Saturday, May 13, 2006

Just imagine....

If you can spare a few minutes, just visit:
and then imagine that this is happening in Tehran, or, in Cairo....
The speaker would be taken out and shot....
But, here in the US, the situation is different. While I remain critical of US foreign policy, and even its economic structure, resembling a mixture of 17th and 22th centuries, I can only admire this aspect of the US system, and I do. I think this is what makes the US political structure so strong and powerful. The strength of the system comes from this and similar freedoms and certianly not from the bombs or the marines....
My dear American friends, make sure that you keep up this good work! This is just great! Do you really blame me if I tell you that I feel enious! I really wish that we had this too!

Friday, May 12, 2006

FED we will be watching you!

If you have a few minutes to spare, go to this address:
You wouldn't regret it.

Wednesday, May 10, 2006


In order to examine the implications of globalisation, let us first look at the problems faced by the global economy. We would then examine how helpful this process is likely to be to address these problems.
Generally speaking, I would like to suggest that effective working of the global economy should include policies or mechanisms to address the following five interrelated problems;
1 - “ Marx problem”: The problem of labour discipline. That is to say that the capitalists should ensure that workers work hard enough to maintain the profitability of capitalist production.
2 - “ Keynes problem”: The problem of effective demand. That is; the ability of capitalists to find markets for their products.
3 - “ Minsky problem”: The problem of financial stability. To ensure that markets are stable enough to prevent bankruptcies, financial panics, debt deflation and depression .
4 - “ Kalecki problem”: The problem of competition. The ability of capitalists to maintain high enough profit margin in the face of domestic and foreign competition.
5 - “ Gramsci problem”: The problem of hegemony. This concerns the necessity to form a political bloc which is coherent and co-operative enough to manage the global economic and political system.

Looking at these problems would be the subject matter of my future posts, but, in the meantime, I would appreciate it if you could kindly share your views on them with me:
What do you think about them?
Do you support this approach to examine the global economy, if not, please tell me why?
More importantly, what is your alternative approach?

Tuesday, May 09, 2006

An Iranian " Command Economy"!

People like me who have studied economics, were a little puzzled when Iranian parliament[Majles] decided to instruct the government [the Central Bank] to regularly reduce the interest rate in Iran until, it become a single digit. I have learnt that Majles has come up with another noble idea, asking the government to ensure that inflation rate would become single digit too. If anything and everything could be reduced in this way, i.e. by issuing " command", may I beg the honourable members of Majles to pay special attention to the following:
-Although I don't know what the actual unemployment rate is, it is most likely to be double digit. Could we have a single digit unemployment rate please!
- During the last financial year, Iran trade deficits with the rest of the world was about $32 billion. That is too high. Let us make it a single digit deficit.
- The number of people killed on Iranian raods is the highest in the world. Please issue the appropiate " command" to reduce it too.
- Drug usage in the economy is a real problem, the latest figure that I read, gives something between 2 to 3 million adicts in the country. Could you not issue a command to lower this?
-The head of a research centre in Tehran has said that the overall performance of the economy during last year was very good. Among other things, he mentioned that liquidity has increased by nearly 35% in one year! Could we have a single digit growth rate please....
What else could I say?
God bless you ladies and gentlemen! Go on.... issue more commands..... There are still a lot to be done to create a prosperous economy....

Friday, May 05, 2006

Don't befriend an elephant keeper.....

It seems to me that many in Iran have been convinced that the best way forward is to go for an all out free market economy. Some of the stories that have been told were truly “stories”, but, the important point is that they have been believed. That is fine with me, despite the fact that I do not share this view. What is disturbing, however, is the confusion that exists on the implementation of these policies. It seems to me that while policy makers have been convinced that this is the way forward, but, at the same time, they do not like some of its outcomes. Not long ago, there was a lot of debate on labour contract in Iran, and some claimed- not fully justified though- that labour laws in Iran were not “firm friendly” and gave workers “too many rights”! I must admit that I have never checked myself to see if that was true. But what I have noticed recently is a prominent clergy in Mashhad declared “temporary labour contracts” to be “illegal in Islam”. Again, I must make my position clear, that I can not confirm if that is the case. What I do know however, is the current confused situation in Iran has the faults of all systems and the benefits of none. To put it differently, my Dear Sirs: please make up your mind. If you want to go for a free market economy, at least, do it properly and don’t zigzag. On the other hand, if you really do not like these outcomes, then, devise appropriate policies to go with your expectations. We have a saying in Iran, which is appropriate here. Either don’t befriend an elephant keeper, or, if you do, build a house that could accommodate an elephant!

