At least 20 years is needed to formulate the plan that you want to use for five years. Don’t count on me and prepare it yourself!

The community of -Iranian economists lost yet another member. This time, on the threshold of compiling the Fourth Economic Development Plan, State Management and Planning Organization was deprived of the services of the late Dr. Hussein Azimi (Arani), a well-known Iranian economist and a rare figure in the realm of Iran’s development and economy.

Dr. Azimi who left Tehran University –after achieving an excellent grade– for England, managed to complete his further studies in one of the most authentic British universities; Oxford. After getting a doctorate degree in economics he left England despite having many offers and returned home.

From the first days after his return to Iran, he started producing thoughts and presenting executive plans in decision-making sessions, speeches, papers and classrooms.

Dr. Azimi loved Iran so much that when encountered by those who evaluated his opinions from the standpoint of their imported views, he was ready to sacrifice material benefits. He tolerated many hardships, welcomed many insults and made the most of the short opportunity offered to him for serving the Iranian nation. Title and post meant nothing to him and he was quick to use every opportunity to play his role for improving Iran's economic affairs.

Despite numerous difficulties, he never hesitated to serve his beloved country. During his short stay in England for treatment he was counting the minutes and seconds to come back to Iran, because his love for Iran was so deep-rooted that it enabled him to easily forget hardships.

By holding the Conference on Development Challenges he tried to present a new approach to compilation of the Fourth Economic Development Plan because he believed that a comprehensive plan cannot solve Iran’s problems. Therefore, he tried to offer a brand new structure for the next plan.

This became so important to him that during the last week of his life, he used every opportunity and meeting to talk about the fourth plan and its coordinates. Even during the last night he was thinking of the plan, not being aware that the fate will not let him play his due part in formulating it.

Azimi was one of the most popular figures among the economists criticizing liberalization policies. During the years of closed economy of the war period, he was one of the closest people to head of the State Management and Planning Organization (MPO) and head of the educational office of the organization. During tenures of Masoud Roghani Zanjani and Mohammad Sattarifard, the more the organization and the whole government moved closer to the economic adjustment policies, the more he distanced himself from power. He didn’t have any posts in the MPO until the end of Mohammad Reza Aref’s tenure. He taught at the Department of Science and Research of the Islamic Azad University and provided consultation to a number of manufacturing companies. Blood cancer hurt him so much that he couldn’t engage in activities that were commensurate to the real status of this Oxford graduate. After one year of hassling, at last Sattarifard appointed him deputy head of the organization and head of the newly established Research and Development Institute of MPO. His career was highlighted with bouts of cancer and he could not implement his ideas in an institute that was a merger of Governmental Management Training Center and High Institute of Planning and Development Research. The following is text of a speech by Dr. Azimi addressed to Economic Commission of the Parliament last winter, which is published here for the first time:

We need an institution for developing the country, which is a transitory process that may take 50 years and then end.

When talking about the Iranian economy –regardless of the various viewpoints in respect to advantages and disadvantages of a plan– the outcome of the performance of the national economy in terms of per capita production is revealed. Based on the most optimistic appraisal, per capita production in Iran according to international norms is about $1,500, although a UN human development report has mentioned this figure, based on other considerations, to be $5,000-$6,000. These figures are, of course, controversial. Estimates by the London group of economists last year mentioned per capita production in Switzerland to be $40,000 and that of Japan to be $39,000 and the U.S. figure to be about $38,000 with average per capita production for industrialized nations standing at $32,500. What is the reason for this big difference between a per capita production of $1,500, on the one hand, and $30,000-$32,000 on the other? Are they geniuses and we handicapped? Are they perseverant while we lazy? Do they have natural resources and we don’t? Or is the reason something else? Everybody knows that Japan and Switzerland, which are on the top of the human development list, are among the world's poorest countries in terms of natural resources. Studies show that we are not an average nation in terms of natural talents. All countries with big populations have a proportionate number of geniuses and handicaps. So we must ask ourselves why is our per capita production so low.

The main topic of development is how can we find the opportunity to take advantage of this historical capacity? According to the theory of development, all countries have equal capacities for reaching average per capita production of the industrial countries, that is, the $32,000 figure is not a dream. That figure can be achieved by Iranians, Indians or Egyptians. Therefore, we have a potential capacity for a $32,000 per capita production but our current performance is about $1,500. The theory of development deals with ways of taking advantage of this historical capacity and how to indigenize it. This is the main axis of development. Usually, countries that have succeeded in turning 55% to 60% of that potential into action are considered to be developed. In other words, countries with per capita incomes of $15,000 to $18,000 and above are considered developed; even if they fail to take full advantage of their capacities. Therefore, Iran’s grade with a per capita production of $1,500 in comparison to $32,000 of industrial countries would be 4.5-5 out of 100. Therefore, our move toward development means we must be able to ascend from the 4.5-5 mark to at least, 50 or 60.

