Subsidy Payments in Iran: Too Much or Not Enough?
It is still less than a year since the targeted subsidy program went into effect in Iran, replacing cheap energy and low-price basic foodstuffs at the point of consumption with cash payments to nearly everyone. In addition, the government is providing low-interest long-term loans to local industry, well below the rate of inflation, to upgrade their energy infrastructure so that they can produce their goods more efficiently. I’ve written about the lack of vision in the country’s industrial policy elsewhere, but since my comments went up there have been more promises of action at least. Some industries and provinces report that they are finally getting these loans, while others are still waiting.
Predictions of success or failure are premature, however, because the point of the subsidy liberalization programs is not to garner revenue for the state, but to starkly restructure the incentives for both capital investment and individual household consumption. A colleague in Venezuela, a country with its own subsidies for energy consumption, tells me the local elites there are very excited about Iran’s recent moves, which is probably the first time opponents of Chavez and the Ahmadinejad government shared a policy goal. The IMF, eager to promote price liberalization across the Middle East, has also given high marks to the country’s efforts, though they are rather taciturn on how Iran can foster growth in the labor-intensive, high-skilled sectors that the country needs to promote to absorb the growing ranks of the educated yet unemployed youth.
Conversely, projections of total collapse and mass rebellion were also misplaced, even though few people ever got fired over the last 30 years for predicting the implosion of the Iranian economy (Maybe the Iran Nostradami should start a thinktank with the economists who thought the US housing bubble would go on forever). I can’t remember anyone inside Iran I ever spoke to who predicted that people would start an uprising over such matters - in fact the famous “riots” that occurred in 2007 due to gasoline price hikes were not widespread at all. I was in Iran during that time and the whole thing was over in 2 days, with less than ten petrol stations attacked. Try being in Iran during Chaharshanbeh Suri if you actually want to see a large scale rebellion…
There is an ongoing debate inside the country about whether a nearly universal program that pays $40-45 a month per individual is sustainable. Some majles MPs say the government is already pilfering from other parts of the budget to pay for ongoing transfers. There are rumors, often suggested and then denied in the press, that the top income deciles will be cut out of future payments, perhaps in the 2nd year of the plan. Of course the reason the payments are universal in the first place is that the government couldn’t actually figure out who was making what in a trustworthy manner, so they scrapped the idea of income “clusters” and just paid out to everyone! As with a lot of the Iranian press, then (and the opposition and diaspora press to boot), we usually only hear the salacious or threatening rumor, and then we never see the follow-up article on page fourteen which often shows how such-and-such policy (or threat) was never actually implemented.
So, in the apocryphal words of Zhou Enlai, it is too soon to tell the overall impact of the newest market-friendly paradigm in Iran. Now is not a time to speculate, but to analyze.
Let’s try to go beyond the usual rumor-centered talk. And let’s assume that, not only will these payments remain basically universal, but they will remain indexed to inflation, so that their value does not whittle away as prices go up further. It’s an assumption, yes, but let’s hold our tongues for now.
One considerable transformation is that poor households in Iran are, for the most part, receiving a big income payment every month. This is not completely unprecedented. In fact, one of the points most Iran analysts forget to mention when they describe the new subsidy payments is that many poor families have already been getting cash payments for years. Much of the elderly poor, families without a male breadwinner, and families with disabled members have been getting both cash and in-kind aid from one of the biggest welfare organizations in Iran - the Imam Khomeini Relief Committee. Say what you want about this organization, but it has transformed a lot of communities in the country (a related organization is mentioned in the beloved Dariush Mehrjui movie, Mum’s Guest).
So, for poor families already getting aid from the state, this simply adds onto the welfare system they already benefit from. But, of course, many middle-class Iranians benefit from the country’s welfare system as well, whether from public education, generous state pensions, or low health care costs. However, due to rising prices for almost everything else, it seems like everyone is losing their purchasing power in Iran, yet again. But if subsidy payments remain inflation-indexed, then this will contribute to a major redistribution of wealth in the country. According to Alef’s website, this is already happening:

If you don’t understand Persian, read the chart from left to right. It shows the Gini index of income inequality over the past several years according to one particular Statistical Center of Iran survey of household expenditures (1390 began in March 2011 so the most recent number is obviously a projection). Lower numbers mean less inequality. While I am not certain of the accuracy of the exact number they are now reporting, I’m not surprised income inequality in Iran is generally lower, simply because poorer families are getting more cash income all of a sudden, and the survey is picking up on the fact they are spending the money. Previously they may have been making ends meet with different means of non-income livelihood strategies, of which there are many across the global South.

