Tyranny of numbers

Conference on the Iranian Economy

Posted in General by Djavad on September 23, 2009

This weekend I attended a very interesting conference entitled Iranian Economy at a Crossroads: Domestic and Global Challenges.  The conference was organized by Jeff Nugent, Hashem Pesaran, and Hadi Salehi Esfahani.  In attendance were Iranian and non-Iranian economists, economists and non-economist, young and old economists, and economists living inside and outside Iran.  This is the second in a series of conferences on the Iranian economy that I have attended.  The first was at the University of Illinois and was organized by  Hadi Esfahani.  That one was more focused on economics than this one, in which one interesting paper was presented by the famed Iran anthropologist, Bill Beeman.  There was mention of the next one being a year from now at the University of Chicago.  I notice a  rising level of interest in economic research on Iran, a sign that more data is becoming available, more people are writing on Iran (mostly young economists), and more people are interested in learning about Iran’s economy, the latter perhaps caused by the rising threat of new sanctions against Iran.  Let us hope that the flow of data and conferences will continue in the future but the sanctions won’t.One interesting paper, presented by Hashem Pesaran,  argued forcefully that over the long run oil has been good for Iran’s economy, that the Dutch disease problem that has been frequently associate with oil income is more due to its volatility.   That is, if spikes in oil income were fully predictable, people would adjust to it and take the right decisions. He admitted that when there are costs of re-adjustment–such as in redeveloping agricultural land that might have been abandoned in the face of cheaper food imports–the problems may be deeper that can be fixed by assuming perfect foresight.

Well, perfect foresight is, of course, only a tool for model making and not a description of the real world, but Pesaran’s does force you think hard about the role of volatility of oil prices, as distinct from their level is causing harm. The questions that need to be answered are (1) whether the damage done during (by?) the recent oil boom to the tradable sectors of the Iranian economy, such as textiles and sugar, could have been fully avoided, and (2) if the next oil boom is going to be any different.  We know it will not be anticipated.

The crossroads in the conference’s title, and at which the Iranian economy presumably stands now, was never defined.  But crossroads is the right analogy, and my take on it is the choice between economic growth and redistribution.  Growth over the last 15 years has brought the changes in health, education, and living standards that underlies greater demands for civil and political participation, which has been on world display since June.   The latter, which is an old obsession of Iranians, was also on display this summer, but not as visible as the protests, as political support for President Ahmadinejad.   Economic growth is under serious pressure from social forces that demand redistribution but receives little political or ideological support from the very middle class it has nurtured.  Growth has so far not found its political base or lobby, but redistribution can always draw support from the 50 percent of Iranians below the median income (or even the 65% below mean income).

Another crossroads that the conference addressed tangentially and one that the US and its allies face: to push or not to push for greater sanction?  The sanctions question poses a sharper dilemma now than before because of the uprising of this summer.   In the US congress the sanctions horse seems to have left the gate even before the whistle was blown, or if it did I did not hear it.  The US Congress is busy drawing up plans for harsher sanctions before we know the outcome of the upcoming meeting on October 1 between Iran and US representatives.   The sanctions debate is now complicated by the fact that the protesters are not the poor and are not making economic demands, so increased sanctions do not directly affect the government’s ability to address the protesters’ demands or its ability to quell the protests.  There was interesting, if indirect, discussion of sanctions at the conference.  I recall one point vividly, Fereidun Fesharaki’s point that the gasoline sanctions being mentioned in Washington will be a political gift to Ahmadinejad, who needs political insurance if anything goes wrong with his plan to end the gasoline subsidy.

There was other very interesting things said at the conference, most of which you can read in the conference papers here.

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