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Management Policy Essay

Iran is a Middle East Islamic state that has been faced with political problems in the recent times causing economic hardships such as unemployment, poverty and inflation. The country has a large economy with a population of 69 million people and has massive economic potential with large deposits of oil and natural gas (Reed & Pirouz, 2004). This paper is an evaluation of Iranian economic policy through case analysis of Reed & Pirouz (2004) article featuring the countries economic model. Iranian Economic Model.

Iranian economy applies a closed communistic economic model. There conditions that fundamentally contribute the adoption of a closed communistic economic model. Firstly, Iran post 1979 conflict was subjected to economic sanctions that led to the country being cut off from consumer and investment goods, technology and capital investment. In addition recent political contention of Iran and the west led to uncertainty and conflicts which frightens investors thus alienating the country economically (Reed & Pirouz, 2004).

Secondly, being an Islamic state, religion and political power are closely correlated, according to the article more than 50% of the economy being controlled by the government and religious institution referred to as bonyads (Reed & Pirouz, 2004). Therefore, most of social economical ideologies

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are based on religion hence the fear of opening up their economy to the western beliefs, culture, customs and people who are considered as ‘infidels.

’ A good example is Iranian President Ahmadinejad’s open hostility to the western culture especially United States of America whom he refers to ‘Great Satan. ’ (Taheri, 2007). Thus due to differences if Iran with the west, the country discourages foreign investors and imports with for example restriction of auto mobile imports and regulating foreign investment in banking and oil business in the country (Reed & Pirouz, 2004). Performance under closed communistic model.

The alienation and adoption of strict policies that inhibit Iran’s economic relations with the international community has led to economic stagnation and underemployment of resources in the country. According to Reed & Pirouz (2004), there is inadequate investment resources has led to under exploitation of the countries oil reserves leading to decline in earnings in the country. The country is also faced with unemployment and the meagre government resources are channelled to subsidizing non developmental expenditure.

Therefore, as much as the country wants to pursue a self sufficient model independent from the ‘infidels’ power, there is need for the country to open up its economy in order to acquire foreign capital for investment, a market for their abundant resources and valuable investment goods and technology that can help the country optimally exploit the rich nation, create employment and trigger economic growth and development (Taheri, 2007). Alternative Models: Capitalistic Model There two main alternative models to the closed communistic model.

Firstly, capitalistic free market model emphasises on privatization, competition and opens economy that is demand driven with the government role reduced to creating an atmosphere for business (Leonard, 2006, pg. 225). This will provide capital that will help in the exploitation of the country’s oil and gas reserves and increase government revenue. In addition, Iran having valuable resource such as oil will rip from the enlarged market thus increase their export earnings which will help in creation of jobs and availability of much needed imports in the country.

Secondly, due to opening of the economy, Consumer welfare will be improved due to availability of cheap and higher quality consumer products and variety of goods to choose from thus encouraging consumer sovereignty (Leonard, 2006, pg. 226). However, this model has two major effects which would severely affect the country based on their Islamic ideologies. Due to opening up of the economy exposure of the country to international community will lead to dilution of Islamic fundamental beliefs due to availability of goods and services that might be contrary to Islamic belief or emergence of a culture that will interfere with Islamic beliefs.

Secondly, it has been observed that capitalistic models leads to misallocation of resources since owners of factors of production will invest o profitable projects at the expense of social projects which are unprofitable such as education and health. In addition low return but essential investment such as water and power will be neglected by the private dominated economy. Mixed Economy Model. This model is a combination of communistic and capitalistic models.

In the model, there are both state owned and private resources and though the market is demand driven and competitive as in capitalistic market, the state reserves the right to interfere, regulate and direct the economy through implementation of monetary and fiscal policies. Given that it is a middle ground between capitalistic and communistic model both misallocation of resources and dilution of culture popular in capitalistic models can be controlled and bureaucracy and political interference that is dominant in communistic models can be minimized thus creating a hybrid model (Leonard, 2006, pg.

231) Recommendation. Therefore, the best model for Iran would be the mixed economic model being a developing country. The government will be in a position to adopt beneficial capitalistic policies such as privatization of the state resources and opening up of the economy for the benefit of the country. The politicians should ensure that Iran’s relations with the international community especially the west is resolved and political stability is achieved so as to attract investors into the country.

Secondly, in order to maintain their rich Islamic culture the government can formulate policies that will restrict importation of goods that are considered harmful to the state and its religion, However the country should use diplomatic means such as treaties and international consultation on what they will or will allow into the country is important to ensure that the international community understands their position and minimize retaliation and alienation.


Leonard, T. (2006). Encyclopaedia of the developing world. Routledge. Reed, S. & Pirouz, B. (24th may 2004). “The Middle East’s Model economy”. BusinessWeek pp. 58 – 60. Taheri, A. (20th January 2007) “Iran: Looming Economic crisis”. Arab news. Retrieved 16th March 2008 from http://www. arabnews. com/? page=7&section=0&article=91155&d=20&m=1&y=2007

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