For a Real Private Sector

EghtesadOnline: Economist Mousa Ghaninejad believes that remarks recently made by President Hassan Rouhani in the presence of business owners on the National Day of Guilds can help figure out the incoming government’s economic policies.

News ID: ۷۷۷۳۰۳

30 June 2017

According to Financial Tribune, a free translation of his editorial in the Persian daily Donya-e-Eqtesad is as follows:

In his speech on June 22, President Rouhani talked of the transfer of state-run businesses to private ownership and control—a policy that should have been enforced according to Article 44 of the Iranian Constitution.

Sadly, the destination of the so-called privatization carried out in the country was not for the real private sector. In Iran, privatization meant selling one state-owned company to another public body.

“The wrong move taken by previous governments resulted in the private sector being shut out of the country’s economic arena,” he said.

In other words, if the purpose of handovers was to break the government monopoly over public entities and set the stage for private sector activities, they were not achieved because of the approach employed during the process.

The president was right when he said the share of real private sector in privatization was as little as 13%. The greater part of the ownership of the country’s economy is still under the control of public sector.

It’s patently obvious that to reach an efficient, job-creating system, the economy needs to be transferred to the real private sector in a competitive environment. A secure business environment for investment is a prerequisite for such a transfer.

The government, the parliament and the judiciary can have a big role in destabilizing or improving the security of the domestic market by their policymaking.

On the same note, the president implied that three branches of the government can both act as a catalyst for economic prosperity or disturb the calm of business environment.

President Rouhani said the Iranian banking system is in need of a thorough restructuring and reform to channel people’s capital to transparent, healthy economic activities.

It won’t hurt to remember that wayward credit institutions that created the ongoing challenges in the economy originated in the government’s mid-2000 fiscal policies.

By and large, what the president suggested was that the ambitious privatization policy, based on Article 44 of the constitution, failed to produce the intended results. The private sector was expected to replace the government in spearheading the economy and the monopolistic position of government and state-affiliated bodies was to be swapped for a competitive free market economy.

These predictions did not come to pass; the private sector was marginalized and the ultimate result of handovers was nothing but a change in appearance of a state-run economy as well as the emergence of a new phenomenon called semi-public sector.

There’s no doubt that this unfavorable state won’t go away by enforcing the same law that led to its emergence. A new strategy is needed to achieve a thriving economy and strengthen the private sector. The fact of the matter is that the biggest mistake in drafting Article 44 of the constitution was overlooking a prerequisite for liberalizing the economy. The absence of security, as the president noted, had undermined the private sector.

The private sector did not hold sway in governmental organizations and, naturally, the pubic or semi-public sectors took the initiative and maintained it to the best of their ability.

Public or semi-public economic entities like the Telecommunications Company of Iran have the clout to skirt restrictive rules and regulations, and press ahead with their plans, whereas the private sector does not have the authority to bend the rules and has to pay a hefty price.

Governmental regulatory organizations, including Consumer and Producer Protection Organization and Tazirat Organization, can only wield power over the private sector, making it even more fragile.

The best strategy to support the private sector is by eliminating these organizations and the restrictive rules and regulations that erode economic freedom and competition.

The real private sector would prosper in a free and secure environment, and would wither away under the poisonous climate of bureaucracy and rules that limit the rights of individual ownership.