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June 2020, No. 94


Global Crisis

Preventing Socio-Economic Crises in Iran


If unemployment, especially youth unemployment, is the deepest socio-economic crisis in our country at present, the biggest challenge facing the government and the economy will be to achieve economic growth.


The self-immolation of young Tunisian street vendor Mohammed Bouazizi on December 17, 2010, marked the beginning of a series of popular uprisings that not ended the 23-year-old rule of Zine El Abidine Ben Ali in Tunisia, but within a short period of time triggered a wave of protests and popular revolutions in the Middle East and North Africa known as the Arab Spring. The intensity and speed of the protests in the Arab Spring has prompted social science scholars to question what factor or factors can explain the fundamental roots of the protests. The answer is not that complicated!

Indeed, although black swans, that is instantaneous events that act as the trigger for political instability, are by definition unpredictable, economic recession, increasing inequality, pervasive corruption and bankruptcy of social security infrastructure are socio-economic trends that can lead to political instabilities. Specifically, two factors of youth unemployment, especially educated youth, and pervasive corruption, along with increasing inequality, are identified as fundamental factors explaining why the Arab Spring is widespread.

Although protests against economic policies in our country are not unprecedented, the protests of January 2018 should be considered in terms of geographical extent, temporal continuity, and protesters’ slogans as a turning point in the economic relationship between the establishment and citizens.

Similar to the starting point of the Arab Spring, a limited rally in protest against the unauthorized financial institutions in 2018 acted as a trigger and quickly brought the country into a nationwide crisis. In fact, although the impact of the banking crisis on drying up resources in our country’s financing system has been profound, this crisis alone cannot explain the extent of the protests in 2018.

The protests of November 2019 differed from previous economic protests in that the government itself acted as a trigger for the sudden implementation of the gas quota scheme. As to why the government decided to implement this plan despite their awareness that large numbers of Iranian citizens were wrestling with serious livelihood challenges, must be sought in the crisis the government was facing in funding the financial resources of the budget. In fact, the government’s budget crisis is just one of the many challenges facing the Iranian economy, and in recent years Iranian economists have repeatedly warned about social, political and security implications of postponing solutions.

In a nutshell, the challenges of the Iranian economy, including the water crisis, the environment, pension funds, the state budget, the banking system, and unemployment, can be divided into two broad categories: limited and pervasive, in terms of impact on citizens. The limited super challenges directly affect a specific geographic area (such as the water and environmental crisis) or a specific age group (such as the pension crisis). In contrast, the pervasive super challenges (such as the unemployment crisis) simultaneously affect a large portion of the country’s population.

From a social point of view, the pervasive super challenges have the greatest capacity for crisis. In fact, a 2010 report published by the International Labor Organization showed that at the beginning of the Arab Spring, youth unemployment was the highest rate in the world, especially among the most highly educated. Similarly, statistics show that the unemployment rate of about 80 percent of the small towns involved in the protests of January 2018 was higher than the Iranian average.

According to the Ministry of Intelligence, most of the detainees in the country’s recent protests are youths who are either unemployed or employed with low income. In fact, according to the Ministry of Cooperative’s Strategic Statistics and Information Center, about one-third of the youth between 24 and 25 in Iran are neither employed nor studying. The importance of youth unemployment stems from the fact that the effects of this phenomenon are not confined to economic livelihoods, but can lead to social problems through risky behaviors, postponement of marriage, addiction and the like. In a word, unemployment among young people, and especially educated youth, is not only a sign of despair for the present time, but also a sign of despair for the future.

The second point of concern for the super challenges of the Iranian economy is the mechanism of their interaction with each other. In particular, super-challenges such as the water crisis and the environment itself can aggravate the unemployment crisis. In fact, the most violent and widespread protests have occurred in Khuzestan and Esfahan provinces in 1986 (2017/18), which are suffering from severe environmental problems.

Similarly, the super challenges of pension funds not only directly endanger the livelihoods of older citizens, but can also lead to serious devastating effects from the public equity perspective through the state budget channel. In fact, the most important economic crisis in the country should be looked for in the structural problems of the state. Due to the highly governmental structure of the Iranian economy, any crisis in the state budget structure strongly influences other economic variables. For example, the government’s budget deficit, on the one hand, leads to chronic inflation and a further decline in the purchasing power of citizens, and on the other hand, by restricting government investment capacity, it jeopardizes economic growth and employment in the country.

According to what has been said, the implementation of the gas quota scheme and its subsequent protests can be considered as one of the last alarms of the socio-economic crisis in the Iranian society. The gas quota scheme is among the few economic reforms that the main beneficiaries in the medium and long terms are those sectors of society that are most at odds with their livelihoods. Despite this, and despite the government’s efforts to compensate for the short-term losses of the lower sections of society by distributing the proceeds from the project, the November 2019 protests suggest that the authorities do not enjoy much credit by the citizens.

Indeed, a distinction between middle-class protest movements and those of the lower classes needs to be sought in leadership and clear political agendas. In protests against the gas quota scheme and similar livelihood protests, the protesters have a clear desire to improve their welfare, but it is never clear how and from what channels this demand should be met. In addition, the lack of clear leadership in such protests minimizes the possibility of social dialogue and understanding. In fact, although inflation is fundamentally monetary, and the government’s emphasis on the limited inflationary effect of rising gas prices is consistent with reality, the government’s actions to severely suppress prices in other markets show that the authorities themselves do not believe in what they say.

According to eyewitness accounts, a female police officer slapped Mohammed Bouazizi in the face and his desperation for his rights after trying to meet with authorities prompted a self-immolation in front of the municipal building, which he said he only wanted a job. In fact, what prompts Bouazizi to set himself on fire and urge other citizens to stage protests is not just livelihood poverty but a sense of humility and innocence. From this perspective, inappropriate response to citizens’ livelihood protests can lead to deep social scars.

The stabilization of energy carriers’ prices for a long time has led to high social, economic and political costs of implementing this project despite the general welfare of the less privileged classes of society as a result of the reform of gas prices. In fact, the cost of postponing economic reform is not only borne by the citizens but also by the government that has to pay for the political costs of decades of mistaken economic policy.

If unemployment, especially youth unemployment, is the deepest socio-economic crisis in our country at present, the biggest challenge facing the government and the economy will be to achieve economic growth. From this perspective, increasing investment in the country and its inability to do so in the current context is a major concern that is subjecting the country’s economic and political future to serious instability.            

 

By: Navid Raisi

 

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  June 2020
No. 94