The Forum for Partners in Iran's Marketplace

June 2021, No. 97


Politics in the Service of Economics or
Economics in the Service of Politics

The main issue in the system of governance is to be able to reconcile politics and economics, and this adaptation must be such that politics paves the way for the economy to cross it.

Dr. Masoud Nili,

Economics, politics, and culture are the three main components of governance, each of which covers an area, but the compatibility between these three components is crucial. These components cannot go to war and it is necessary to cooperate and interact with each other to get a good outcome. What is this output? Undoubtedly, the combination of these three components, whatever the outcome, should ultimately lead to the greater well-being of the people. The result of these components must be such that people achieve a greater level of well-being over time.

People should feel relatively better off than ever before in terms of jobs, income and access to finance. This comparison may be faster in one country and slower in another, but ultimately the governance process must lead to improved welfare. Since the main factor in improving the welfare of the people is the economy, two other factors, namely politics and culture, must serve the economy to achieve this goal.

The main issue in the system of governance is to be able to reconcile politics and economics, and this adaptation must be such that politics paves the way for the economy to cross it. In other words, politics should facilitate the economy and spread the red carpet for it, so that the economy can enter with grace and charisma and continue on its path. Because the economy is very sensitive and fragile, vulnerable, conservative and calculating, and because of the issue of financing and opportunity costs, it must consider all the risks involved in any situation. All over the world, politics is trying to open the way for the economy.

The container for achieving welfare improvement is the economic enterprise, and it is the activity of the economic enterprise that creates economic growth. The decision of the entrepreneur and business owner and activist in the field of business to invest in the future depends in part on his personal effort, calculation and rationality, but a larger part of it depends on issues that are not in his control and reach him politically. If the news and data that reach the economic activist from the political side is good and promising and that the business path is smoother, he will make better decisions. Now this economic activist may fall because of his own decisions, but there is room to get up, gain experience and learn and start again. But when it does not fall because of its own decisions and failure becomes almost universal for economic actors, the problem is political. That is, politics has not done well what it owes to the economy, the firm, the economic activist, and so on.

Because economic calculations are always future-oriented, politics must minimize uncertainty as much as possible. Of course, what is meant by resolving uncertainty is a promising message and a systematic reduction of risk, not the certainty that the future will get worse. In the face of economic uncertainty, the activist decides to invest its financial resources in activities that are far removed from politics, which have low productivity and entrepreneurship, and may even lead to further macroeconomic instability.

Politics must remove non-economic barriers to the economy. The economy is served by politics, and politics facilitates and the economy provides the welfare of society. In all countries that have had good economic growth over the past three or four decades, politics has built capacity for the economy and paved the way. You may not be able to cite even one example where politics has cost the economy but the economy has grown. It is possible to examine how politics and culture have operated in these economies. Even the quality of policy-making is largely a function of the policy component.

We have a kind of political policy-making in the field of politics, and we have an economic policy-making or economic planning in the field of economics. In the past, the development of five-year plans received a lot of attention, and everyone was serious and sensitive about, for example, what is the direction of the plan and what goals it has set and what measures are to be taken to achieve these goals; but now we see plans that are approved by the legislature and the Guardian Council are forgotten because they are no longer relevant. Nobody pays attention to, for example, how many years we are in the Sixth Plan and how far we are from the goals set in this plan.

For example, from the Fourth Plan onwards, the annual growth rate has been set at eight percent, and the government and non-government investment dimension has been estimated to achieve this growth, which is a large figure for the non-governmental sector. This figure has been divided into two parts: domestic investment and foreign investment, which is a relatively large number for foreign investment. The result of these calculations is that we have a big goal for which a lot of investment must be made first, most of which must be provided by the private sector.

A significant portion of this investment is also foreign. This economic planning has political presuppositions; For example, depending on the political perspective, it is possible to invest heavily in the private sector or to create a platform for foreign investment in large amounts. In these plans, large figures are considered in the balance of payments, which should increase the countrys foreign trade, and non-oil exports are also considered a large number. In formulating and approving such a plan, a framework of external relations has been portrayed that can meet these needs.

In this planning, the economics assumed that diplomacy would pave the way for the Iranian exporter to have a stable presence in foreign markets. Or the investment climate is attractive so that the Iranian economic activist can attract a foreign partner for investment. Economic planning or policy-making has assumptions and has considered a book that has political foundations.

The politician who approves these calculations in the legislature must pay attention to the fact that this economic policy is based on political policy. For economic planning, we have the Law on Planning and Budget, which was approved in 1351(1972/73) and in this law it is said about the planning system, but we have no reference for policy-making and political planning, where this process is and based on what assumptions and principles.

To sum it up, I can say that we are faced with two models: economy in the service of politics and politics in the service of economy. If the economy is in the service of politics, rent-seeking and unproductive activities will dominate it, and profitability will go to these areas. There was a debate in the country as to whether political development is first or economic development. While the main argument should be that politics is focused on solving economic problems. In this case, political development and economic growth lead to improved structure. This is not a sufficient condition for the development of the economy, but it is definitely a necessary condition.

Since the mid-1380s (2000s), the style of economics in the service of politics has been formed in our country, and due to the many benefits that have been formed for the privileged group during this decade and a half, it has become very difficult to change it. But until the internal problems of our economy are resolved and a constructive relationship between economics and politics is established, positive external events such as the US presidential election will not be able to affect our economy.


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  June 2021
No. 97