Iran Economy NewsEconomic Freedom Under the Rule of the Mullahs in...

Economic Freedom Under the Rule of the Mullahs in Iran

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The Fraser institute published its annual report of the index of economic freedom on September 8, which measured the economic freedom of 165 countries around the world in 2020. According to this report, Iran’s economic freedom score has reached its lowest level in the past 20 years.

Iran’s score in this index was 4.96 out of a maximum of 10 points, causing them to fall to the rank of 159 out of 165 countries.

This report has highlighted the slow economic growth of Iran in the last five years. This has led this country to be in the last place among 14 countries in the Middle East and the North Africa region, in terms of economic status, despite having huge oil and gas reserves.

This is in a situation where the average annual economic growth of Iran is 1.2%, the Iranian regime is registered on the FATF’s blacklist, and the country has experienced a sharp drop in health and financial transparency. Economic freedom scores from 2017 to the date of publication of this report indicate a loss of 8.1 points, resulting in the country falling to the bottom of the table of economic freedom in the world.

Each country is given a score from 0 to 10 in each of the 5 sub-indexes. In these five main areas, there are 24 components in total to reach each of these indicators. Many of these components themselves consist of several sub-components. The economic freedom index measures the degree of support for economic freedom by the policies and institutions of each country.

The cornerstones of economic freedom include personal choice, free exchange, freedom to compete and enter markets, and the security of personal assets. This index is designed to measure the compatibility of countries’ institutions and policies with economic freedom.

A country must consider many things and avoid others in order to achieve a higher rank in this index. The criterion of economic freedom can be considered as a measure of the allocation of scarce resources based on personal choice with the coordination of markets.

Governments can increase economic freedom by creating an infrastructure for the voluntary exchange of people, and protecting people and their property from intruders who seek to take what is not theirs by violence, coercion, and fraud.

This is one thing that simply does not exist in Iran, due to the regime’s massive acts of corruption, and an economy controlled by the regime’s Revolutionary Guards (IRGC), as well as the companies and economic entities under the control of the house of the supreme leader Ali Khamenei.

In this context, the legal system is of particular importance. A country’s legal institutions must protect its citizens, and their property, against the aggressive actions of others and implement contracts uniformly. In the case of the regime, this is an ideal that looks more like a bitter joke, given their long list of various human rights violations, abuses, and discrimination in favor of the ruling people.

Governments should also refrain from actions that restrict personal choice, interfere with voluntary exchanges, and hinder access to markets. Economic freedom is reduced when taxes, government spending, and regulation, replace personal choice, voluntary exchange, and the market, which is exactly what has happened in Iran over the past four decades.

The five areas of economic freedom measured in the Fraser Institute report are government size, the legal system and property rights, strong money, international trade freedom, and regulations.

Regarding the government size in Iran, due to the regime’s corruption and a mafia-led economy, the expenses of the government have increased and reduced and replaced private decisions with government decisions and reduced economic freedom.

Where the legal system is concerned, it is considered that the government of a country must protect and support the people and their private properties. This is one of the most important functions of a democratic government. The index of economic freedom also includes gender equality. The World Economic Forum’s Global Gender Gap Report 2021 was published on March 31, which ranked Iran, under control of the clerical regime, 150 out of 156 countries with an index of 0.582.

Regarding strong money, inflation completely destroys the value of earned wages and savings. Therefore, strong money is necessary to protect property rights. When inflation is high and unstable, it becomes difficult for people to plan and thus effectively use economic freedom.

According to Professor Steve Hanke, Iran’s rial has depreciated against the USD by 57.58% since January 2020, which is why Iran takes 8th place in this week’s Hanke’s Currency Watchlist. The rial is a central bank ‘junk’ currency.

Discussing the disastrous situation of the Iran economy, on June 23 he tweeted, “Iran is embroiled in an economic DISASTER. Today, I accurately measure inflation in Iran at 43.66%/yr. No wonder pensioners are taking to the streets! The RIAL IS TOAST!”

The freedom of international trade, or freedom of exchange (in its broad sense, including buying, selling, contracting, etc.), is essential for economic freedom. This is reduced when the freedom of exchange does not include businesses and people of other countries.

Due to the IRGC’s control over Iran’s imports and exports, customs, airports, and ports, the freedom of exchange for ordinary people and private entities has been diminished.

Governments not only use some tools to limit the right to exchange internationally, but they may also impose heavy regulations that limit the right to exchange, obtain credit and facilities, hire, and work, and freely conduct business. Nearly all economic regulations in Iran are in favor of the regime.

 

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