So, it goes without saying that our main problem is focused around this $1,500 figure because it shows our capacity. I have calculated efficiency of this per capita production for Iran. According to our evaluations, we can make about 55% of necessary investments. We have considered the number of the youth as well as approximate capital and concluded the degree of investment efficiency to be about 55%. Efficiency of our educational investments is about 37% –that is to say we can only benefit from 370 rials of every 1,000 rials we spend. As for our living standards, we can only make 80% of the necessary investments. That is, for every 1,000 rials that we must spend on our living standards we can only invest 800 rials. These figures show that our situation is not good and, in the absence of an immediate remedy, our future will be bleak. The second point is what must we do and how must we do it?

Development theories show that the main factor for development is science and national literacy. Several years ago Oxford Publishing House, released a book that brought about a basic change in economy. The book proved national literacy as the key to development. The reality is that according to development theories such understanding consists of various components. The first of which is establishing institutions and an organization. Establishing institutions and an organization has nothing to do with left or right factions and politics are not an issue here, but technical knowledge is.

To shed some light on this issue we better look at years following the coup against Mohammad Mosaddeq's government, that is the period during which economic development was to be institutionalized in Iran. The pioneers of developmental planning were successful because they based their work on establishing institutions. The first institution they established was the Industries and Mines Development Bank of Iran (IMDBI). But how did they establish the bank? They reached the conclusion that the country needed both domestic and foreign investments. But they did not confine themselves to passing a law and paying lip service. Instead, they established an institution with all its details. The total capital of that institution was worth 400 million rials. They announced that the bank was private and aimed to promote job-creating industries. They knew that profits of the industry were low and those of commerce were very high. Therefore, as the first step, the CBI granted 1.5 times the bank’s own capital as long-term interest-free loan to be repaid in 30 years. Therefore, the bank was performing with 2.5 times its original capital and paid interest to 40% of investors. They did not only order industrial activities to be carried out, but established an institution as well.

In addition, the bank was not supposed to pay installments during the first 15 years and would only begin paying installments after that. With regards to foreign investment they decided to sell 40% of this 400 million rial capital to foreigners as shares and were very scrupulous in choosing who they were going to sell the shares to (I have seen the detailed list of shares). In this way, they set aside 160 million rials worth of shares for foreigners; 33% of the figure (approximately 60 million rials) was slated for the Americans, 3% to 11% to the British, Germans and French, 3% to 7% for the Italians and several other countries.

There were big companies in all these countries that made investments and enjoyed technical know-how. Ceding shares to foreigners encouraged them to invest in Iran. Some shares lacked monetary value, but the important point was that they helped establish institutions.

The next issue was building confidence among shareholders. To do this, the articles of association stipulated that the majority of every group of shareholders had a right of veto at general assembly meetings. In other words, the foreigners and Iranian groups were supposed to vote separately. The votes cast by both groups must have advocated a single decision, and that decision would be null and void if either group opposed it. Therefore, they attracted foreign investors by giving them the right of veto.

The question posed next was whether the institute was supposed to work with the original 400 million rials or get involved in industrial activities as well? The bank was ordered to form a group of experts and that group rapidly gained fame in Iran because it was very good at drawing up plans. Then they invited the members and informed them about the evaluations and the amount of needed capital and asked them whether they were interested in investing in the project. The articles of association had it that the bank was not supposed to spend a single rial, and any expenditure must be met by the members themselves.

There were detailed reports explaining the work of the bank. Studies show that during 1972, there was not a single case of important industrial projects in which the bank was supposed to accomplish a task and had failed to do so. Afterwards, they established the Agriculture Development Bank (ADB) as a counterpart to IMDBI. There was also a Planning Bank that was later changed to the Industrial Credits Bank for smaller industries.

The Planning and Budget Organization was then established to create infrastructure. At that time, the Planning and Budget Organization was neither in charge of formulating a comprehensive plan for the country nor responsible for the country’s budget. It was charged with infrastructural activities such as constructing roads, dams, power plants and universities.

They also thought about the structure of the Parliament (Majlis). They reached the conclusion that the traditional structure of the Majlis is an obstacle to their activities; therefore, they came up with 1961 land reforms to change the structure of the parliament. Except for the first term of the Majlis' during the Constitutional Revolution, most MPs were big landlords. Therefore, they concluded that Iran’s development was dependent on changing the Majlis' structure through an upheaval in the traditional structure of feudal agriculture. We know that mechanized farms were excluded from land reforms. Why? Because the issue was not merely opposing big ownerships, but a radical change in the traditional structure of rural agriculture with the ultimate goal of changing the political structure of the Majlis.

