Affirmative action for Iranian men — to help women!
A recent news item posted on Alef’s site (in Persian) with the provocative title, “33 harmful effects of increase in women’s enrollment in universities,” reported the opinions of “experts” and politicians, including some members of the parliament, on the consequences of the rising presence of women in universities. Expressing concern about the imminent “takeover” of universities by women, and suggesting the need for affirmative action for men, is not new (I wrote a short article on this subject more than three years ago). What is new is the claim that it is not good for women. Affirmative action for men to help women! (more…)
Egypt: between populism and subsidy reform
Cairo, June 14, 2011
This is my first trip to Cairo since the uprising that toppled the Mubarak regime. The airport was unusually quiet and all Mubarak pictures are gone, but otherwise there are few signs of a country that has just experienced its most dramatic social upheaval since the 1952 revolution. Egyptians like to think of the uprisings as Revolution (“al thawrah”) which in Arabic signifies deeper social change than “enghelab,” the word Iranians use for revolution. But what has transpired in Egypt’s first six months of “revolution” pales in comparison to Iran’s 1979 Islamic Revolution. There have been no executions or mass exodus of the rich, and not even an overhaul of the high echelons of the bureaucracy, as happened in Iran. Egypt’s judicial system has taken the lead in calling the members of the ancien regime to account. So far it is moving cautiously; only 45 individuals are currently in jail or standing trial for their alleged crimes, including Mubarak and his two sons. If the judiciary can satisfy popular demands for justice, Egypt has a good chance for a soft landing on this side of the uprisings, and its judicial system may emerge as a strong pillar of its future democracy. If it fails to do so, revolutionary justice may take over and all bets would be off about democracy and restoring the economy to its previously robust growth path. No one seems certain how Egypt’s revolution will end. As de Tocqueville has said, “in a revolution, as in a novel, the most difficult part to invent is the end.” (more…)
Getting More from Less: Merging Ministries in Iran
The recent decision by the government to merge several ministries has ignited a fresh round of dispute between President Ahmadinejad and his conservative critics, but the controversy has been all about whether the president has the authority to merge ministries and very little has been said about the actual merits of the proposed mergers. It now seems clear that the Guardian Council and the Parliament will have their say on the merger (see this report in Persian), but in the highly politicized environment in Tehran, I doubt that the merits of the proposed reorganizations will get the attention they deserve. The stated objective — to cut down the size of the government — is unlikely to be realized beyond cutting the size of the cabinet. I am not aware of any downsizing dividend from the “dissolution” of the Management and Planning Organization two years ago. (Incidentally, that decision was made in a similar manner to these mergers, but at the time it was the reformers who questioned the government’s authority to change the line up of the ministries.) As far as I know, MPO’s bureaucracy is still in place. (more…)
The poor and the middle class
A recent article on Tehran Bureau’s website portrayed urban Iran as “a sea of poverty”. This stark description was based on the calculations made by three Iranian researchers that showed as many as 55% of urban Iranians were below a poverty line set at 58,035 rials per person per day (more on the methodology of the paper later). For an unpublished study that was relegated to the poster sessions of a conference in Tehran it has been hugely successful, getting quoted in dozens of Persian and English language websites. The reason is not the study’s novelty of techniques or approach, which is standard, but is its extravagant claim about Iran’s poverty rate, which appeals to those who think the news portends political change. Although I have seen even higher claims of poverty rates for Iran (as high as 90%), those did not make it to the prestigious TB, which is part of the PBS/Frontline website. So I decided to write a reply to set the record straight. (more…)
Iran inflation accelerates, is the subsidy reform in trouble?
The recent inflation data from Iran’s Central Bank is higher than expected and has the potential to undermine the country’s bold attempt at subsidy reform. The latest published monthly increase in prices of 3.4% for Esfand 1389 (21 February-20 March 2011) is nearly twice what was reported for the same month last year (1.8%), and 30% higher than for the previous month of Bahman. The widely reported “12.4% annual inflation rate” for the year, or the year-on-year average, is misleading because inflation has been accelerating in recent months. The monthly inflation rate has increased steadily from 1.5% in Azar, just before the subsidy reform went into effect, to 3.4% in Esfand. Even the much higher month-on-month (Esfand 1388 to Esfand 1389) increase of 19.9% in the price level underestimates the extent of inflationary pressures: the annualized rate (=(1+monthly rate)^12) has gone in one month from 34% in Bahman to 49% in Esfand. These numbers probably overestimate inflation because of rising Nowruz expenditures, but the fact that the monthly increase in the price level this year is twice what it was last year suggests strongly that the annual inflation rate has at least doubled in recent months, to over 20%. (more…)
More on Iran’s subsidy reform
This oped of mine on Iran’s subsidy reform appeared on the Brookings website on Thursday. Suzanne Maloney of Brookings also wrote a nice piece on the same program, viewing it as a possible solution to Iran’s economic problems, which is a fresh approach instead of the more usual view that we have come to expect from commentators in Iran and the West — as the harbinger of economic ruin. I think the program’s initial success to raise prices at one go without mass protests is noteworthy, and perhaps a model for other Middle Eastern countries to follow, but its overall success depends on two things: (a) whether consumers will use the cash rebate to pay their energy bills and buy local goods and services, like health and education, or spend it on luxuries imported from China, like LCD televisions; and (b) whether producers can manage to stay afloat, by hook or crook, without shutting down or laying off many workers, long enough for the economy to adjust to the new price levels. Both of these depend on complimentary economic policies that the government will introduce in the next few months to improve the business climate in Iran. As usual, reform of the markets for labor, credit and foreign exchange are at the top of the list for action.
