Core members of Iran’s council of Economic governance –
The President, butcher and the tomato selle
“For example, there is an honourable butcher in our neighbourhood who is aware of all the problems of the people and I also get important economic information from him,” President of Iran
Adam Smith is quoted to have said that ‘Civil government is in reality instituted for the defence of the rich against the poor.’ This maxim is particularly apt when the President of an oil rich $600 billion economy talks shop with his neighbourhood butcher. “We have hardworking shopkeepers in our neighbourhood from whom I get important economic information because they are living among the people.” Mahmoud Ahmadinejad has said he keeps his finger on Iran’s economic pulse by talking to his butcher. Ahmadinejad, the son of a conscientious blacksmith, has also referred to his local shopkeepers when addressing Iranian economic issues. Facing complaints about inflation, he told parliament in a budget speech in January that Iranians should pop around to his neighbourhood grocer to buy tomatoes where he said they were much cheaper than the soaring prices he said others were citing. It defies all logic as to why the President depends on the shopkeepers to devise his economic policies. Ideally, Iranian economy has to be run by a coterie of leading economists. At present, from his last few years of economic speeches, not much can be gleaned as to where he reverts for his economic policies other than his butcher and tomato seller who take leading roles on his board of economic governance.
Ahmadinejad of Garmsar, near Tehran, is an educated man; he took Iran’s national university entrance exams (konkoor) to gain admission into Iran’s top universities. His test score ranked him 132nd among over 400,000 participants that year, landing him at the prestigious Iran University of Science and Technology (IUST) as an undergraduate student of civil engineering. In 1997, he received his Ph.D in transportation engineering and planning from the Science and Technology University.
With a doctorate in engineering, one would have imagined he would be more obliging to include some economists to run his government, perhaps his rightist ideological underpinnings and leftists’ economic ideals create a dichotomy that makes him feel far more comfortable in the proletariat company of butchers and tomato sellers. He knows perfectly well that wealth has always been a proxy for power; for him to distribute wealth on an egalitarian basis keeps the revolution aloft as equal distribution is very socialist in nature and a great homogeniser, someone who works and other, who does not, are equally rewarded.
Great economy functions of meritocracy, incentive and hard work are missing in Ayatollah’s Iran. Last year, 50 Iranian economists wrote a letter to President Mahmoud Ahmadinejad, criticizing price interventions to sta bilize prices of goods, cement, and government services, as well as a decree issued by the High Labor Council and the Ministry of Labor proposing an increase of workers’ salaries by 40%. Ahmadinejad publicly responded harshly to the letter and denounced the accusations. Ahmadinejad states he plans to create an “exemplary government for the people of the world” in Iran. He is a self-described “principalist”; that is, acting politically based on Islamic and revolutionary principles.
The President’s Iran under the Ayatollahs is a country which they believe is described adequately by B. Mandeville: ‘Thus every part was full of vice, yet the whole Mass was Paradise.’ This philosophy is the cornerstone of state policies based on which the Mullahs’ President lays down the blueprint of future Iran. His emphasis on economic policy is based on charity, giving away such as distributing free soup to the poor. His presidential campaign motto was, “It’s possible and we can do it.” (میشود و میتوانیم).
One of his goals is “putting the petroleum income on people’s tables”, referring to Iran’s oil profits being distributed among the poor. The schism within the spiritual politburo capitalist roaders’ pistachio-trading Mullahs and capitalist free marketers’ Ayatollahs is wide open. Akbar Hashemi Rafsanjani, who is a capitalist, has invoked the supreme leader, suggesting the l eader was pained by the very slow pace of privatisation under Mr Ahmadinejad’s government and in January 2007, Hossein Ali Montazeri harshly criticized Ahmadinejad and accused him of harming the country. Iran last week postponed for a month the introduction of petrol rationing, intended to cut the cost of providing hugely subsidised fuel to motorists. The president called high petrol consumption as the main problem facing national economy.
I was thinking that with all his common touch and triviality, he must have some knowledge of Economics. The reference to tomato prices is so authentic. The President is not alone when he tries to gauge Iranian economy inflation numbers through tomato vendors; even Prof Dave Wharton of Cornell University has an assignment for 101 courses where he uses tomatoe
s to make a freshman understand economy. This is one of the questions in his class:
Consider a constant-slope production possibilities’ frontier with a vertical intercept of 40 potatoes and a horizontal intercept of 20 tomatoes. The opportunity cost of increasing tomato output from 10 to 11 is…
a. ½ potato
b. 2 potatoes
c. 1 potato
d. 4 potatoes
e. cannot be determined from the information given.
What if the President does not listen to the experts? It appears Iran should rejoice that the President and tomato vendors are inadvertently gauging inflation and production bottlenecks to come up with the answer to the above question that the opportunity cost of increasing tomato output from 10 to 11 isjust the slope of PPF, which tells how many units of potatoes they need to give to increase their tomato production by 1 unit. I doubt that any other President would have come up with a more essential approach than listening to the shopkeepers. His understanding of street convenient economy has led to 30 billion $ worth of subsidies in this annual budget to cover shortages and measures of rationing and price controls.
