Report on the First Conference on Iran's Economy

This was a most promising gathering of economists and doctoral students interested in Iran's economy hosted by University of Illinois at Urbana-Champaign (UIUC). Some of the eminent names in Iranian studies and economic research attended the conference, among them (in alphabetical order) Professors Firouz Gahvari, Hassan Hakimian, Guity Nashat, Vahid Nowshirvani, Hashem Pesaran, Djavad Salehi-Isfahani and Hadi Salehi Esfahani. The younger generation included several doctoral students from UIUC, Virginia Tech, USC, UT-Austin, Berkley, Cambridge (UK) and Goethe University (Germany). Nobel laureate Gary Becker from University of Chicago offered commentary on research on Iran’s economy. Professor Hashem Pesaran from Cambridge was the keynote speaker. The meetings were held in Illini Union.

The conference was conspicuous for several reasons. The articles presented stand apart from the mainstream research in their insight, analysis and implications. A few works even went as far as implementing new information theory methodologies to study economic issues in Iran.

The works of doctoral students were impressive both in their efforts to utilize advance theories and analytical tools and in their struggle with original data from the field. Each and every paper was welcome by several comments from well informed audience and the following discussion usually brought up new questions for further research. This was a world apart from usual gatherings where people have little idea about the realities of daily economic life in Iran and thus they are content by what they hear.

The conference also was a significant organizational success. All in academia know that organizing such events is no easy task. Special thanks go to Professor Hadi Salehi Esfahani for initiating the idea of such gatherings and coordinating the efforts and resources needed for organizing this conference and to his colleagues; Professor Firouz Gahvari and Dr. Ali Toossi Ardakani and to Iranian graduate students in economics department at UIUC, who assisted in all phases of the conference and were generously hospitable. UIUC[1] has been among the first campuses to admit Iranian graduate students to the doctoral program in economics directly from Iran and its sponsorship of this conference was a new peak in this institution’s support for research on Iran’s economy.

This certainly is but a beginning. The second conference at USC in September 2009 is expected to be attended by a larger number of researchers and doctoral students. The idea is to have annual meetings that bring together all economists who are interested in Iran’s economy with academicians from Iran; unfortunately visa problems prevented Iranian economists from attending the first conference despite organizers’ efforts and wishes. The challenges ahead are many particularly for the young researchers who have to seek employment and to qualify for tenure. They ought to balance their interests in Iran's economy and the necessities of their career paths.

The signs are promising; Iran is a taboo or deal breaker topic in academic circles no more. The growing number of doctoral students in economics from this country guarantees a continuous access to the observations from field and a dynamic link with Iranian academic centers. The road ahead is long, but there is hope that great things can be accomplished. The first Conference on Iran's Economy has confirmed and reinforced hopes for dynamic, productive and ground breaking research on Iran's economy.

[1] Another school was Virginia Tech, whose students collaborated with a few research papers offered in this conference.

First Conference on Iran's Economy

Tomorrow the First Conference on Iran's Economy will take place at University of Illinois Urbanna-Champaign. This gathering stands out for two reasons: first it is attended by many who have been working on Iran's economy for the past three decades. Second a number of young researchers are presenting their work in this conference, among them a few doctoral students and recent graduates. Thus it marks the first event where the younger generation of economists interested in Iran join the older generation who kept the work going despite all difficulties and turmoil of past three decades.
There will be a second gathering in September at USC and interested parties and researchers are invited to submit their work. Iran's economy after another sharp increase in oil prices is going through aftershocks now. Its rising inflation, the huge supply of college graduates, its success in checking population growth and fighting poverty, while inequality persists in society, make studying it the most intreseting undertaking.

