Tyranny of numbers

Jobs, poverty, and Mr. Moussavi

Posted in Employment, General, Poverty by Djavad on April 28, 2009

A news item on Iran’s “Worker’s news agency” (ILNA), in Persian, which belongs to the workers’ organization House of Workers, reads, “A wealthy country in which people are poor is not Islamic.”   This is a curious title for a report of a speech by Mr. Moussavi which is entirely about jobs, unemployment and productivity (delivered to the organization’s annual congress).  Why would something mentioned at the end of a speech (and reported in the last sentence of the news report) become the headline?  I think I know why.

The Left in Iran, broadly defined as a spectrum with ideals of social justice and suspicion of capitalism (under which the House of Workers probably falls), has always found employment a difficult subject and preferred poverty as a political issue.  Never mind that the loss of the reform movement in 2005 was attributed to the movement’s failure to reduce poverty, the movement still beats the poverty drum for what it’s worth to beat back its rivals.  

Why would the Left prefer poverty over employment as a political issue? Because poverty eradication implies the need for more government action, whereas employment policy often means less.  Most people, even on the left, now agree that job creation is best left to the private sector, and a less dirigiste government is better for employment. Why is it easier to criticize governments in power for failure to eradicate poverty?  Because it is near impossible to eliminate.  No country has claimed to have done so, except socialist and communist regimes, and we know what happened to them.  So, as a charge of failure it sticks easily.  

In a market economy  in which rewards are at least in part based on effort and productivity, and not just needs, there will always be people in need.  The key to policy making to reduce poverty is to distinguish between those who cannot work to earn a living and those who can but rather receive handouts.  This is at the core of the incentive problem in all welfare programs.  Societies try to design their assistance and social protection programs in such a way as to keep the incentive problems to a minimum.

It is a fact of life that, unless carefully designed to avoid it, government programs to eliminate poverty reduce individual incentives for seeking employment and training.  Not everyone without work should be eligible for assistance.  This presents all idealists, such as myself, with a serious social dilemma, how to reduce or eliminate poverty without hurting productivity.  People in social democracies try to solve this by striking a balance between protection and incentives.  By doing it through politics, sometimes they find a balance that fits their culture and social norms and sometimes they don’t, especially then societies are polarized, as the US has been recently.  Obama has promised to change that, but we have to wait and see if he succeeds. 

The standard response to incentives for work is that first there has to be work for someone to find it, incentives or not.  Creating more jobs is important, which is why economic growth is good for employment.  But people do not want any job; they want “good” jobs, decent jobs, appropriate jobs, and jobs they are trained for.  And here lies the social dilemma: good jobs are in part in the eye of the beholder.  If I prefer a certain type of work that I cannot find, I may refuse taking another job that would earn me enough to get by, but I will not if I can collect the same from other tax payers through a government run welfare scheme.  My scape clause if I lived in Iran would be that I am collecting my share of the oil money!   

Mr. Mousavi hit the incentive issue on the head when he asked Iran’s “Social Protection Agency” to eschew involvement in politics and instead, “in conformity with the global economy, act to support production.”  The emphasis on raising production and productivity is evident throughout his speech.  As a candidate from the Left, Mr. Moussavi is showing courage and progress in his thinking.  Will good talk be matched with good policies?

At issue is at one end striking a balance between incentives for work and income protection, and at another end, in poverty reduction, between more income assistance and economic growth.   Iran is in the process of finding the right balance between these choices–that is, discovering its own brand of social democracy. In this task, and at this particular historical juncture, Iran’s electorate is badly in need of clarity of thinking about issues related to poverty and employment in particular, and economics in general. Let us hope that their economic experts and presidential candidates do their part to make these important issues clearer for them.

3 Responses

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  1. naser said, on April 30, 2009 at 5:15 pm

    so it is impossible to eliminate poverty. as i found the poverty is an incentive item to work and productivity.

  2. Hamid reza said, on April 30, 2009 at 7:33 am

    I wish we could have an Iranian Sociologist here too!

  3. Behrooz said, on April 29, 2009 at 7:59 am

    Thanks for this informative fair article. I think the employment may not be a good policy tool for current economic situations in Iran. I think there is a missed link in this chain which I believe is social or even cultural. Let me count some problems:

    1- The other production factors especially capital cannot be absorbed parallel to increase in labor and so marginal productivity of both will decrease,

    2- Even if it works well, the demand side of the market (domestic or international) may not be able too absorb the extra production,

    3- The new labor will move toward less capital intensive and self-employment opportunities which will cause creation of a temporary firms and fake jobs or it will be employed with the government which will lead to a bigger and less productive and effective gov.

    4- I read in a report that countries in Middle East prefer to keep the productivity at the current level to avoid more unemployment. So, more employment will cause less jobless people but at the same time less efficient economic system. I think it is a kind of paradox. In such a society, if even everyone is employed and has adequate income, the whole society may be very poor. I mean the average per capita income will decrease. It may be another kind of redistribution. Instead of direct transfer payments we employ jobless men and the whole national income is almost the same. I think it will worth to think about the fact that if a firm employs more than its real capacity, this will direct the income toward less talented employees.

    I think Iranians have not felt the real problems of unemployment yet as many of these jobless men and women still live with their parents. They are unemployed individuals (sons and daughters) not families (fathers and mothers). This wave made a mess in education system in last decade, then is arriving to job market and who know what will be hit next, maybe the social norms of the next generation…

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