Why is inflation uncontrollable in Iran? Investigating the root causes of Iran’s economic cancer – Part 3
According to Iran Gate, in recent days and less than a week into the new year, media outlets supporting the power-oriented and even reformist movement have praised the wise naming of 1402 as the year by the Supreme Leader of the Islamic Republic.
However, only a very small number of economists and experts discuss the impracticality of the inflation control project in the current Iranian economy. They highlight the environment that has created the best opportunity for stakeholders close to the ruling power to astonishingly turn national assets into a source of personal gain.
In the previous two parts, four rent-seeking practices were mentioned that practically prevent the control of inflation in Iran. In this part, two other rent-seeking practices that have gripped the country’s economy will be addressed. The rent-seeking of obtaining licenses, also known as bureaucratic red tape and paperwork, is one of the most important of these practices. However, the rent-seeking resulting from command pricing, which was partially discussed in the rent-seeking of currency and energy, may be the most crucial part of this issue. The following section provides a detailed discussion of these two aspects.
Divine Deposit Bureaucracy for Rent-seekers
In general, rentier governments are accompanied by complex administrative structures and futile and wasteful paperwork. When the government has resources and distributes them as rent, it expects at least some accounting for these facilities. Therefore, these governments resort to complicating bureaucracy and excessive centralization.
This action not only increases the internal and current expenses of the government but also creates a platform for some influential individuals to abuse. Surely, we have heard the names of individuals known as rent-seekers. These individuals are actually the same influential people who take full advantage of the government’s office and authority.
Interestingly, the process of obtaining a license is a win-win situation for rent-seekers and a lose-lose situation for national capital. This is because the rent-seeker and the applicant for obtaining the license both end up as the owners of the rent, proportional to their share and influence, which should not really benefit anyone.
However, when the work is completed, the cost that remains on the economy is much heavier and more destructive than the distribution of rent on a small scale. It should be noted that the government bears the cost of managing a systemic system that has been turned into a rent distribution machine with tens of thousands of employees.
This means that not only is the rent paid from the government and the people’s pockets, but the government also pays for the maintenance of the rent distribution tool from the people’s pockets and national assets. This tool takes the form of ministries, government banks, and appearances, and practically serves as a place for dividing resources among themselves.
As mentioned, managing this rent distribution system has costs for the government, and paying these costs is not always possible for a government that is constantly challenged by the world. Therefore, with the slightest tension in income, usually oil-related, the government is forced to borrow, and once again, the file of inflation intensification will be reopened. With these details, it can be said that the license-oriented paradigm has dominated the country’s economy and has monopolized major markets, from the market for importing industrial machinery to opening a supermarket in a small village.
Of course, these rents cannot be compared to each other in terms of size, but no one can safely navigate the bureaucracy of the seven government agencies without having a party or acquaintance. Even if someone has no desire to comply with this system, they are forced to give in to it in order to get their work done, which in turn creates multiplied costs in the social sphere.
Command pricing or auctioning off national capital
As mentioned in the first part, the mechanism of command pricing in the energy and foreign exchange markets has created extensive rent-seeking, but this approach is not limited to these two sectors and encompasses all markets.
For example, in the pricing of consumer goods, which is done by the Ministry of Industry, Mine, and Trade, a significant rent is given to those who have greater access to government goods. But what is the flow of these government goods and why are they distributed?
Rent determines the prices of goods in monopolistic markets and the government’s expectation of price stability and adherence to the announced rates leads to the government being in debt to the market. In other words, the government forces sellers to sell their products at a lower price, making the suppliers demand payment from the government. This is why the government is obliged to bring its goods to the market and deliver them to the buyers at their desired price.
For example, if the price of chicken in the Tehran market is 100,000 tomans, the government starts distributing chicken at a price of 50,000 tomans in the market. This price difference is exactly the rent that is mostly obtained by beneficiaries and rent-seekers. Naturally, pricing usually leads to increased demand and does not change the actual price. As a result, this rent goes to those who have greater access to goods at government rates. In this system, anyone who has greater access to these resources will benefit more from their advantages. However, the problem is that the extent of this government action is so extensive that it imposes a heavy cost on the budget.
The series of articles on cancer detection in Iran’s economy has been exclusively published on IranGate. Other sections are accessible to you via the links below.
- ریشه یابی سرطان اقتصاد ایران / چرا تورم ایران مهارنشدنی است؟ قسمت اول
- ریشه یابی سرطان اقتصاد، چرا تورم در ایران مهارنشدنی است؟ / قسمت دوم
- ریشه یابی سرطان اقتصاد ایران، چرا تورم در ایران مهارنشدنی است؟ / قسمت سوم (در حال مطالعه این بخش بودید)
- ریشه یابی سرطان اقتصاد ایران، چرا تورم در ایران مهارنشدنی است؟ / قسمت چهارم
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