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The increase in house prices lead to the higher rents, making life increasingly difficult for these people. In addition it forces the young people to stay with their parents even when they are in their late 20s or early 30s Some even marry and still continue to live with their parents simply because they cannot afford to even rent a small apartment, and most of these people have work.
The official “Statistical Center of Iran” puts the unemployment rate (March 2007) among “youth” aged 15-29 at 22.4%. Unemployment for the same group in the urban areas the unemployment rate is stated as 25.6%. The underemployment for the total workforce is stated as 8.4%. So if we take the “official” underemployed and unemployed “young” people, we get 34% of the working-age young population that have no chance of even renting a room, let alone a small apartment.
Poverty: Gini Coefficient and Government Policies
Gini coefficient is used as a measure of inequality of income distribution or inequality of wealth distribution. It is defined as a ratio with values between 0 and 1, where 0 corresponds to perfect equality (everyone having exactly the same income) and 1 corresponds to perfect inequality (where one person has all the income, while everyone else has zero income). A Gini coefficient of 0.3 or less indicates substantial equality. A coefficient of 0.3 to 0.4 is generally considered an acceptable normality and 0.4 or higher is considered too large. A value of 0.6 or higher is predictive of social unrest.
According to UN, the Iranian Gini coefficient is 0.44 and is increasing. This coefficient most likely is not correct since the Iranian economy is opaque and finding who has what is extremely difficult. At the same time the very existence of Bonyads (charity organisations) and the informal economy distorts the figures. In 2006 Iran had the unenviable ranking of 105th place out of 163countries on Transparency International’s Corruption Perceptions Index. In 2007 its positions worsened and jumped to 179th place among the 179 countries surveyed .
With such a high level of corruption and lack of reliable statistics, even though this figure is very high, it is difficult to believe a Gini coefficient of 0.44. What is clear, however, is that there are a lot of poor people in Iran that are getting poorer by the minute; after all inflation hurts the unemployed, the working poor and the middle classes much more than the wealthy and rich.
To understand the problem facing the people one has to look at the social security. According to the minister of social security and welfare Mr. Abdolreza Mesri, the minimum payment to those under its ministry’s cover is 25,000 to 50,000 toomans or between 25 to 50 dollars per month . This figure, according to him, is only from his ministry, while charity organisations and others also help. One must note that the 50 dollars is for a family and not a single person. Now the rent for “a single room” in Shiraz (forget about Tehran) is about 100,000 toomans or $100.
Add to this the price of a kilo of mutton which is 7500 toomans or 7.5 dollars per kilo (which incidentally was 1800 toomans or 1.8 dollars in the beginning of 2006) or a kilogram of chicken that costs 4500 toomans or 4.5 dollars and you’ll get the picture. Prices for vegetables also follow the same pattern. (It should be noted that last year 200,000 lambs were sent to Saudi Arabia for Hajj sacrificing ceremonies by the Iranian pilgrims .)
According to the minister there are currently 9 million people in Iran receiving assistance from his ministry and he is proud of stating that no-one under his ministry’s cover gets paid anything under the UN minimum poverty line, which is between 1 and 2 dollars. The 9 million people that the minister speaks of receive a coupon worth 32,000 toomans or 32 dollars per month for purchasing of food and other necessities.
The minister admits that there is no way for him or others to gauge the real need of the people. He uses the example of the healthcare costs, in which he mentions that in the past 6 months private health care prices have risen by 1,000% (10 times the original). One must note that Iran lacks universal healthcare system, leaving millions to rely on private sector for their needs. How this 1,000% increase in healthcare costs has affected the people is anyone’s guess.
The Need for a War Economy
By now it should be clear to all that Iranian economy is in serious trouble. Iran is fighting an economic war with the U.S. and Europe, while at the same time suffering from systemic problems and bad economic management which has resulted in stagflation, which means high inflation and unemployment. The government’s free-spending policies, no matter how well intention, has only worsened the problem. But as I mentioned above, the economy suffers from systemic problems that cannot be solved by this or that president. The right policies can only limit the damage, not solve the problems.
Now that Iran is caught-up in the sand-storm of stagflation and fighting an economic war, it has to tighten its belt and enact drastic economic measures. It cannot simply check inflation by importing more goods, without making sure that those goods are actually delivered to the people at subsidised prices. It is evident that simply increasing the imports doesn’t help.
It cannot reduce its payroll either, because if it does, it simply increases the unemployment rate and hence social dissatisfaction. It cannot reduce liquidity by increasing the interest rates either; since this will mean a large scale defaults by the middle classes and small businesses, not to mention a proper recession. It cannot increase taxes much either, since large segments of the economy are tax-exempt, leaving the burden on the shoulder of government employees (who have to pay taxes) and again small businessmen.
So far the government has been dipping into the oil-reserve fund to finance its increasing imports and social programs. But that has only fuelled the inflation. So what can this government do?
Well, to start with it has to get serious about fighting corruption and cronyism. Corruption is one of the major problems facing Iran and government ignores it at its own peril. Government should also inform people that it is in a state of economic war and everything is not so rosy. The government should know that people already know this.
The government has to implement a war economy; that is to say, it has to reinstate the coupon system that it used in Iran-Iraq war. The introduction of the coupon system will also relieve some of the poverty while reducing inflation. The government should drastically reduce the import of luxury goods. It has to encourage the local industries and food manufacturers, something that generous imports tend to undermine. In addition, the government has to start a large scale house building program to reduce the pressure on the housing market. Leaving it to the market to address this issue, in the current inefficient system, doesn’t produce any results except inflation.
I am against a command economy, but under the current system with all its inefficiencies and endemic corruption, nothing else will do the job. Instituting a war economy will be a drastic measure, but a welcomed one by the majority of the people. Those who are sleeping hungry at night (and there are many) will thank the government, while those that live in luxury villas will curse the government. It is up to this government to decide whose praise it is after.
The poor and the middle classes find themselves between the hammer of the inflation and the anvil of the unemployment. How long will they continue to accept the blows is anyone’s guess, but if it continues, it will end badly not only for Dr. Ahmadinejad’s government but also for the Islamic Republic of Iran.
Dr. Abbas Bakhtiar can be contacted at: bakhtiarspace-articles@yahoo.no -
Well all the Akhounds look fat and healthy. They are a bunch of thieves, the have taken the money and are getting ready to leave with it. No way... not until I have an ounce of blood in me... Marg bar IRIComment
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Hammering inflation in Iran
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