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Sleep-walking economy
"National resolve" alone will not awaken the economy

June 8, 1999
The Iranian

Marking the opening ceremony of an export promotion center, on June 2, 1999, President Khatami admitted that the country's economy is "ill" and that it "needs a serious and fundamental restructuring." "We need national resolve to boost exports," he prescribed.

Urged by his brother to take to swimming because it promoted strength, a wise old man replied, "If swimming could build the kind of muscles I need, the frog would be tearing chains."

While a serious and fundamental restructuring of the economy may well increase exports, it is beyond ordinary comprehension what exactly "national resolve" has to do with boosting exports. Micro- and macroeconomics and some appreciation for the inevitable and unavoidable mega-economics, meaning global in scale, would be much more productive in that regard than appeals to national sentiment.

The Iranian economy is not the moral equivalent of digging the Kandavan Tunnel, requiring sacrifice and resolve; the economy needs political resourcefulness in order to make the best use of the nation's available factors of production, much of which is languishing in the hands of a bloated public sector, a small but connected group of influential people, and tax exempt foundations.

There is certainly something Kennedyesque about Khatami's appeal to "national resolve" along the lines of "Ask not what your country can do for you, ask what you can do for your country." One supposes, if the public is complaining about the economy, then why not blame the public for the state of the economy! It is the height of obfuscation and disingenuity to dump the blame for lack of exports or low economic activity on a nation which, as a whole, is at best a marginal player in the economic life of the country.

Here is the Iranian government-owned, operated and dominated economy in a nut shell: It is an economy made up of central planning, state ownership of oil and other large enterprises, village agriculture and small-scale private trading and service ventures. Central planning is neither central nor planned. The bickering among the various personalities in charge of economic and financial planning reflect in part the deep divisions in the politics and theologies of the discussants. State ownership means also government control of management. The label private is largely a euphemism for the self-employed.

Khatami may believe the nation should tighten its collective belt, consume less, produce more, so it can export, export, and export until it can export no more, assuming there are takers for Iranian goods and services.

In some quarters, there is no more sacrifice to be made, there is no belt to tighten; some have consumed it for the nutrition that leather provides, some may have even used it to hang themselves. In some other quarters, it is not fair to ask people to tighten anything when they are hanging by the thread of their culottes. Ask the forty-year old college educated who has three jobs and no family life, even though his rental hole in the wall is crowded with a wife and three children and many more emotional if not financial dependents, just making ends meet.

Here is Iran's foreign trade picture: $19 billion worth of exports, of which 80% is attributed to petroleum and the rest to carpets, fruits, nuts, hides, iron, and steel. Fortysomethings will note the same items from their 7th grade geography book. Here is Iran's import picture: $15.6 billion paid for importation of machinery, military supplies, metal works, foodstuffs, pharmaceutical, technical services, and refined oil products. The country's export of equity, i.e., external debt, is $21.9 billion. The country is in recession, which explains the unemployment and inflation. The national currency, rial, is in a free-fall in relation to the U.S. dollar, which trades at almost four times the "official" rate in the illegal but very active black market. What is wrong with this picture?

This economy is not "ill," it is comatose, not lively but not dead either, sleep-walking for years, much to the amazement of Western educated economists but the perverse delight of those who think economics is the art of scientific but meaningless indicators. Not to discount Khatami's call to "national resolve" completely, it may be a wake up call, a call-to-arms by the popular president, as he may seek to reduce and ultimately eliminate the political constraints on national economic productivity. Increasing productivity should be an objective in and of itself as a matter of national priority and not solely to boost exports.

Implicit in any design to boost exports is the view that national salvation comes from abroad and in the form of hard currency. That manner of thinking is flawed and dysfunctional largely because it divides up and distorts the national economy and its politico-economic institutions into a domestic and an export sector, where often the lure of hard currency compels a greater allocation of resources to the export sector. There should be one national sector, focussed on itself with only its surplus exported, and with one aim in mind, to permit the development and expansion of the private sector.

The concepts which permit readily the unquestioned bifurcation of the national economy into domestic and export sectors are deeply rooted in the Iranian culture. One need not dig any deeper than the message implicit in the promotional label "export quality." By God, not only the "export quality" pistachio were larger than anything I had seen in the family parlor, but they uniformly carried a smile. In my household, the family parlor, itself, was in a way an "export sector," the quantity and quality of goodies found there where designated for consumption of guests, foreigners to the house, really, who for some reason were said to have the proverbial place on the crown of the host's head or whose steps were welcome on the host's eye.

