Iran’s Subsidy Reductions - Who Gets Targeted and Who Eats It?
The long awaited liberalization of energy commodities in Iran has finally begun. Over the past weekend, President Ahmadinejad stated, “At this stage, we don’t want to free prices, rather we are going to regulate and reform them.” How regulated will this new system be?
Iranians with private cars get a monthly ration of about one full Iranian tank of gas (in the newer stylish Peugeots) at around $1.50/gallon, then the price goes up to $2.60/gallon. The price is not floating - it is still set. Additionally, and what is not being covered in the Western media, is that all sorts of bonuses and extensions of monthly ration limits are being granted for now - essentially this is a way of cushioning the shift to higher prices.
For instance, licensed taxis get a monthly ration on their “smart card” of 130 gallons a month, and a bonus of more than 100 gallons has been announced - that’s a hefty increase and it may placate the perennially grumbling taxi drivers for now. Private drivers (including many who moonlight as gypsy cabs) get a bonus of 13 gallons - not even a full tank of gas for Iranian cars, I am told (I never developed the fortitude to drive in Tehran, I must confess, and thus never owned a smartcard).
But let’s face the facts - Iranians who have long priced in cheap gasoline and other energy sources for their budgets are now confronted with a huge shift in costs. Some will cope, others will be hurt. The government is giving around $40 a month to every individual via personalized bank accounts, which can now be withdrawn by Iranians from the very handy ATMs that are available near most city streets. It is stated that around 80% of the country is getting these payments - we will see how accurate that number is as time goes on. Comments on the blogosphere are interesting - some Iranians writing, “this oil is the nation’s,” which they take to mean that subsidized gasoline is a citizenship right. US citizens also expect cheap gas as a (god-given?) right - the question is not whether this is true or not but how particular citizenship rights are construed. Rights are a matter of politics, not providence.
Will this lead to inflation? Most certainly - the question is how much and where it is concentrated. One worry I have is that the cash payments are not indexed to inflation currently, though the government could make changes to this in the future. But at its present levels the purchasing power of $40 a month (in tomans) will be inflated away over the next 4-5 years. The government has promised to spend a portion of its freed revenue in the health system - let’s hope some in the majles remember they promised that and holds them to it.
Because here’s the rub. When the government pays the different between the actual cost of the good and the subsidized price, this is a de-commodification of a lot of the burdens of daily life in Iran. What is happening now is a re-commodification of life, and as we know from Karl Polanyi, the attempt to embed daily life in the market can lead to a “double movement” - a reaction against the marketization of previously uncommodified social practices. What Polanyi never analyzed very well is the share of burdens of commodification of daily life - upon whom will the costs fall? The answer to that question is not a given - it depends on the distribution of power in society.
According to witness accounts, people are going about their business. I would discount general or intermittent media reports of unrest, because 1. griping is an Iranian art form and 2. the outside media is operating in a particularly inane manner here. Just today, for instance, a BBC reporter in London phoned in a report to NPR about Iranian woes on subsidy reductions, and got two of his major facts wrong. One, he said that subsidies in Iran started in 1980, when in fact a subsidy of at least a few basic but important goods goes back to the Shah’s time. The Shah was most likely emulating the more populist regimes of Egypt and Syria in the 1960s/70s, who had rather generous subsidies for bread (ah, the good old days in the Arab world). Second, the current subsidies regime was a policy implemented as a reform to the time of strict rations and black-market corollaries of the 1980s war era with Iraq. So this is not a policy the government has wanted to enact since 1980, but rather since 1989 once the era of reconstruction commenced. For a Brit whose welfare system is basically a legacy of World War II, I would have hoped that one might see the similarities between his country’s experiences under duress and the social policies that resulted in Iran as a result of the Iran-Iraq war and its legacies.
But, back to the present, I am concerned that the subsidy reductions as demarcated will lead to increased inequality in an already polarized middle-income country. The bottom line is this: if the point of this plan is to get people to consume less of these goods, then they will achieve their goal. Economist Said Laylaz is telling the Los Angeles Times that traffic will be less congested in Tehran - the silver lining for sure, and something that also occurred after summer of 2007 when gas rationing and price tiering was first introduced. But if this point of this plan is to “get the prices right” and kindle economic growth, the government will be sorely disappointed. Furthermore, the fact that everyone in Iran is together experiencing this seemingly arbitrary act by the state could form a powerful grievance if anything goes wrong in its implementation. Unfortunately, our analysis on the state capacity of Iran is dominated by hearsay and axe-grinding, not sober empiricism, so don’t expect much from the experts.
