Iran's Economy Could Be Huge, But They Don't Care 🇮🇷

this is Iran a country that could be one of the most prosperous and Powerful economies in the world in less than a decade if it was given the chance Iran is home to 88 million people that are relatively well educated young and ready to work the country also has immense natural resource wealth as much as five percent of the world's extractable metals are in Iran it has the second largest reserves of natural gas in the world only behind Russia and more oil than the UAE and Qatar combined Iran is also in a perfect geographical position between Asia and Europe with easy access to the world's oceans it could also build out its infrastructure very quickly even despite all of its problems now people are still Keen to invest into the country which has been called the last untapped Emerging Market to grow economies need the factors of production land labor and capital and Iran has them all in droves a massive Young School population some of the richest and best situated land in the world and endless access to Capital to build out Industries quickly a if Iran fully realized its potential it could have an output that rivaled Germany Japan or even the United States and China that sounds crazy it might not by the end of this video of course today Iran is a long way from that level of success despite all of its advantages it only has a GDP of 360 billion dollars which works out to 4091 on a per capita basis that puts it in line with Sri Lanka and Lebanon which are essentially failed states with none of the immense natural resource advantages that Iran has of course Iran is led by an authoritarian government that has shown little regard for the well-being of their people but even if they didn't care about the average person this is still an economic failure because they aren't Building Wealth for themselves to hoard at the top so how did Orion go from one of the fastest growing economies in the world to the economic failure it is today you will never be able to live up to its full economic potential and finally why might its leadership not wanted to once we've done all of that we can put Iran on on the economics explained National leaderboard this episode of Economics explained is sponsored by our patrons our patreon offering just got better with new benefits that you won't want to miss out on for example there is an economics explained Discord getting access to our scripts or even sponsoring the economics explained National leaderboard head over to our patreon page linked in the description and join our community the economy of Iran as we know it today really got started in 1979 after the Iranian Revolution deposed the monarchy and established the Islamic Republic of Iran the Revolution was quite a surprise to most of the world largely because Iran was doing all right for itself before the conflict started the economy was growing and people were becoming wealthier there weren't any defeats in war or financial crises or any of the usual motivators for a revolution of course as we try to make as clear as possible as often as possible our area of expertise is in the economics here at ee not in the geopolitics but it could have been a really interesting case study had the country not gone to war with Iraq just a year later between 1980 and 1988 the economy of Iran was fully dedicated to a conflict with its neighbor almost all of its industries were nationalized and the new government went even further than that the assets of Iranian citizens who didn't align themselves with the ideals of the government were confiscated and given to something called a barnyard which were organizations that were established late in the rule of the Iranian monarchy and were kept by the new government After the Revolution boneyards are independent trusts that in theory work to provide Social Services to the poorest people in Iran in practice they are huge organizations that run a large share of Iran's Industries get funding from the government don't need to pay taxes and don't even need to keep any Financial records They also directly report only to the supreme leader of Iran which gives Iran's head of state direct control over organizations which contribute 20 percent of the country's output employee 10 of its Workforce and can effectively do anything without leaving a trace from the beginning these boneyards just became tools of corruption most of the businesses they run are losing money but that doesn't matter because they help to keep control over the population if 10 of the workforce is directly dependent on these organizations they are not going to speak out against the government that has unchecked control over them at higher levels of influence the barnyards can Channel money towards officials through lucrative contracts and jobs that never even need to be reported this is a good way to keep the Iranian Elite happy with the current government Banya ads can also be used as a threat to keep the few private businesses that exist in Iran in line since the businesses that the Bony ads operate don't need to pay tax or even make money they can easily out compete private businesses in whatever Industries they operate in so if private businesses want to keep on making money they need to keep the government happy these operations have been terrible for the Iranian economy even outside of the wasted money and open corruption it has made investment into Iran very unattractive because foreign investors will either be afraid of their Investments be nationalized and claimed by the state or out competed by boneyards that don't have to play by the same rules this is a major problem for their economy because Iran needs investment to build out other Industries besides fossil fuels today oil accounts for 69 of its exports and petrochemical products are another 20 percent behind that are fruits nuts and carpets which are not going to make it an advanced economy other oil-rich countries in