Iran and US Election

It is interesting to notice that how closely Presidential campaigns in the States were followed by international audience. In Iran many kept track of primary elections and then the combat between Barak Obama, President Elect, and Senator McCain with enthusiasm. For them it was unbelievable to see an African American with a Kenyan father on the road to the White House.
In the days leading to the election Iranians enjoyed the competition while many officials followed the old line that USA foreign policy is independent from the ruling party. This statement neither subdued hopes nor reduced expectations that an Obama presidency would be better for Iranian people. Many believe that even a change of tone in Washington would cool down the tensions and would facilitate diplomatic approach and negotiations.
Iran-USA relations always have been a tricky process filled by political minefield. Both sides have to be careful of domestic reactions and interest groups while planning to approach each other. The prevailing assumption is that Iranian politicians believe that success in opening political relationship with the States would result in an immense increase in one's prestige and political influence. Thus many political groups would interfere in the process or would interrupt it to deny their rivals the credit not because they oppose the notion itself.
This argument neglects the fact that often radicals of both sides enjoy a best response situation. They provide each other with incentives, motives and reasons to remain radical. It also puts too much weight on the political gains of such a relationship. Many politicians on both sides have gained more opposing the other side than advocating diplomatic relations. Why this time could be different? Would it be different simply because of the “change” agenda?
Although some say “Change” has created expectations, there is little doubt that realpolitik deals with incentives, gains and strategies. From this point of view both countries are in a position to gain from a negotiation. If we assume that new administration will seek a stronger Iraqi government and move toward a reduced presence in Iraq then Iran’s assistance would be of value. Should it be secured it will result in a more stable Iraq and facilitate regaining stability in Iraq. Thus requiring it might create positive gains.
On the other hand if the price of oil continues to decline then Iranian government might appreciate lifting the sanctions and access to international banking system. It also might consider it as a positive gesture to see the regime change is not part of the agenda in Washington.
President-elect’s victory was welcome by many social groups in Iran, including youth, business community, women and students. There are several ways that the new administration can show them good faith: increasing cultural and academic exchanges, allowing Iranian private airlines access to American aircrafts and parts for their purely civilian purposes that would reduce the fatality rate of air travel in Iran, and exploring common business interests; for too long both sides have been focused on oil industry however there are other fields that both sides can collaborate. Doing so would increase the popular demand for relations with the States and politicians can seek diplomatic solutions without appearing to compromise their standards.

So It is Settled

“Impeachment has been Accepted and from this day Mr. Kordan cannot be functioning as the minister of interior. Majlis has expressed its lack of confidence.” With these sentences Dr. Ali Larijani the speaker of Iranian Parliament made it official that Mr. Kordan had lost his job after 90 days in office. Your correspondent does not want to exaggerate the significance of this event; however it was an important development, one that cannot be ignored.
Our story began when Mr. Kordan, seeking the approval of Majlis told MPs that he hold an honorary degree from Oxford, that prestigious eminent tower of academic traditions. After hearing his credentials and Mr. Ahmadinejad's enthusiastic support MPs went ahead and voted for Mr. Kordan. It did not end there.
Dr. Tavakoli a prominent conservative MP who is the Head of Majlis Research Center and runs Alef (http://www.alef.ir/) news website did not find Mr. Kordan’s answers to the questions about his degree satisfactory. He sent an inquiry to Oxford asking if they had granted Mr. Kordan a degree in the past. Oxford denied even hearing of a Mr. Kordan. Dr. Tavakoli’s website uploaded Oxford University’s letter. And school sent out a news release to the effect. The story now was picked up by the foreign press; Guardian, Washington Post and LA Times circulated the related stories.
While society, weblogs and media were filled with stories and jokes about this event, conservative faction and MPs were facing a serious question. Although many bureaucrats and officials claim degrees from schools, both domestic and foreign, neither of them ever did so in an official session of Majlis and none had been contradicted. This was an obvious breach of the values advocated by the conservatives. They had no other choice but to seek Mr. Kordan’s resignation.
Several conservative MPs joined Dr. Ahmad Tavakoli and Dr. Ali Motaharri, another conservative MP from Tehran whose father, Morteza Motaharri was the most prominent ideologue of Islamic revolution. They asked for Mr. Kordan’s resignation, he rebuffed them. They requested the President to fire him, and the President rebuffed them too. So impeachment was the only way.
Days leading to the impeachment witnessed some interesting events. Mr. Kordan accepted that his diploma could be a forgery but said that an individual who had claimed to be Oxford representative in Tehran had offered him the document on school’s behalf. That individual identity remains unknown. An aide to Mr. Kordan and President was caught offering 5 million Thomans to MPs for repairing Masjids (Mosques) in their constituencies. Instead of a receipt he had them sign a withdrawal from impeachment request. After being slapped by a fellow conservative He was banned from entering Majlis building.
The day of impeachment came, while Americans were electing a new president, Iranian MPs were firing the person in charge of holding elections. The outcome was celebrated by conservatives, moderates and reformers alike. The impeachment also pushed the cabinet to the edge of confidence. One more change in the cabinet would force President Ahmadinejad to ask for the vote of confidence for the government from Majlis, according to Iranian constitution; an opportunity that many of his critiques would welcome.
The hero of the hour is certainly Ahmad Tavakoli. Your correspondent has been a critique of Mr. Tavakoli's political views, which are conservative, and I am not a conservative by any stretch of the word, and his economic beliefs including his support of government’s role in the economy, yours truly advocate a free market and participating in the global markets. However it must be pointed out that he preformed his duties as a MP immaculately. He investigated Mr. Kordan’s credentials, provided evidence that contradicted them and acted upon hard evidence to challenge him. He was able to rally a group of MPs to impeach the minister and he gave president every opportunity to avoid a confrontation. Many including your correspondent believe that is the true function of any parliament. That is why democracy is efficient, that is why legislation must be independent of executive and that is why elections must be free.

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.

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.

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?