Street economy always leads to easy solutions not the difficult ones. Iran, a huge oil producer, imports petroleum and subsidises it for its own populace. The street tomato vendors and butchers will naturally not tell him that planning of new refineries might solve the problem in the long run. Perhaps subsidies and handouts are easy solutions and help him run his tenure better without the sacrifices required to make the nation economically stronger in the long run. Sensible economic policies do not keep an eye on the ballot box. President Ahmadinejad’s ideological mentor and spiritual guide, conservative Ayatollah Mohammad Taghi Mesbah Yazdi, a senior cleric from Qom and the founder of Haghani School of thought ranked number six in the last Tehran Council ballots. To appease the poor electoral voters and to make sure Mesbah suffers no more electoral shocks in his last budget, Ahmadinejad devoted approximately 35 billion Rials to an NGO associated with Ayatollah Mesbah Yazdi, an increase of almost tenfold.
Even after being elected President, Ahmadinejad continued living in a simple apartment flat and eating meals brought from home, in his office. Both of these traits contributed to his widespread support amongst the poorer classes of Iran. His extraction from the poor origins remains well established. A low turnout and luck has played a major role in his emergence as a national player. For his elected (selective) government through imposed Islamic hurdles, the political incentive is to do what is popular, even when the economic consequences are worse than doing nothing, or doing something that’s less popular. Price controls always have disastrous results. Farmers stop producing because they would lose less money by not providing food for the tables. The government forces them to not provide food. Another of his government gimmick is inflation. For thousands of years, governments around the world have resorted to inflation in order to avoid the political dangers that raising taxes can create. Inflation is a hidden tax. Its effect is to take part of the purchasing power of money that people have saved and quietly transfer it to the government that issues the new money. By freezing the interest rates and providing cheap money, he is letting inflation out of the Pandora box.
With a doctorate in transport engineering, he must be well aware of designing projects for maximum efficiency. I doubt he would dispense the design of a complicated three level interchange or a magic roundabout to tackle chronic traffic problems of the metropolitan city of Tehran on the slopes of the mountains of ShemIran and at the foot of the magnificent Mount Damavand with a population of city proper 6,758,845 and metro area 7,352,000 to some lay constructors. The President and his Economy and Financial Affairs Davoud Danesh-Jafari should realise that some things need experts to run. In today’s world, the economy of a nation is a complicated affair and, like complex engineering projects, needs to be managed in a professional manner.
Despite oil revenues of £27bn last year, they also say non-oil exports have plunged since Mr Ahmadinejad took office two years ago, leading to a negative balance of payments. The letter earlier this month – whose signatories included former economic advisers to previous governments and an ex-head of the Tehran stock exchange – also accused the government of lavishing Iran’s oil revenues into ill-conceived projects while masking its economic failures behind falsified statistics. “The price of decisions that have no scientific basis is very high and irreversible, in particular for those who are worst off,” the letter said. The Iranian president extended a surprise olive branch to his domestic critics by agreeing to meet experts who warned his economic policies risked plunging the country into financial chaos.
In a marked departure from his habitual indifferent approach, Mahmoud Ahmadinejad said he wants “dialogue” with 57 economists who criticised him in an open letter, for policies that they claimed fuelled inflation, hurt the poor and laid the seeds of future crises. For that meeting with the 57 economists, I was wondering what would be the best 101 economic course for the President. I looked at various books – Backhouse, an academic, offers a history of economics from Homer to the frontiers of modern game theory. Those responsible for developing economic ideas include theologians, lawyers, philosophers, businessmen, and government officials. Economics does not have a beginning or a founder; starting with Homer, Aristotle, and Alexander, he builds connections to the Roman Empire, Old Testament traditions, and the conflict between Christianity and Islam, then moves on to the Renaissance, the Reformation, and all the way up through Adam Smith and Milton Friedman. The result is a well-integrated, thoughtful, accessible text that makes a major contribution to the history and philosophy of economics.
But a street fighter like the President and his council of butchers and tomato sellers need an effortless book to comprehend. The best suggestion would be Basic Economics: A Citizen’s Guide to the Economy by Thomas Sowell, in which Sowell points out that “if one is truly interested in the well being of others, rather than in the excitement or a sense of moral superiority for ourselves,” we must have an accurate knowledge of history and economics.
The President would realize that government programs have had unintended consequences, that is, they did more harm than good. Rationing and subsidies and price controls’ consequences are predictable from the outset. By price controls to keep energy “affordable,” he will find out what has happened again and again when governments imposed price controls to solve a problem. Shortages are created virtually every time price controls went into effect. “To understand the effects of price controls, it is necessary to understand how prices rise and fall in a free market. Prices rise because the amount demanded exceeds the amount supplied at existing prices. Prices fall because the amount supplied exceeds the amount demanded at existing prices.” The big advantage of the free market is that he does not have to convince anybody of anything.
Economics is `the study of the use of scarce resources which have alternative uses.’ A scarce resource, when distributed free, is negation of the basic concept of economy. In a free market, the President promotes everything that is the nemesis of any economic model; rationing, price controls and freebies, all this will lead to higher inflation and inflation being a hidden tax will hurt his poor constituency the most. The revolution will be alive only until stomachs are adequately filled at low subsidised costs, and when transportation is complimentary; remove these two factors and chaos will break out, like it did in Tehran, the commencement of rationing was greeted with burning of petrol pumps. The President is well advised to immediately replace his council of economic governance with some saner heads and let the butchers and tomato sellers do what they do the best; leave the ‘bazar’ and the ‘bazaris.’ Iran needs to enter the global economy with a bang and get the respect it deserves as the fortress of civilisations. Iran should be member of BRIC’s in the next decade. For that, butchers need to be out and thinkers in.
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