Iran's Economy at the Crossroads

On the eve of its 2nd Five Year Development Plan, Iran is faced with intensified inflation, a precipitous fall in the value of local currency, unused industrial capacity, widespread underemployment, and a backlog of unpaid foreign debts. Under these conditions, the country has two choices: (a) to change course, and follow a road toward sustained, non-inflationary, growth, or (2) to continue the current posture that promises more inflation, continued stagnation and a decline in living standards. The first road requires the creation of a proper climate for full mobilization of domestic resources, and for placing the lion's share of these resources in private hands. The second road involves ignoring current political and economic impediments to full-employment growth, and following an isolationist, inward-looking, and state-directed strategy.

The current obstacles to the attainment of sustained development include certain constitutional and legal precepts inimical to private capital formation; ambiguities regarding the national socioeconomic agenda; perpetual quarrels over the state role in the economy; undeveloped local skills and technologies; and deficiencies in development planning.

Without removing these impediments, slow growth will continue and the financial pressures on middle and low income classes are likely to further erode political support for the regime. Sooner or later, the government and people of Iran will have to decide between the objective of other-worldly spirituality and a puritanical life style--as advocated by the Supreme Leader--, or the goal of higher material well-being and economic prosperity as promised by early revolutionaries and proclaimed in the five-year plans. And once the scope of the latter goal is determined, the task will be to find a desired balance between the levels of efficiency vs. equity. Given Iran's considerable natural and human resources, maximum equity (or "Islamic social justice") could be obtained at certain minimum levels of income per head (i.e., "shared poverty"). Optimum efficiency, however, cannot be achieved without adopting and following the globally successful model of privatization, marketization, and individual free enterprise.

* Abstract prepared by the author

Jahangir Amuzegar
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