ICCIMA Member: Economy Needs Resilience, Not Self-Sufficiency

EghtesadOnline: What strengthens the economy is resilience rather than self-sufficiency, as resilience is the outcome of striking a balance between inclusiveness and extroversion.

News ID: ۷۸۶۵۱۴

27 June 2021

The statement was made by Hossein Selahvarzi, the deputy head of Iran Chamber of Commerce, Industries, Mines and Agriculture, in a write-up for the chamber’s news portal. The translation of the full text follows:

President-elect Ebrahim Raeisi will have to grapple with economic issues more than anything else during the next four years. One of the main issues of Iran’s economy over the past decades has been the fact that the private sector and the government have contrasting opinions about the principles of economics.

I have tried to give a short summary of these differences here in the hope that it will signify the beginning of a productive dialogue between the government and the private sector about how to improve production and create sustainable development.

Inflation: Economic players of the private sector and government officials are of the same opinion regarding the adverse effects of inflation on people’s livelihoods and production. But unlike government officials who assume that inflation emerges from price gouging, we, the private sector actors, believe that inflation is a result of imbalance between the government’s spending and income. I humbly ask the president-elect to build financial discipline in government affairs to control inflation.

Banking system: Politicians see the banking system as a channel that distributes money on behalf of the government, but private sector knows that such a viewpoint is the root of corruption and creator of rent and would lead to the suppression of productivity in manufacturing and commerce. Banking is a business concerning the exchange of “credit” and like other businesses, it will put up its best performance when government interventions have been reduced to a minimum indispensable level to ensure the operability of the activity.

Foreign currency: That the politicians see foreign currency as a strategic reserve to manage the economy is the sinister legacy of a single-product oil economy and a development model centered on it. The forex market needs to be deepened through development of derivatives, easing the environment for foreign trade and, of course, the government’s avoidance of showy, inexpert interferences.

Stock market: A significant part of economic growth depends on entrepreneurship that comes from the creation of opportunity for risk trading; stock market is the main institution for such activities. Officials are neither responsible for shareholders’ profits or losses, nor the state of the market. They only need to ensure transparency as well as free and fair trade, the stock market will then find its true function which is the creation of added value by paving the way for risk trading and helping finance enterprises.

Permits and regulations: Unnecessary regulations are being pursued for decades in the name of safeguarding people’s rights. But it is in actuality like a proverbial well for generating benefits for a handful of corrupt individuals at the margins of government and a group of rent-seekers in the private sector. If the president is determined to improve production and people’s livelihood, he’d better plug this well.

Foreign trade: Foreign trade is vital for a sustainable economic growth. Today, the main challenge with foreign trade is outside the realm of economy and in the hands of politicians. Political barriers in the way of Iran’s concession to international financial system and its presence in the global markets should be removed. Private sector players know how to skillfully conquer markets and develop our foreign trade.

Pricing: Pricing is another form of unnecessary regulation, but it is so important that must be addressed separately. The pricing system, like other forms of regulatory practices, has been established in the name of serving people but is genuinely an important tool of the corrupt group of people in Iran’s economy and the main cause of lack of motivation for production. Pricing rids the market of its function, i.e. finding the market-clearing price (equilibrium price) and allows bureaucratic institutions to do the task instead. In doing so, pricing prevents the economy from its main goal, which is the optimal allocation of resources for sustainable growth. Going against this old tradition of government interference in pricing requires a steely resolve.

Self-sufficiency: To many politicians, self-sufficiency strengthens the country but it is in fact a dangerous idea based on a misunderstanding of the nature of economy. Economies need resilience and not self-sufficiency. Resilience, as described in the resistance economy — a set of economic principles proposed by the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei to reduce reliance on oil revenues and boost domestic production to counter sanctions — is the outcome of striking a balance between inclusiveness and extroversion. Even if self-sufficiency was possible, it would lead to the decline in productivity and resilience, and make the country vulnerable to serious harms.

Production, investment and improvement of business environment: A lot has been said about production, investment and improvement of business environment. The best the government can do is to right its behavior about all the issues we talked above.