the region even ones with similarly authoritarian governments are trying as hard as they can to grow alternative industries by encouraging business activity from abroad the UAE has developed massive cities and transport infrastructure to attract tourists and businesses from all over the world Qatar spent billions of dollars hosting the World Cup to show off the progress it had made to varying degrees of success and even Saudi Arabia a country with its own geopolitical complications is investing lots of money into Mega projects that are probably dumb from an engineering and City Planning point of view but will help the country attract lots of businesses all wanting to play a small part in what is really just a massive stimulus effort Iran on the other hand is perfectly content to keep its anti-competitive Bond ads in place even though it will hurt its economy because the decision makers don't really care the small group of Iranian Elites that benefit from the absolute control the government has over the country are all wealthy enough for wider economic growth to not really matter a lot of their families don't even live in the country so the economy doesn't matter to them Beyond how much money they can get out of the corrupt systems in place a wealthier population has more capacity for political activism a poor population is also less likely to demand higher wages from the state right all corporations and barnyards which could eat into their profits because of this there is little incentive to pursue Economic Development if it comes at the expense of the control they have over one of the biggest oil supplies in the world even if economists remove the influence of self-interest corruption a lot of these systems are heavily intertwined with the country's theocracy the fact that they also employ a lot of people means that despite their problems they remain quite popular in the country itself barnyards are also semi-religious organizations and in between funneling money around they do actually do some good for the poor but they also get the country into a lot of trouble as well because a lot of these organizations have very little oversight and religious clerics amongst their top ranks they have time and time again being caught financing internationally targeted military groups and that leads us on to the external forces holding back the Iranian economy sanctions sanctions are economic restrictions placed on trade and financial flows to countries or organizations for political military and social reasons it's the motivation that really differentiates sanctions from regular trade restrictions there are lots of trade restrictions between Australia and the USA but they are some of the closest allies in the world both militarily and economically Australia still imposes trade restrictions on the USA because it wants to protect its local Industries and because some of the products made over there don't comply with local regulations and the US has trade restrictions on Australia for the same reasons if however the USA said that NFL is more hardcore than NRL than Australia could impose economic sanctions on the country until they formally retract their statement sanctions range in severity from not buying certain goods from a country all the way up to blocking all of their Imports exports and financial flows and seizing foreign assets while encouraging allies to do the same the goal is to the country's economy so they either lose their ability to continue fighting a war they're forced to comply with the terms of the countries imposing the sanctions or their own people get sick of their declining quality of life and force change from within sanctions are much more effective when the country or group of countries imposing them are larger trading blocks on the countries that are the target of the sanctions in the example where Australia imposes sanctions on the USA they probably wouldn't even notice because Australia is such a comparatively insignificant economy but if the USA imposed sanctions on Australia then it would probably our economy sanctions from the US tend to be a lot scarier for the targeted countries they can block access to payment networks and render foreign reserves practically useless because they control the world's Reserve currency the USA also has a lot of influence over other countries that follow its guidance on sanctions to implement their their own this is what happened with the Russian invasion of Ukraine and today Russian companies Russian individuals and Russia itself is sanctioned by dozens of countries Iran has also been the victim of varying degrees of sanctions pushed by the USA basically since the beginning of the new government following the revolution of 1979. seven months after the establishment of the new state the Iranian hostage crisis unfolded where 52 U.S and Canadian diplomats and citizens were captured after the embassy in Tehran was taken over in response to this aggression the state was placed under a trade embargo an 8.1 billion dollars worth of foreign assets were seized the sanctions were an effective tool because lifting them was a key part of the negotiations that eventually got the hostages freed 444 days after they were first captured since then Iran has had sanctions lifted and placed back on it too many times to list but the general trend is that the country has become more and more cut off from the West as time goes on Iran continues to attract sanctions because organizations like the boneyards continue to provide funding and support to internationally restricted groups the government has also broken agreements with the West over the development of nuclear weapons and ballistic missiles and select individuals and groups in the country have been selectively targeted for human rights abuses again on this channel we focus on the economics not the geopolitics so we're not going to get into the debate of if these sanctions were Justified but what isn't Up For