Moving Away From Strategic Planning

EghtesadOnline: Globalization has rendered the mainstream thinking among Iran’s politicians obsolete. Iran needs to shift away from its traditional model of pushing for self-reliance in catering to all its needs and reduce state intervention.

News ID: ۷۳۶۰۷۵

21 August 2016

Governments in Tehran, as a matter of policy, have long yearned for an industrial state. The elite decided early to import industries, especially heavy industries, and support them. Iran has a wealth of natural resources, especially cheap energy, which would fuel industrial growth. The goal was to develop the economy into a self-sufficient industrial powerhouse. Imports were to be replaced wholly by domestic products. The aim was to rely on no other country.

Globalization and its effects were far from the imagination. “It was the first wave of industrialization in Iranian history,” says Saeed Laylaz, a Tehran-based economist.

The government molded its strategic plans and efforts to carry out those strategies in the 1950s. Post-revolution governments continued on the path of their predecessors, according to Financial Tribune.

As Laylaz points out, one cannot judge what could have been if the Iranian government had taken a different direction. The strategy has created much growth. Iran’s steel output for example rose from 1 million tons a year to 15 million tons in the past 25 years. The same can be said for petrochemicals and agricultural products.

Today, the almost entire model of having grand government plans has been consigned to history by mainstream thinkers. News of the change has reached Iran. Not to mention that Iranians have firsthand witnessed the dark side of state planning. Iranian politician and economists should stop plotting industrial strategies, says Laylaz.

These days with low shipping costs and advances in management, companies seldom build anything of worth in one single country. The supply chains are global, with parts of the manufacturing process done in different corners of the globe. It is cheaper and more efficient this way. So naturally a hunkered down company that tries to do everything by itself in a single location will wither and die in the face of tough global competition.

“Substituting imports does not work in the long run. This is impractical in the global economy or for a globalized economy,” said laylaz. “In my opinion, the age of authoring and executing government strategies is over.”

There are industries which will remain protected. The government will still need to support the domestic production of geopolitically significant goods due to political and geopolitical factors. These strategic products include energy, food, steel and machinery. In these sectors Iran needs to foster  domestic producers.

Laylaz says three key questions should be answered before any rush to subsidize or slap protective regulations. Who gets the subsidies, why and for how long. Unless these questions are considered, granting subsidies and applying protectionist measures would be a waste of national resources.