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Iran Rising disparities in Urban & rural economy

Iran Rising disparities in Urban & rural economy


By Morteza Aminmansour

With an estimated population of 71.4 million, Iran is the most populous country in the region, and the 16th most populous in the world. With a Gross Domestic Product of US$110 billion, Iran is the second largest economy in the region. It is also the second largest Organization of the Petroleum Exporting Countries (OPEC) oil producer and has the world's second largest reserves of gas. The human development trend, which had been positive and rising in the late 1980’s and early 1990’s may, however, reduced its accelerating trend and stagnated in the second half of the 90’s.

Developments in education have also been positive. In 2001 the literacy rate of the population aged over six years of age has reached 80.4 per cent (85.1 per cent of men and 75.6 per cent of women). The urban-rural gap has also narrowed to about 14 per cent (86.25 per cent of urban population versus 72.4 per cent of the rural). There are, however, still noticeable differences among and within Iranian provinces. The net enrollment ratio is above 97 per cent and is almost equal among girls and boys.

However, national averages hide disparities related to gender and area. While the overall enrollment rate for boys is 98 per cent, it varies significantly between provinces. For girls, the range is between 99 per cent in Tehran and 84 per cent in Sistan and Baluchestan. The enormous gains in the educational status of the Iranian population can be attributed to massive government’s investment in public education (on average 45 per cent of the government’s social affairs budget since 1989). Unfortunately, with less than 15 per cent enrolment, Iran has a significantly low rate of pre-school attendance, with no significant difference between boys and girls. Hence efforts should be directed towards expanding opportunities for early learning of pre-school aged children.

Iran has been experiencing rapid transitions since economic reforms launched between 1970-2007(under the Shah’s white revolution and after the 1979 under the Islamic government). In a large picture, one was a traditional economy to a market based economy and the other was from an agricultural society to an urban, industrial one. Contributing to a near quadrupling of per capita income. These reforms have dramatically reduced the number of people below the poverty line. The rise in income level of both rural and urban employees have considerably improved the livelihood of these residents, the results of the reforms have shown wide income disparity. There are large disparities in wage income between the urban and rural residents, between different regions, and even among the urban residents.

In recent years, the difference between income levels for urban and rural populations has continued to increase. In general, observers believe that this is caused by government policies. Whether the Iranian government will change the policies or make them more effective remains unknown.

However, the recent changes of fiscal decentralization has weakened the financial base of the central government of Iran eroding their ability to redistribute financial resources to the poorer areas with the help of oil subsidy (Provinces such as Hormozgan, Azerbaijan, Khorassan, Sistan Baluchestan) and interior provinces (Ostan Markazy, Semnan). Furthermore, the prevailing communal values are gradually being replaced by growing individualism, which has made it more difficult for the government to maintain its efforts on shared prosperity. Notably, however, there were signs of improvements found in recent data. For instance, during 1995-2005 and the following year, the size of the wage income of the rural residents to the urban residents has increased beginning to show a reversing trend. There have also been some improvements made on the regional disparities when we used selected social indicators such as the number of educational and medical institutions from the recent years. Theoretically, a country cannot avoid having increase in income disparity during its early stages of changing to a market economy. In a developing country such as Iran, where many surplus laborers are, it is very difficult to have people get rich quickly and equally in a short time. Besides, some scholars even argue that having some people get rich first has been used to stimulate enthusiasm and initiative for the rest of the people. However, most scholars warn that if the current gap exceeds certain limits, with no doubt, people may become severely psychologically distressed and question the sense of fairness leading to a challenge on domestic stability which is proven in the recent years in Iran.

In addition to the gap between urban and rural areas, city dwellers also feel the income inequality among themselves. According to the Urban Socio-Economic Survey Organization of the State Statistics Organization, the per capita income of the top 20 per cent income earners in 1994 was several times greater than the bottom 20 per cent; some professionals argue that the problem is partly due to the psychological factors of urban workforce. Although many enterprises in urban areas are either stopped working or closed down, many of the idle employees who have been laid off (for example: Textile industry, shoes factories) are waiting for future employment that would provide the same or better working environment. Furthermore, they have been accustomed to the decades-long practice of equal income allocation, which is also the cause of de-motivation among them. Currently, a good number of these idle workers are either receiving low incomes or no incomes at all and been waiting for years to be paid and the government is not doing enough to help their families. The wage level of retired employees is also quite low (thanks to yearly16%-20% inflation), and considering the effects of inflation their living standard is falling.

