Friday, October 24, 2008

Social Prestige & Numbers in Iran

You walk into a wireless phone store in Tehran and you want to sign up for a new line. The standard price is 280'000 Thomans, roughly 300 USD, however you can end up spending as much as 4'000'000 Thomans, 4000 USD, on a new line. My friend told me.

In Iran cellular network has different codes from the cities, for example Tehran area code is 021, while cellphone codes are 0912, 0913 and 0917. And they are not the same.

The first cellphone code in Iran was 0911 and then later it became 0912. If you have a 0912 line it means it is awhile that you have a cellphone. You are not some kid just getting rich, you have class. You have old money. 0913 still is OK, you live in Tehran, good city kid who bought his cellphone couple of years ago and have been making money. You are in the circle. 0917... well that is not good news at all! you make some fast cash recently and you do not have any social standing. More than one friend told me in Tehran if your number begins with 0917 no chance a girl accepts your number!

There is no surprise that demand for a cellphone number varies with the number you can get. 280'000 can get you a basic line, but it is a poor signal for your prestige. So you might want to spend a little bit more, actually a lot more, to stay in the circle.

Brands define you in Iran; your school, your neighborhood, your car and etc, even before you start talking. But this phone number thing is taking it into a new level. And why is it like this? Why people invent brands in a society already poisoned by branding and labeling.

Sunday, October 19, 2008

Bazar Said "No" to Value Added Tax

Iranian government has introduced a value added tax (VAT) and gave the treasure authorization to collect this new item from businesses and Bazar across the country. The treasury issued an order and set a date to start the collection. Things seemed to be under way however...... .

However President Ahmadinejad's administration underestimated Iranian Bazar greatly. First in Isfahan, then in Mashhad, then in Tabriz and finally in Tehran Bazar closed down and Bazaris went on strike opposing the new tax measure.

Government retreated first by canceling the order temporarily for two months and then for time being. Tehran's Bazar stayed on strike demanding the new measure to be canceled permanently. For a government that talks of bold measures it was not exactly a triumph.

While many debate that VAT is a measure to protect consumers from over taxation and some argue that little time had been spent on preparing the public for this measure, it seems that many miss the point communicated regarding the policy implementations in Iran: You do not mess with Bazar!

An increase in taxes is not something Iranian shopkeepers and Bazar's tradesmen submit to willingly. There was little doubt that they would react to such measure. and It must be noted that they can.

It does not need reminding that Bazar or marketplace is Iran's most ancient economic institution. So its network of connections includes the elite, the clergy, the industrial entrepreneur and the consumer. It is well aware of its connections and its power. It also benefits from the fact that everybody else is convinced that its motivations are purely economical. So Iran's Bazar benefits from that rare luxury that many other institutions lack: maneuverability.

Its reaction to this new measure only confirms this reality. Reacting to a measure that was well intended it communicates a clear message to the administration, in Iran to protect the consumer Bazar is not willing to take on more taxation.

Many might welcome more government's subsidies, the traditional way of disturbing the wealth of oil in the society, but the declining oil prices are not empowering more subsidization either. Government has only two choice ahead: either to sacrifice development for the sake of consumer by diverting its resources or its popularity with Bazar for the sake of its popularity with consumers. Neither is an attractive prospect.

Monday, October 06, 2008

Bail Out Ejects the Free Market in Iran

The history of economic thoughts and economics in Iran reads like ancient Greek tragedies. In a country where all ideas have a political role to play, even if they do not want to, free market and neoclassical economic theories have found themselves at odds with politicians more than once.
In Pahlavi era they were not welcome while a centralist government reigned over economy with a tight grip, and while most of Iranian intelligentsia was inclined toward Socialist and Marxist notions. A free market was equivalent of heresy.
In the post revolution era ideologists and politicians vacillated between absolute control of economy and privatization.
Ironically the first major nationalization program was designed and proposed by Mr. Sahabi a member of the provisional government and Mr. Bazargan’s liberal moderate cabinet. The revolutionaries might have their disagreements over many concepts such as democracy and freedom of speech however they all opposed economic freedom and free market resolutely.
Only recently during Presidents Rafsanjani and Khatami politicians reconsidered their stands and welcome some notions of private ownerships. Development plans called for extensive privatization of industries and a new interpretation of article 44 of constitution was introduced that ended the government’s monopoly in economic activities. It even seemed the most ardent critiques of free market have accepted the necessity of private free market at last.
However the new crisis in American financial markets has fueled the arguments of those who advocate an unlimited role for the government in the economy and distrust free market and free market ideas. President Ahmadinejad went as far as saying that assuming free market regulates the economy is “a great lie that benefits thieves.” There is no doubt that promoting a free economy in Iran has become more difficult.
Such statements are nourished by the fact that many Iranians, intellectuals and politicians alike, are ignorant of economics as a science and believe their experience of economy can substitute analytical tools and methodological studies of the economy. They often confuse the science with the phenomenon and instead of believing in price and inflation as signals believe in them as control instruments of the economy.
For time being many from all parts of political spectrum in Iran refer to the ongoing crisis as the greatest defeat of capitalism, however one wonders what would happen if this crisis forces down the price of oil. Would then a private free market become a good idea again?