You see if something is to be done, we must first establish institutions that execute it before implementing that plan. If those institutions are not in line with the plan, regardless of how healthy it is, it cannot be implemented. When they wanted to establish an industries and mines bank in South Korea, its board of directors was trained by IMDBI. South Korea was lagging 15 years behind us! Therefore, the first point is that we must think about our institutions and organizations on the basis of technical terms not according to value stories. Another important institution is the Parliament. If technical points are not considered there, it will lead to big problems.

The first technical point is that all bills offered to the parliament should be accompanied by at least six explanatory reports. All advanced parliaments do this. I ask you which project has been forwarded to the Majlis with six explanatory reports? I have not been in touch with these bills for years, but I remember that during the previous Planning and Budget Organization a very detailed bill had been offered about value-added tax. I thought it would undoubtedly be accompanied by explanatory reports. When I opened the bill, I saw that its explanatory report was only half a page with the rest of the bill being its articles! My calculations showed that if the primary bill was to be carried out, the volume of invoices that must have been issued would equal all the school books in Iran. I didn’t read the bill and wrote on it, "This is impossible, don’t think about it." But in other countries such bills are accompanied by six explanatory reports. One of them is an executive report. It asks, regardless of the nature of the bill, whether or not it can be implemented.

What preliminaries are needed for the execution? The second report pertains to technical justifications, which has nothing to do with the pros and cons of the idea about which the parliament is to decide. Technical justification for example, asks whether terms used by the bill are legal or not? Can they be interpreted accurately? What are the outdated laws? The third report is related to financial justification. It asks about the cost of the bill for the government and the revenues it would generate. The fourth report is about economic justification, which discusses the plan in terms of such variables as per capita production, unemployment, exports, hard currency and similar topics. It discusses the effects of the bill on economic variables. The fifth report pertains to the social impacts of the bill because each will benefit certain groups and harm others. Finally, the sixth report is related to political justification. Anyway, when a bill is forwarded to Majlis, if it is, say, two pages, it must be accompanied by about 50 pages of explanatory report. However, when we look at the current bills, we don’t see any of this.

I want to go back to technical institutions and regulations. The important point, in my opinion, is not drawing up a good plan, but establishing the appropriate institutions. If such institutions are present, time will be saved and timesaving will lead to welfare and a rise in per capita production. Many years ago, when I was studying in England, I bought a Swedish car and I wanted to get a license plate for it. Believe me, the whole process for getting the number and going through customs formalities only took 20 minutes. But doing the same in Iran will take up to five days. This shows that our institutions are not functioning properly. Therefore, the most important point is these institutions. They are not merely economic, but consist of social, political and cultural institutions as well. For example, the Judiciary must have several characteristics to help economic development: it must be powerfully organized, law-oriented, rapid, inexpensive and accessible.

In the absence of these characteristics, economic development of the country is sure to come to a standstill. Because if a task which must be carried out in 10 minutes is done in 20 days, this period, will in fact be translated into a loss of national production. The reason we only produce $1,500 per capita is that we are constantly wasting time. Everybody is obstructing everybody else, of course not consciously. Obstructionism is indigenous to our social, economic and cultural system. Everybody can enumerate some instances. If the Judiciary is not working properly violations cannot be prevented. That is if everybody knows that the Judiciary is quick to react, most of them would keep away from offenses and the offenders would be attended to as quickly as possible; this would save time. The same argument is true about political institutions.

So, the first important point is developing institutions and organizations and this is the main axis of an institutional economy.

The main institution obstructing any work from being done in Iran is the government. The government with its intricate network of regulations is the real obstacle to development. What we really need is a powerful and efficient government. I have elaborated on the government’s structure in a book titled, "The Circuits of Underdevelopment", which was compiled in 1989. There are ministries that are responsible for enforcing the rule of law.

Sovereignty has a certain definition and its domain is limited. Sovereignty is exclusive to the government and nobody else. Let me give an example. There was a proposal for privatizing the planning institute. When I heard that, I laughed and said this is like trying to privatize a police station. The Planning Institute of Iran is the theoretical arm of Iran’s planning system. If you are thinking about privatization, go and establish some private institutions. Therefore, the government must be exclusive to the state; a small but efficient state.

