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June 2018, No. 87


Economy

Observing the Rules of Competition
in Iranian Economy


The Iranian economy is officially divided into three sectors: public, cooperative and private, but in practice, there is one state owned nongovernmental sector as well which should be considered the fourth sector of the Iranian economy.


In the eyes of former chairman of Iran Chamber of Commerce, Industries, Mines and Agriculture Mohsen Jalalpur, the activities of the state owned non-governmental institutions in the economy have not served the interests of the Iranian economy. “Many of these institutions do not pay taxes, their performance is not transparent, they have no productivity and their performance leads to the wastage of non-renewable resources in the country. They mess up competition in the economy, they are engaged in unrelated activities and have grown to a degree that regulates or undermines economic and international relations."

According to Jalalpur, the economic activities of governmental and non-governmental organizations have caused the private sector to remain small. Any policy that is exercised, aimed at economic reform in the country, is practically to the detriment of the private sector. Noting that the performance of some state-owned governmental and nongovernmental enterprises is disrupting the competitive environment in the country, he said: “When the rules of competition are not respected, the private sector, which should be the driving force of the economy, falls into the abyss of making losses because it does not have the capability to compete with these corporations.” The private sector activist advises: “Let’s redirect the activities of the general non-governmental public corporations to their main track. It is very important to properly explain the structure of the economic sectors. 

How serious is the issue of curbing the economic activities of nongovernmental institutions?

I do not think it is serious. The reason is that the policymakers and decision-makers in the country still do not believed in the economic crises. The government too still does not believe so. The issue is very simple. We are faced with the unemployment crisis of educated youth. In the recent street protests, unemployed young people played an important role. Most of them were born in the 1990s who are gradually withdrawing from the labor market due to growing age. Those born in the 2000s are also joining the first group. Jobs must be created for all the unemployed young people. Otherwise, the government must accept its social, political and security implications. What’s the solution?

The way is to open space for private sector activity. On the other hand, we should improve our relations with the world and determine limits for the activities of the government. 

What services do you think the public institutions have rendered to the economy? And what costs have been imposed on the economy, especially on the private sector?

The Iranian economy is officially divided into three sectors: public, cooperative and private, but in practice, there is one state owned nongovernmental sector as well which should be considered the fourth sector of the Iranian economy. The roots of some of the public institutions have been formed in the nationalizations of the early years of the revolution. The foundations were formed precisely in the same period. Similarly, public institutions, nongovernmental institutions and economic structures dependent on revolutionary institutions were formed on the basis of certain missions, but they were not supposed to become so big and create monopolies.

I do not see positive records in the activities of state owned non-governmental institutions: A performance that may have served the national economy. For example, many of these institutions do not pay taxes, their performance is not transparent, they have no productivity and their performance leads to the wastage of non-renewable resources in the country. They mess up competition in the economy, they are engaged in unrelated activities and have grown to a degree that regulates or undermines economic and international relations. “

Almost everyone agrees that the Iranian economy has reached a stage of anarchy and disorder. The reason is that since the formation of the Islamic Republic, private property has always been violated. There are currently a variety of ownerships in our country. We have state owned nongovernmental organizations; we have public nongovernmental corporations; we have military corporations; we have private companies; we have cooperative enterprises as well; and we also have public enterprises eventually. You can hardly find a country with such ownership dispersion. Many of these firms are not accountable to any institution. They do not pay taxes, they are not transparent and they do not follow any rules. The interests of self-governing firms are that our country always have problem with the outside world. Because if our problem is solved with the world, then the geography of business will change, and firms would enter our economy with whom monopoly corporations would be unable to compete. A monopoly firm is afraid of competition because it is suffering from severe inefficiency and because they know nothing about productivity and their survival depends on monopoly. 

How do you think public institutions can best serve the economy?

As I mentioned, I personally oppose bursty breaks in the operation of the state owned and government corporations in the economy. In the short term, it is not possible to redirect the Iranian economy into its main rails. But we need to make the right policymaking in order to serve the country in the long run. For example, as Dr. Nili (a senior economist) has suggested in Iranian economic studies, policies should be formulated to direct state owned corporations to areas where the private sector is not really interested or able to maintain presence. There are numerous spheres which suffer from deprivation in the country and these corporations must be encouraged to focus their activities on these areas. I would like to say that the scope of ​​activity of the private sector and the state owned sector should be determined. It should be made clear in what fields can the private sector operate and in which fields it is not allowed. In other words, it is possible to draw a line between private sector activities and the nongovernmental public sector, and take steps towards structural reform gradually.

 

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  June 2018
No. 87