To reserve or give to others the better of one's own or oneself may be rationalized by courtesy and nobility of spirit, yet exercised in its extreme leads to servitude. The concept of master and servant in the Iranian culture is not simply a matter of arrangement or contractual ordering of private relations such as employment or institutionally defined hierarchies. The type of servility referenced here is the proclivity to behave inferior or deferential toward another, even if there is no such compulsion on the basis of any perceptible difference in status.

One need not look any further than the profuse use even among friends, on a daily basis, of the obsequious "I am your little one," "I am your servant," "I am your slave maiden," or the like. One may see the same in the choreography of two equals clinking glasses, as one slips his glass a little lower than the rim of the other's repeatedly until they both spiralled down to the floor, stretched out on their belly, each refusing to be stood down higher than the other.

Diminished self-esteem, by choice or circumstance, results in loss of respect by others. Lessened self-worth leads to inability to define one's self-interest. The failure to reason and act based on a heightened sense of economic self-interest, be it an individual or a national context, does not lead to profit maximization, cost reduction, productivity, or economic development and prosperity. If anything, it leads to inefficiencies, debt and dependence.

The public ought to stop looking to the government as its economic master, while the government should lessen its arrogant treatment of the public as its ward. The public should demand that the government get out of the way of economic activity and allow the private sector to expand. On the government's part, it should accept readily the inevitable shrinking of the public sector and reduction in its size, role, and influence as an economic actor, if economic developoment is what it has in mind. Here are a few questions that the leaders and reformers of the "Resolute Nation" may want to ponder:

First, is the present multi-layered and vertical political structure willing to accept a streamlined system based on a horizontal constitutional form of checks and balances among the three branches of government? No other form will allow for the development of individual political and economic rights of the citizen unfettered by governmental encumbrances. No other form will eliminate the familiar and familial internecine warfare among the various power centers and personalities in the ruling establishment, which disagreements impede decision making. These differences should belong to the realm of parliamentary debate not the ambiguous vagaries of this council or another.

Second, is the government prepared to privatize its economic assets and turn the management of state-owned enterprises to the private sector? A private sector cannot develop if all the major industries are owned by the government and are run for the benefit of the management? Any economic area of endeavor and opportunity which is worth anything is in the hands of government, dominated by government-connected persons, and protected by regulations which prohibit or discourage competition.

Third, are state-owned industries willing to pay their fair share of utility charges and taxes? Import duties? Decent wages to the workers?

Fourth, is the government prepared to repeal in fact and in deed all forms of statutory and "by nod" monopolies and take away the privileges of connected traders and businesses for the sake of promoting a wider field and greater number of players?

Fifth, is the government prepared to spend only what it takes in domestic taxes and a modest pre-established percentage of foreign receipts, even if it means cutting expenditures, subsidies, and payroll?

Sixth, is the government prepared to put a moratorium on borrowing domestically and internationally, even if the shortfall in revenue may generated political dissent?

Seventh, is the government prepared to deregulate the economy and demote its role as a trader to a promoter of trade and business?

Eighth, is the government prepared to adopt a single investment code instead of regulations favoring foreign investors or ad hoc mini investment codes framed in individual agreements with investors?

Ninth, is the government prepared to strengthen the prosecutorial arm of the state to deal with corruption, not motivated by political vengeance but by prosecuting bone fide economic crimes?

Tenth, is the government prepared to privatize the cause of action in bribery cases, in which the complainant private party may recover by proving its competitor obtained or kept a government contract or license by bribery?

Eleventh, is the government prepared to abolish all foreign exchange regulations? Presently, the government maintains different exchange rates for different activities and its rate setting is so out of touch with market realities that dollar trades at four times the rate of the official rate, to the government's detriment!

Twelvth, is the government prepared not to use the national economy to underwrite lousy foreign policy objectives?

Ultimately, is the government willing to take a pounding at the polls in the next election but secure in the knowledge that its political and economic reforms were necessary no matter what the price?

Khatami's call for economic restructuring is in essence a call for promotion of individual economic self-determination. At some level, his reference to "national resolve" is a call to political action by like-minded individuals to demand political and legal reform of economic assumptions and institutions.

Khatami should call for a national referendum to amend the Iranian constitution and rid it of doctrines which do nothing but limit domestic and foreign economic and financial activity, promote black-markets, and restrict opportunity for ordinary Iranian citizens to engage in meaningful business activities. For economic reform to take place, there is more a need for government resolve than farther sacrifices by the public.

The author

Guive Mirfendereski is an international lawyer and adjunct professor of law at Brandeis University.

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