Besides the government, we need an institution for developing the country, which is a transitory process that may take 50 years and then end. Development plans before the revolution was approved by the Planning and Budget Organization. Why? Because they believed that development is transient. For this reason, nobody was permanently employed at the organization. They argued that there are sequences of special projects for building institutions that must gradually get smaller and smaller. They said the Planning and Budget Organization is big, but it must gradually get smaller and finally be wrapped up.

So, we have sovereignty, a limited plan and a non-governmental sector in between, which is responsible for most of the production. The more successful a government and plan, the more prosperous its non-governmental sector. Another example is the issue of foreign exchange. If we force a single forex rate based on wrong institutionalization, the whole country will be damaged. So, what is the right institution with regards to forex? A major error has been made in that the CBI must not be in charge of forex dealings. Where in the world has this happened before? Central banks in the world engage in forex dealings, but for what purpose? To keep up the value of domestic currency! Find a single central bank that can purchase or sell 90% of the country’s hard currency.

This is not the duty of the central bank. As long as the central bank is in charge of dealings of the hard currency earned through oil sales, the domestic currency will not gain in value. The main task of the central bank is maintaining the value of the national currency. Such a currency must be used for accomplishing jobs and providing credits and not dealings in foreign exchange. We give the forex earned through oil sales to the central bank to sell it in the market while I said many years ago that we must have an organization for recycling oil resources. The money earned through activities of this organization must be spent on specified activities: road construction, controlling water resources, etc.

This inactive wealth of the country must be activated. To prevent any budgetary crisis, for every dollar, 3,000 rials should be transferred to a budgetary account. Then if the forex rate reaches, for example, 10,000 rials we will be sure that the 3,000 rial difference has been spent on positive tasks and has not been squandered.

The goal of establishing institutions is to make clear every duty and to know the appropriate conditions for action. A look at the executive bodies of the country will reveal two points. First, we are all concerned about economic corruption. When does economic corruption begin? Administrative corruption rears its ugly when working for the government loses its attraction. Everybody pursues his or her personal profits. When, for example, they tell somebody that he will be in charge of a certain organization from tomorrow, something must happen simultaneously. Otherwise, everybody will seek his or her personal profits and this will lead to corruption. Buchanan, the famous economist has studied the issue of how conflicts between pursuing one’s benefits and maximizing social goals can be solved.

One way is to dignify employment in the government. That is to take measures to bring personal profit in line with healthy work and if some people still violate the law, the Judiciary will punish them. In Japan; a civil servant has a high social status. If he is sacked for any reason, he will come to disgrace. The story of famous Japanese suicides is embedded here. In Japan there is even an internal promotion system for directors and another promotion system for the retirement period. A director who is employed by a state body is both trained and gets a high salary. This director is trained in such a way as to have social attraction and credit; works for 10-15 years with efficiency and a bright future awaits him. In our country, unfortunately, governmental employment only guarantees a subsistence wage with no social dignity.

Another example is reforming the budgetary system. The budget cannot be reformed out of the blue, but the government must look at its generality. If ministries want to do everything in this regard, problems are sure to evolve. One day the tendency is toward development and requires a developmental organization and on the other there is a direction change and with it a change in the organizational and financial structures. With the current structure of ministries it is impossible to pull off such a big task. We have no other choice but to begin with gradual reforms. If we want to support the economy, for example, if we want to support a newly launched industry, some revenues must not be settled to state budget, because if this becomes a regular practice, it cannot be discontinued easily. One of my concerns during the year 2002, when the topic of car imports was hot, was that customs duties might be settled to states budget.

Another issue is theorizing. Unfortunately, we don’t have any school of thought in Iran. Nobody can claim that everything he or she says in the realm of social sciences is true and there is no other alternative. Since there are no controlled laboratories for testing social science theories, we must search history and carry out the limited tests that we have. We have few laws for social sciences and many theories. Schools of thought are created for this reason. The characteristic of a school of thought is that somebody is leading it. For example, in the U.S. everybody says that Mr. Friedman is leader of the monetarist school of thought. The leader of a school of thought has books, articles and other written materials of his own. He trains disciples and there is also a group that follows his/her school. As soon as a school of thought comes to power as a result of elections, various people who believe in it can come together and form the cabinet. This creates coordination.

We don’t have a school of thought. The empty place of a theorizing institution is being felt. Such an institution is where the elite conduct research that support macro policies. Such an institution may be a non-governmental organization or be run as a charity. They usually have extensive support facilities such as a library, Internet, etc. They usually don’t employ researchers, but issue scholarships. Such an institution is lacking in Iran, but abundant in other countries.