Unlawful factors are also included; exploitation of policy, systematic, and administrative loopholes, and abusing individual's power to gain personal wealth through illegal profiting, and tax evasion. Significant decrease in the state finances in the country has caused many problems of corruption in government institutions and organizations in recent years. There have been reports on the abuse of power for personal gain and exchanging power for money and taking the money to UAE for further investment in Real Estate sector.

There have been ongoing illegal activities, which involve a large-scale diversion of state assets into private hands. A significant portion of this amount is used in personal investment (investment in Real estate and import of products from UAE which the government desperately needed), which is often unproductive and mismanaged creating a loss. This is not only adding problems to a lumbering public sector but also widening the income disparity by benefiting only a small minority (pro government elements).

Iran’s development policies have long created an unbalanced regional development by variations in resource allocation. The gap in wage income between the rural and urban residents has grown in increasing rate from 1979(since the Islamic Revolution). In fact, such disparity has been the biggest contributor to the whole problem of equity in Iran followed by the inter-regional disparity. In addition to the huge gap in income, the Iranian government has maintained its policies to improve the urban standards of living. Although some rural residents who work for city or State governments have employer-covered health insurance, the quality, and availability of medical personnel, clinics, and hospitals in urban areas far exceed that in rural areas.

Income often fluctuates from time to time particularly for farmers and self-employed people. Furthermore, income analysis would not fully capture the welfare gap between urban and rural residents in Iran since urban workers typically enjoy in-kind benefits through their employers. Such benefits would include subsidized housing and social insurance programs. Although this trend has been changing through ongoing reforms of the country's enterprise-based social security system, which reduced subsidies to urban workers, the rural population continues to be largely on its own in providing for retirement. There are also clear disparities in social and industrial infrastructure between regions. It is undeniable that there should be adjustments made to reduce the gap between regions by investing in infrastructure in less developed areas such as provinces Khozestan, Khorassan, Hormozgan, Azerbaijan. The sense of equality has gained its importance during the recent years because of the vary fact that Iran is going through a transition where decades of socio-economic system (Islamic system) and ideology are being reevaluated and replaced by market-driven capitalism which is affected by raising of oil prices in recent years. Traditional grant or relief money should be distributed through administrative organs in an egalitarian manner to poor area, the central government should encourage people to form "economic entities, service organizations and enterprises" so that they can pull themselves out of poverty and gradually replace it with a stable income.

The government of Iran should: Minimize the degree of urban subsidy and expand the scope of recipients to rural population. Promote better access for the unemployed to the labor market and jobs. Create jobs by investing in service and technology oriented industries as they continue to reform. Provide training and education for the labor force. Remove discrimination against women in education and employment. Adopt preferential treatment for foreign investment in inland areas. The Iranian government should practice a policy of buying agricultural products at higher prices and selling industrial products to farmers at lower prices. Consequently they can earn enough to support their families through the year.

Iranian government is proposing to financially subsidize grain production to increase farmers’ incomes. It is to believe that this policy may not be suitable for economic development in the long run. But the government should reform the investment policy that is putting rural economic development at a disadvantage and should invest vigorously in rural education.

.While regional imbalances and socio-economic disparities have persisted in Iran over the last decades of planned economic development, it should be a matter of particular concern to policy-makers that the same have tended to widen at an alarming rate. Accelerating national growth, reducing poverty, and achieving national social targets will not be possible without strengthening the performance of, and access to, services in these disadvantage provinces, sectors and communities. Implementation of reforms is essential to reduce fiscal imbalances and improve the composition of public expenditure and investment climate. Of particular importance for poverty reduction and increasing rural incomes are policies aimed at increasing agricultural productivity and rural employment.

Iranian government should create a Rural Entrepreneurs and Micro enterprise Program that would allow rural entrepreneurs to acquire the skills, obtain capital, and build networks necessary to establish new small businesses in rural areas and receive continuing technical assistance as the individuals begin operating the small business. Micro enterprise would be defined in the program as a business that employs five or fewer individuals, creating a Community Entrepreneurial Development Program based

On four pillars of rural economic and community development: entrepreneurship, capital, youth, and leadership. This program should offer grants to collaborating communities to establish regional initiatives for entrepreneurial development, including small business education and technical assistance, leadership, development, youth attraction and retention, and intergenerational business transfer planning.

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