Thursday, May 04, 2006

Why MNEs do not invest in Iran?

In the past 13 years- since 1993- Iran received $11.2 billion foreign direct investment which gives an annual average of about $860 million. For an economy of the size of Iran, with more than 70 million people and all its fantastic potential, this is disgraceful. In trying to understand the root cause of this miserable achievement, we could, of course, continue blaming the “evil” forces! The US, the EU and what you like. But the fact of the matter is that in Iran, political risk is too high and from academic research, we know that multinational companies would not invest in a situation where this risk is seen to be too high. We need to improve the functioning of the state in Iran. We need to prepare proper legal framework for the protection of private property, for the enforcement of the law of contract. If we wish to impress others to invest their money in Iran, we need to convince them that we have a law governed political system. Life and property and individual rights are well defined and legally and forcefully protected. I am afraid we do not have such a system. Our own assessment of the situation does not really matter. We the Iranians may be used to seeing journalists are arrested, or university professors disappear upon their return to Iran. This type of events, which sadly continues to happen in Iran, gives the worst kind of signals to foreign investors. You can give them 100% ownership rights, you could also convince them that they could repatriate 100% of their profits from Iran, but before either of these two happening, you have to convince them that in the process of coming to Iran, and trying to make that profit- to be repatriated later- they are safe. Their workers and managers are safe and have well defined rights that are protected in the legal system of the country.
The question remains, have we done that?
Small wonder that despite enormous economic opportunities that investing in Iran offers, foreign firms are ignoring Iran as if it is not there.

Wednesday, May 03, 2006

A look at outsourcing

In my other blog, I wrote a short piece on the increasing dispaity of income in the West, and my colleague Ahmad, did a similar piece on the same issue. In this post, I wish to take this issue a little further.
It could be said that one source of increasing poverty in the rich economies is the way in which the labour market is being adjusted under global pressure. It is broadly argued that demand for skilled labour is rising leading to higher wages, whereas demand for unskilled, and semi-skilled workers is falling. The result of which is a fall in the real wages earned by these groups of workers.
However, it is this fall in demand for unskilled and semi-skilled labour which explains greater wage disparity. It is further asserted that the speed of technological change combined with reduced opportunity for retraining de-skills an increasingly larger segment of the labour force, especially at the lower end of the skill ladder. To put it differently, in relative term, the distribution of workers between these groups is changing too. Combining these two, we have the following situation.
In the first diagram above:
The initial situation is given by:
OS supply of skilled labour working at OE, its share of total value created is given by OebS
SO’ Supply of unskilled labour, working at O’w, its share is given by O’waS
Under pressure from globalisation: SS’ is de-skilled.
Demand for skilled labour increases from D to D1, but demand for unskilled workers fall to d1.
Under the new situation:
OS’ Skilled labour, working at Oh, its share OhcS’
Unskilled labour increased by SS’, demand fell to d1.
O’S’ Unskilled labour, working at O’q, its share S’vqO’
Here comes outsourcing.
Methaphorically speaking, O’q is too high, and at least, some of these jobs are outsourced. We would face the following situation [ in the second diagram].
In this situation, S’S’’ represents unemployment among the unskilled and semi-skilled. In the above, I am assuming the skilled labour will not be out-sourced.
The question is, outsourcing maintains production but reduces further the size of the market as those who replace these unskilled Western workers are paid a fraction of their wages. What would be the implications of this type of relocation in the global, should be the subject of another post.

Monday, May 01, 2006

The economics of idleness.

The official spoke man of the IRI has said that following a decree by the President, various branches of the government are obliged to “saturate the market with articles of clothing which are consistent with Iranian culture”!! In another piece, the chief of the police stated that “13 large importing networks of inappropriate articles of clothing” have been smashed and added that in the next few days, further information would be made available about others.
We have a saying in Iran, that when barbers have no customers, to bear idleness, they start cutting one another’s hair. It seems that the President has completely mixed up issues with non-issues! It is a pity that a government that is at odds with the rest of the world, instead of focusing on issues of international significance, is wasting resources on issues that are not its damned business. The same people, who could develop nuclear technology, are mature enough to decide what to wear.
I believe that it is an insult to the people in Iran that their government thinks that it is fit to decided what cloth is appropriate for them and what is not.
What do you think?