I have studied and taught at Oxford. If somebody becomes a full professor there, it is a lifelong title and nobody can depose him/her. Their only commitment is to live within 20 kilometers of the university. Apart from that they are under no obligation to teach even for a single hour, not to be late for classes or to take part in any meetings. They are only stripped of their seats when they die or resign the post. Oxford has 30 colleges. In one of the colleges professors outnumbered the students and the main policies of the government were determined there. Most of the lecturers at that college were full professors or Noble prize candidates and had enormous powers.

There is an institution in the U.S. called Research Scholarship, which selects some people annually according to such norms as the number of books authored by them. Afterwards, without being under any obligation to write anything, they receive a salary from the government as research scholarship. Dr. Mansouri, who is currently a deputy minister of science, research and technology, has discussed the issue in his book "Scientific Development of Iran" and says there are 2,200 such institutes in the United States. There is not even one such institute in Iran. The only place whose budget is independent and is established based on a school of thought is the seminaries.

I point to several issues. The first concept in the Iranian economy is about job creation. The first wrong understanding in Iran is that when we talk about employment, everybody thinks of it in terms of producing a commodity, factories, or agriculture. Output is the sole standard in factories and agriculture. If we want to reach full employment in the society, we must try to minimize employment in factories and agriculture. I always say if we could make a factory to work with only one worker, we should have done so. The wrong idea that employment is tantamount to factories hampers employment. Three kinds of activities create jobs: production maintenance services, governmental services, and welfare services.

Look at the average total of industrial countries. At present, average industrial countries have the highest employment and lowest unemployment rates. About 70% of all employees have been recruited by the service sectors and only 30% in factories and the agricultural sector. In Iran, 46% of employment pertains to the service sector, 54% are producing a commodity, that is, we have 3.5 million jobs in agriculture, about 2.5 million jobs in industry and 5.5 million jobs in the production sectors. We must set regulations to facilitate those services and, on the other hand, we must increase production output. We know that the value of the workforce has constantly decreased in Iran while that of capital has been soaring. If we take the theory of relative prices as a norm, we must not use technological equipment and use workforce instead. But why has Iran become a cemetery for outmoded equipment and machinery of other countries? This is a wrong policy to direct our production toward taking more advantage of inexpensive manpower according to the theory of relative prices. This policy is anti-employment. We must find a way to facilitate regulations for supporting production maintenance and welfare services. On the other hand, we must ease up regulations to increase output. This will be possible by taking advantage of constitutional stipulations. To create employment, we must give the lead to somebody that can do away with regulations rapidly. For example, why does the municipality prevent people from converting part of their houses into shops? This has nothing to do with the municipality. We are worried about the wastage of resources, but when we don’t allow people to do this, the key investments automatically go up. In foreign countries there are many newspaper stands in every station, but we remove them to attain full employment. Is this possible? How much capital do such jobs need? The number of jobs in every service sector grows rapidly and there is a world of jobs in the service and maintenance sector. But our regulations are impediments. Therefore, the third issue is wrong ideas.

Another instance is planning. I said 20 years ago that a comprehensive plan is doomed to fail from the outset. An expert on development wrote a book titled, ‘Developmental Planning, Lessons of Experience’ in 1966, that is more than 35 years ago. Experiences of 100 countries, including Iran are studied in that book. It rightly claims that there is not even one instance of comprehensive planning that has succeeded. The theoretical reasons are clear. Implementation of a comprehensive plan needs comprehensive knowledge and up-to-date detailed information, which we lack here. We are also short on time. It needs a maximum of one year. It takes several months before a bureaucratic system is geared into operation. Then it goes to the Cabinet and the Majlis. It takes about 5-6 months to come up with a comprehensive plan. Can any work be done in five months? At last, the plan turns out to be unproductive due to lack of precision. Developmental planning is planning on the basis of guiding nuclei. That is a sector and guiding sub-sectors are selected, which may take up at total 20% of the country’s budget. Since they are guiding, the sector and its sub-sectors obviate the responsibility of deputy ministers and there is no need for the minister to be head of the planning committee because most of the ministry work is carried out elsewhere and there is no problem with regards to responding to the parliament. Therefore, developmental planning includes a limited number of guiding tasks, which is forwarded to the Majlis and approved. After approval we have a plan for four or five years. In other words, there is no need for any major change. It is only enough to establish a development department in every ministry. In short, if the fourth plan were also a comprehensive one, none of our efforts would be fruitful. This has been proven since 35 years ago. Once Arthur Lewis was helping draw up a comprehensive development plan in Ceylon and he said, "At least 20 years is needed to formulate the plan that you want to use for five years. Don’t count on me and prepare it yourself!"