End of Unscientific Economic Decisions
The problem with our policymakers is that they have no theory at all
so that they could test the policy arising from that theory.
Mousa Ghaninejad, economist says the purpose of trial and error in
policymaking is to formulate and implement a policy based on a theory you
consider to be right in order to discover its faults and correct them. The
problem with our policymakers is that they have no theory at all so that
they could test the policy arising from that theory.
What have been the consequences of “policy-making based on trial and error”
for our country in recent decades?
In essence, the purpose of trial and error in policymaking is to formulate
and implement a policy based on a theory you consider to be right in order
to discover its faults and correct them. Therefore, “trial and error” is not
wrong per se.
Of course, policymaking cannot be done merely on the basis of trial and
error. The problem with our policymakers is that they have no theory at all
so that they could test the policy arising from that theory. They have a
series of inspirations on the basis of which they make decisions. They would
not correct their inspirations and approaches even when they find out that
their decisions have not produced good results.
The experience of wrong policymaking has been repeated over the years on the
basis of the taste of policymakers who are at the top. One example is the
Usury Free Banking Act, which was approved in 1983 for the purpose of
establishing usury free banking. The authorities said that in the previous
law there was usury which was incompatible with Islam and needed to be
corrected. Aside from the bugs of this claim, it was anticipated that the
law would be put into practice for five years on trial basis and be
corrected after five years. Some 36 years have passed since 1983 but no
reform has taken place. The law was supposed to be redefined and corrected
after a five-year period.
When we want to make policy, our work is not trial and error,
but a shot in the dark. For decades, we have been firing shot in
Another problem that can be seen in this example is the lack of theory. When
they raised the theory of usury free banking there was no coherent theory
backup for it. It was just words! They said they wanted to create a kind of
banking minus usury. What they meant was to eliminate conventional bank
interests in all banking systems of the world, while bank interests in the
modern and conventional banking system of the world play the role of a
driving engine. Later, in the 1990s, discussions took place about this
topic, and I also contributed to the discussions. I said you want to remove
the driving engine of a car, please explain how this car would work? But I
did not get any response.
They said this is a loan contract, and we will convert it to Islamic
contracts such as exchange contracts, participatory contracts, etc. and the
problem will be solved. But this was not the answer to my question! My
question was how this car will work without a driving engine. They gave no
answer because there really was no theory. They simply said that banking was
un-Islamic and usury based in the whole world, and had a utopian picture of
banking system they said was Islamic.
Early in the 1979 Revolution, there were lots of passion. They said they
would run this law for five years and then we see what happens. Then they
began implementation and wanted to carry out the trial and error, but they
did not seem to have any errors in their trials because no reform has been
made yet! The status of banking in the last 36 years shows what results has
this policymaking produced. The same is true in other areas of policymaking
in monetary and foreign exchange areas as well as development policies. A
series of slogans and ideals are proposed without theoretical support. If
these ideals are theoretically supported, if the goal is clear, if the tools
are designed and if the ways to achieve them are implemented so that the
errors are reviewed and modified after some time, that would be excellent!
But we do not see a single reform in the policymaking. In many other
policies, we also see that a work has been launched without a theoretical
basis and abandoned after it fails to produce the expected result and nobody
would try to do something about it. Similar events have occurred again
taking the same wrong course.
See how many times the country has faced foreign exchange turbulences? These
currency turbulences over the last few decades are primarily due to a series
of wrong monetary policies and, to a lesser extent, failure to revise the
exchange rate in light of inflation. Inflation means devaluation of the
national currency and the reduction of purchasing power. If we intend to
keep the exchange rate stable upon orders (of the government), we will face
numerous problems, such as sudden jump in the exchange rate and the ensuing
turbulences. After the Revolution, we have experienced these problems
several times in the 70’s, 80’s and 90’s, but policymakers have not learned
lessons and repeated the same wrong policies.
Why policymakers do not learn from past errors and regularly try them?
The reason is that policymakers and political power owners who are
responsible for decision making at the head of the decision making pyramid
imagine now that they have attained the decision making authority they have
knowledge of everything perfectly, are absolute sage, and no longer need the
science of scientists or economists. The power wielder who wants to make a
decision about the foreign exchange should be either an economist or consult
economists at least. Which of the two options was applied when the
government decided to set a rate of 42,000 rials for one USD? It is not
clear! The individual or the group who took this decision claimed absolute
knowledge and thought that although they did not study economics, because
they hold power, their knowledge was more than that of economists and they
could set rates and everyone should obey their orders.
The problem is that these people get illusion of science as soon as they
take power and are at the top of the bureaucratic system and assume
responsibility. Of course, this does not happen just in our country;
politicians in many other countries of the world follow the same line. In
fact, power gives them illusions of science and they make decisions on the
basis of the same illusion. When they realize that the result of their work
is wrong, they blame others and say the experts had misinformed them. Well,
you need to specify which expert gave you what report that you made such a
decision. None of these is clear.
What has been the most harmful feature of economic policymaking over the
past four decades?
The worst of this policymaking is the disregard for economics. At the
beginning I mentioned the example of usury free banking. The gentlemen who
were sitting there and writing this law had mostly studied economics in the
United States. They claimed that the science that is common in the whole
world and is the basis of the standard global banking was wrong! This is a
big claim. Then they stressed that what they said was right, namely usury
free banking or interest free banking. The first drawback was that the claim
by these so-called economists that the current global banking was taking the
wrong course related to value judgment which, in my opinion even their value
judgement was mistken.
They said that in the current global banking system the interest is the same
as usury and since usury is rejected by Islam, the international system was
wrong. Scientifically, when you talk about the good or bad aspects rather
than the existing reality, you in fact raise a value oriented and normative
debate. Another drawback was that the assessment of the fact that bank
interest was the same as usury was essentially false. They had to prove
this. Later on, I came up with a discussion with these people and asked them
to prove that bank interest was the same as usury. They did not and merely
discussed the value aspects. They said this was a loan contract and usury
was rejected by Islam. You cannot call this argument. Argument must have a
erroneous and harmful decisions have been numerous in recent decades, but
most of these wrong decisions are rooted in contempt and underestimating
science, and even humiliation and remission of common sense based on the
consider to be superior. They also cannot prove that these values
consistent with what is outside the world. They say something, and then, on
the basis of that, like the example of usury free banking I mentioned
earlier, they write down the law and change the entire banking system of the
country. The big drawback is that we classify science into good science and
bad science, Western science and Islamic science, and so on. As a result,
we’ve got these hardships and we cannot find the right way. Finally, when we
want to make policy, our work is not trial and error, but a shot in the
dark. For decades, we have been firing shot in the dark. We are doing the