Elections in times of economic crisis
In a post that I published earlier this week on the Brookings blog, Future Development, I argued that because Iran’s February 26 parliamentary elections took place at an economically inopportune time the success of the moderate candidates is all the more significant. In my last post here, written a couple days before the election, I had presented some evidence for the poor state of the economy — loss of industrial jobs and falling living standards since Rouhani’s election in June 2013. In this post I expand the discussion of living standards, poverty, and inequality in recent years.
In my previous post I presented evidence from the 1393 (2014/15) Household Expenditure and Incomes Surveys (HEIS) showing that the economy had deteriorated in the first 1.5 years of Rouhani, and from Labor Force Surveys showing that in the summer 2015 there were nearly 300,000 fewer industrial jobs than the summer of 2013 (the service sector picked up enough jobs in the meantime to maintain the overall level of employment).
It turns out that I am not nearly as pessimistic as Rouhani’s own senior vice president, Eshaq Jahangiri, who claimed (link in Persian) that this year is “the worst since the revolution.” It was the worst in a decade, but by no means the worst since the revolution. The absolute worst post-revolution year was 1987, the year before the war with Iraq ended (see the graph here). This year’s GDP per capita is in fact more than five times it was in 1987 (seven if you take the PWT series).
Back to more recent years. The most up-to-date data on economic welfare is from the Statistical Center of Iran (SCI), which publishes annually a comprehensive survey of household expenditures and incomes. Here is what I calculate from the past four years of the HEIS data files:
Real per capita expenditures fell nationally starting in 2011, the first Iranian year (2011/12) after international sanctions tightened starting in July 2011. Rural expenditures started to fall a year later and, as with expenditures in urban areas (excluding Tehran), continued to fall into 2014/15, more than a year after the Rouhani administration had taken charge.
Interestingly, Tehran’s households appear to have seen a reversal of this trend during his first year. As I mentioned in the Brooking piece, this reversal may have helped the moderate candidates in Tehran’s elections. And of course it was Tehran’s results that dominated the election news, hence a potentially overoptimistic take on the moderates’ success.
Unsurprisingly, in 2014/15, the poverty rate shot up in rural areas and increased noticeably in urban areas, while it fell in Tehran. The estimates of the poverty rates in this table use poverty lines for rural and urban areas by province that average to about $5 per person per day (PPP) in 2014/15.
It is important to note also the decline in poverty rates in rural areas during 2010-2012, despite falling average expenditures nationally (as noted in the last column of the table above), which is no doubt a result of cash transfers that started in 2011/12.
As one would expect, inequality also increased last year, as an array of inequality indices listed in the table below clearly show. The mention the most familiar measure, the Gini index that had declined from 41.5 percent in 2010/11 to 37.4 percent in 2013/14, went back up to 38.8 in 2014/15. The same trend is seen in the ratio of expenditures of the 90th to the 10th percentile and the General Entropy (GE) indices in the table.
There has been little discussion of these trends in poverty and inequality the Iranian press, perhaps because they imply that the Ahmadinejad administration was pro-poor, which is not a cool thing to say in polite company. An article in the popular business weakly Tejarat Farda (issue #170, p. 89) dismissed the evidence of declining inequality during Ahmadinejad years because the Lorenz curve (on which the Gini index is based) is a “theoretical concept” that lacks empirical validity!
Lowering poverty and inequality by distributing cash is not an accomplishment; the real deal is to generate inclusive growth and create jobs. Ahmadinejad did not neither.
The ball is now in Rouhani’s court, not just to bring about economic growth but of the inclusive and pro-poor type. So far the available evidence is not in his favor. It is, of course, too early to decide if he can deliver the real deal and we should be willing another 2-3 years.
But we need to make sure that the economy is on the right track. To do so we need to use the evidence that become available carefully and honestly, and not be afraid that it may tell us what we do not want to hear. Iran’s Central Bank could start on this worthy cause by publishing economic growth data on which it is several years behind.