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.
Lower levels of income inequality, whichever the country, are usually better for a whole set of reasons. They are even better for the rich who live in those countries. And Iran has not had Gini index levels as low as .35 since the 1980s, when there was a war on, and lowered inequality mostly stemmed from everyone getting poorer together, not from getting checks in their bank accounts. Part of this more recent decline in Gini is from the economic recession in Iran, since recessions usually reduce overall inequality inside a country (not the current one in the US, perhaps!). But if there is any credence to this trend in Iran, which at least seems to partly be true, then some of it is from the substantial subsidy payments.
Looking beyond Iran, in addition to the Imam Khomeini Relief Committee’s long standing program of cash payments for a variety of so-called “disadvantaged” groups, the even larger and more universal payments from subsidy changes look very much like the newest fad in development theory: “Just Give Money to the Poor.” This is the title of a popular development book by Joseph Hanlon, Armando Barrientos, and David Hulme.
The idea here, like most successful academic ideas, is a simple yet insightful one. Instead of large-scale top-down development programs run by “inefficient” Third World governments, which direct money through institutions which may not be sufficiently prepared or interested in the direct well-being of the masses (i.e. the aid-industrial complex), poor people do not waste money given directly to them. Instead, with “nudges” and incentives, they take care of their money and use it for their most pressing needs, including educating their kids, investing in their businesses, and supporting their households. Again, this is not news in Iran, just in the aid community, but it is an interesting overlap between “the strange world” of Iran and “normal” Third World politics. But is it enough?
There was an interesting exchange of articles in the Indian economic magazine Economic & Political Weekly in May 2011 about the effectiveness of conditional cash transfer (CCT) programs in poorer countries. Both Brazil and Mexico have adopted these programs over the past decade, and India is about to introduce the largest such program in existence. Unlike Iran, these programs set conditions on the delivery of payments, usually tied to education of household children, health program enrollments, and participation in a variety of “behavior modification” efforts. I’m not passing judgement on such endeavors in vacuo here, although both anthropologists and development economists are having their respective field days on these types of programs in the literature currently.
Nevertheless, we can learn from these new critical reflections on CCT programs when looking towards Iran. There are two major insights in the EPW issue. First, money directly in the hands of poor people is mostly a good idea, but if the welfare institutions upon which they rely are still plagued by inefficiencies or poor accessibility, then such monetary “empowerment” is generally useless. Second, cash transfers for the poor work best when they are accompanied with state-led infrastructural development in these communities’ surroundings (i.e. schools, roads, water wells, health clinics, etc). In effect, the concept of the cash transfer as a path for moving away from, or even evading, the state’s historical commitments to welfare and development, is not a viable route.
Curiously, this is reminiscent of the debate about social welfare in the Islamic Republic of Iran since its founding in 1979. Should welfare in the country be run by a development-geared middle-income state or by local private charities according to particular understandings of zakat? The Imam Khomeini Relief Committee, for example, which gets the majority of its budget from the state, is far removed from the ideal charity organizations of Islamic myth. Who is responsible for the social reproduction of poor households and individuals? It is not obvious that the private sector will ever be able to do such a thing by itself in the global South, not to mention the more conspicuous discussions over these issues in the US and Europe. The EPW debate shows that, whether one likes it or not, the state will inevitably be involved in deciding the boundaries of development, needy v. undeserving, and prioritizing social interventions whether it is couched in the language of international development or of contemporary notions of Islam.
The fact that the subsidy payment program is, for the time being, universal for the whole population makes it much harder to politically undo. And it certainly introduces thousands of new opportunities for corruption, since there is now a massive commodified market in fuels and energy worth tens of billions of dollars, whereas before such goods were uncommodified and run through bureaucratic mechanisms. Yet the upside is that, whether they realize it or not, Iran just created a de facto universal basic income grant, which is often touted as a radical reform by the European left. Economists may decry such a grant because it supposedly removes incentives for work and raises the cost of labor, but in a country with large unemployment figures as in Iran it is not a bad idea.
