue. In the meantime, the economic growth rate for 1397 and 1398 is projected to be negative and there is little hope for growth. On the other hand, although the economic growth rate has been positive in the past few years, it has not been at a level to increase wealth and household incomes. Since the beginning of the 2010s, only in one or two years our growth has been acceptable thanks to oil revenue not generation of wealth. As a result, it has not been able to affect the well-being of households. You are asking why the society has become poorer and I believe that nothing new has occurred. We have been experiencing similar economic problems for decades, and our economy has always followed a downward trend and this decline has been more severe since the 2000s. Some believe external pressures are the main factor and some blame internal policies.

The reason for poverty creation and aggravation is a combination of all these factors. The problem is that we were not able to create an employment process in our country. Over the past several years, our only revenue channel has been oil sales, and our sole economic operator has been the government. This inadequate internal policy has caused all external pressures and threats to affect the main source of our economic income and disrupt the flow of wealth and income to the country and bring a new shock to the economy. The reason for the development of poverty obviously relates to us and our economic policies. Instead of applying a policy of thriving economy and economic development and creating employment and income, we have stifled the economy and have not let it grow and develop. 

Which long-term and short-term policies have led to escalation of poverty in Iran?

The most important factor that leads to rising poverty is that markets do not operate properly and the business environment is inadequate. If you look at the composition of poor households, these households are the ones that directly affect the economic situation of the country. Most of them are private sector wage earners and salaried employees and any change in the economic situation will directly affect them. This is while government wage earners and salaried employees enjoy more stability. Economic fluctuations do not affect the government’s income and those of the wage earners and salaried employees.

The fluctuations in the economy and any tension in this area directly affect the lives of the wage earners and salaried employees of the private sector. That’s why these problems will continue until we can lead the business environment towards wealth creation and distribute this wealth among its producers. But instead of creating a business environment for wealth creation, the government has tried to earn revenues over the years - mainly from the sale of oil - and divide it among people, and tries to fight poverty in this way. 

According to statistics, in calendar year 1397, the government has paid 2,170 trillion rials to supply basic goods that is more than three times the development budget!

This is the wrong policy the government has adopted. Instead of preparing the environment for creating wealth, it disrupts the business environment. The budget that must be spent on infrastructure and creation of employment is spent on distribution of rents for import of essential goods. This is the wrong policy the government adopted and implemented and now everyone is admitting it was incorrect. It is wrong for the government to think that it can reduce poverty by distributing resources. This is a view that was exercised in a different form by different administrations. One government spent the resources to import goods at low price foreign exchange. Another offered low-cost loans and yet another cheap supportive packages. Followers of this view think they can create well-being and jobs through such spending. But the right solution is that the government spend these resources on investment and development. In this way people could be employed and these huge resources could be paid to them in the form of wages and salaries. 

Statistics show development of absolute poverty in the society. What are the consequences of poverty spread?

Poverty is a major problem and has many consequences. It can lead to social unrest, people’s disability; by depriving the people from education it can reduce the possibility of future income generation and plunge the society in poverty trap. In this way, we are caught up in the poverty trap, and this is very costly for the society. The face of poverty is not a nice face, and half of the society cannot afford the minimum costs of living; this can be the root of many adversities. 

We are always looking for solutions to problems. But can we provide a solution to reduce poverty?

You see, there is no golden key to improve the economy and eliminate poverty once and overnight. There is no middle way and miracle to improve the business environment. This is a long process. Iran’s economy needs two to three decades of economic stability and a vision that focuses on the creation of wealth. The production of wealth is achieved by employing manpower, existing capital, allowing innovations and creativities and thriving market. It is only with this method that we can generate wealth in the next two to three decades and eradicate poverty. Our society has not become poor all of a sudden and to save people from poverty cannot be done once and needs time. Solving poverty and economic problems is not easy.

 

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  October 2019
No. 92