Debate is how they have effectively ruined any chance of the Iranian economy ever living up to its full potential before the Russian invasion of Ukraine Iran was the most heavily sanctioned country in the world beating out even North Korea sanctions have had a profound effect on the Iranian economy its output figures almost tell the story of sanctions been eased and heightened over time as Industries in the country are allowed to grow only to be cut off from the outside world over and over again a large part of what has made the modern world so wealthy today is global trade and the exchange of knowledge and Technology allowing countries to specialize in what they do best and giving them access to Modern equipment without requiring them to build it from scratch has made everybody on average much richer getting cut off from this exchange will eventually push a country back to running its economy like it's the 1920s a lot of debate has been had about the effectiveness of sanctions in countries like Russia but purely from the perspective of how much economic damage they do it's clear by looking at countries like Iran that they do work especially over a long enough time period the most disappointing part of all this is that Iran could be a true economic superpower in 2012 Iran had a GDP of 644 billion dollars which was almost six times what it was a decade prior now a decade on its GDP is half that because of all the problems we've explored in this video but with proper economic management there is no reason that it wouldn't have kept growing at that rate for a long time between 2000 and 2012 it was still sanctioned by the west but the controls were slowly easing in exchange for agreements around nuclear development and other oversights business was developing but it still had challenges primarily from corruption and inefficient banking system and unfair competition from state-owned companies and boneyards labor was getting utilized more effectively but even still more than half of the potential Workforce was massively underrepresented because it's extremely hard for women to get a job in Iran this is especially tragic because most of the workforce including women are very educated in the country and could be extremely productive if given the opportunity even with all of these challenges still in place Iran peaked at being the 15th largest economy in the world it's now number 40 one its natural resource wealth combined with its talented young Workforce and the desire from investors all over the world to build out its economy means that it could easily have a per capita output in line with regional peers like the UAE or Qatar given that it's a much larger and more populous economy overall if it was able to achieve that level of output on an individual level it could have a GDP as high as five or six trillion dollars what economic success looks like really depends on who is making the decisions in most countries more output means more prosperity for everyone more jobs more goods and services the push for Endless growth has its problems but everybody sharing in a larger economic pie is normally a good thing overall economic success to the leaders of authoritarian regimes doesn't take much account of the average person's quality of life economic success to them is maintaining the status quo and making their people better off can sometimes even run counter to that goal okay now it's time to put Iran on the economics explained National leaderboard starting as always with size as mentioned Iran has a GDP of 360 billion US Dollars currently making it the 41st largest economy in the world it has all of the factors of production to make it much larger but for now it gets a 6 out of 10. that underwhelming GDP is spread out over a population of 86 million people making it the 17th most populous country in the world it also means each individual only contributes 4091 to Total output less than half the global average despite all of its advantages it's one of the poorest countries in the world and gets a 2 out of 10. stability and confidence is obviously terrible the country is continuously the target of sanctions and any Investments that can be made in Iran are just as likely to get seized or out-competed by a semi-government entity that doesn't have to play by the same rules as everyone else Iran is also heavily relied on its natural resource wealth and has done basically nothing to diversify its International revenues the country gets a one out of ten the only way it could score lower is if it was actively engaged in a civil or territorial War growth has also been disappointing from the beginning of the new millennium up until 2012 Iran was one of the fastest growing economies in the world but since then it's regressed and it's now half the size it was a decade ago it gets a 0 out of ten finally industry due to sanctions bony ads and an overall poor business environment it's very hard for any companies to operate effectively in Iran the country does have a large service sector but that doesn't mean much by itself when it still ultimately dependent on selling oil and other natural resources for fortunately if there was any country that could get away with relying on natural resource wealth it would be Iran because it has so much of it so the country gets a 5 out of 10. all together that gives Iran an average score of 2.8 out of 10 which puts it all the way down here on the economics explained National leaderboard check out the video linked on screen next or if you prefer to listen to these videos we make all of them as well as full interviews with world-class economists available on our Spotify page thanks for watching mate bye

Channel: Economics Explained

Views: 1,440,871

Keywords: economics, economics explained, economy of iran, iran's economy, iran nuclear deal, iran, iranian economy, economics of iran, economics middle east, uae

Id: OG35eaXdl7A

Length: 15min 19sec (919 seconds)

Published: Sun May 14 2023