Goodbye to energy subsidies, hello to price controls?
Tehran, December 19, 2010.
On what he called “the historic economic night,” President Ahmadinejad appeared on Iranian television to announce the imminent launch of the subsidy reform law, starting with energy prices at midnight (see beloow for new prices). He produced an impressive array of facts and figures from memory hoping to calm fears about the adverse impact of the reform, and showing his government’s command of the situation (“we have carefully thought of every eventuality”). So far he seems to have succeeded: day one of the implementation has gone by without panic buying or a serious incident.
Patience and gradualism seems to have paid off. The plan has been in public view for some time and the money that people call “the subsidy” (but is actually the cash back in lieu of the removal of subsidies!) has been in individual bank accounts for the last few months, though they could not withdraw it (as of this morning they were able to do so). It has also helped to calm nerves that the government extended the low price allocation (1000 rials per liter for 50 liters and good for about 500-1000 kilometers) for an additional month. For most people, this gesture has in effect delayed the start of the price increases by a month. The computerized allocation system using “gasoline cards”, which has been installed in gas stations across the country, is the key instrument that has made gradual and stepwise price increases possible. Reports this evening did not indicate unusually long lines at gas stations today, nor were there panic withdrawals of the “subsidy money” from banks.
Responses of producers to the energy price increases are more difficult to predict. At 7.30 this morning I noticed that the “agence” taxi waiting for me was actually the familiar green colored “line taxi” (cabs that run along a specific route and charge about 30 to 50 cents) rather than the private car I usually expect. The driver had obviously skipped his regular “line” service, where the fees are more tightly controlled, thinking he might have more luck with passengers in an unregulated service. He said other “line taxi” drivers had simply not shown up for work.
Such a supply response is to be expected. The government has been claiming, disingenuously, that there will be no inflation, and called on producers to refrain from raising prices. Going further, President Ahmadinejad even invited people to call in if they see unusual price increases. So, it seems natural for supply to contract, as it seems to have done in the line taxi service based on my single observation!
Some inflation is better than price controls that can disrupt supply of goods and services. Relative prices need to adjust in line with different energy intensity of different products, and to help resources flow to sectors that need to expand in response to higher energy prices, while other sectors contract. Since prices rarely go down, inflation is the only way for this to happen. Costs are increasing for producers across the board; they either have to cut back on supply or raise prices. Finally, the “subsidy money” now in the pockets of consumers is just the additional liquidity that will help producers find customers as they raise prices.
Let’s hope the government is not serious about its “zero inflation” target and will not hassle producers and retailers with harsh price controls. In my view, it would be enough of an achievement for the current plan to succeed and Iran get rid of its vast energy subsidies, even with some inflation. That would prove the critics wrong and become a model for other countries that are looking for a way to wean their citizens off cheap energy.
Footnote: Here are the main price changes: the price of gasoline has gone up from 1000 rials per liter to 4000 (7000 above 60 liters per month, which is close to the world price); diesel, up from 165 rials per liter to 1500 (3500 above quota); and CNG (compressed natural gas for vehicles) from 350 rials to 3000 per cubic meter.
Remembering Mehdi Samii (1918-2010), the Good Banker
Mehdi Samii, who died in Los Angeles, California, a week after his 92nd birthday on July 30, 2010, was Iran’s most prominent banker of the twentieth century. His career in Iran spanned the period between the second World War and the Islamic Revolution. He was an influential banker and a leading figure among a small group of dedicated Iranian technocrats who helped build the foundations of a modern economy in Iran, one that produced the miracle growth period of the decade before the oil boom of 1973. (more…)
Is inflation anti-poor in Iran?
This week Iran’s Central Bank announced that the annual inflation rate has dropped below 10%, so it may seem like an odd time to talk about how rising inflation might affect Iran’s poor. But if the government implements the subsidy reform law, as it has promised to do in the second half of this year (Iranian year 1389), inflation will most likely rise. The strongest objection to this reform is not that it will increase the rate of inflation, but that higher inflation will hurt the poor. If that were to happen, it would be the height of irony, for the entire scheme was proposed to promote social justice, not to take money away from the poor. From the point of view of social justice the best part of the scheme as it was originally proposed was that the rich would pay full price for energy and other basic goods while the poor received their subsidy as income. With that scheme, the poor would have gained, at least in relative if not in absolute terms. But the progressive cash-back scheme is no longer on the table, so the distributional effect of the subsidy reform very much depends on how inflation affects the poor versus the rich. So, the crucial question is this: will the inflation that follows the removal of subsidies hurt the poor more than the rich? I have not seen serious evidence that can answer this question (perhaps there is, but I have not seen any). To satisfy my own curiosity I review here the historical evidence on inflation and equality, which seems to suggest that in Iran inflation may not be the cruelest tax of all, as the saying goes. (more…)
Iran’s place in the world distribution of income
Branko Milanovic is a leading authority on the global distribution of income. His influential 2005 book, Worlds Apart provided the most comprehensive account of how global inequality has evolved over time. He has just completed the sequel (The Haves and the Have-Nots, Basic Books, forthcoming), which updates his earlier analysis using survey data on income and expenditures from 119 countries for 2005. He finds that despite rapid economic growth in China and India, two very large and poor countries, in recent years global inequality has remained constant and very high (Gini index = 0.80). I asked him to help me understand where Iran was located in the global distribution of income, and he produced this amazing graph. (more…)
Tyranny of numbers 
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