Implications of New Institutional Economics in Proposing the Ideal Government in the Islamic-Iranian Model of Progress

اقتصاد و توسعه منطقه ای

Article 6, Volume 23, Issue 12, August 2017, Pages 152-169   

Document Type: Research article

DOI: 10.22067/erd.v23i12.62873

Authors

Mohammad Heidari^{* 1}; Vahid Moghaddam²; Iman Bastani far³; Ahmad Mehrshad³

¹university of isfahan

²Isfahan

³isfahan

Abstract

Institutionalism is an interdisciplinary approach which applies disciplines as psychology, sociology, anthropology and law to explore economic agents' behavior and provide more accurate presumptions to explain their behavior. Evaluating the institutions can provide an appropriate environment to adopt solutions based on cooperation which result in fastening changes toward economic growth. Institutional economics emphasizes the central role of institutions in development. New institutional economics is an attempt to combine the theory of institutions in the economy. Considering the role of institutions enables the policy makers and planners to know the elements and components of the social system in order to explore the position of economic components and plan to facilitate the economic relations and reduce transaction costs. On the other hand, Iran's approach to economic development after the sacred defense, has been mostly the implementation of structural adjustment prescribed by the IMF. Accordingly, the lack of theoretical foundations and dependence on imported patterns are two key components of economic policy in Iran after the revolution. Institutional economics, regarding the crucial role of institutional environment has insightful implications for recognizing the role of the government in national economy. Institutionalists not only in market failure, but also in reforming the socio-economic and making the streams, give more role to the government in the development process. They emphasize more on the elements of transparency, efficiency and accountability of the government in relation to the size of the government and privatization. Williamson with a new approach, examines institutional economics in four levels of social analysis. He distinguishes these levels with different horizons of change, the priority of each one, and the underlying theories of each. This approach with regard to the institutional structure of the Iranian economy, enables us to investigate the role of oil and the government with more transparency and give policy recommendations to modify the prevailing situation. This paper based on the institutional role of oil in Iranian economy, gives a pathology of Iranian economy in viewpoint of institutional economics and explores the implications of this approach to improve the path to Iranian economic development. This paper applies the four-level model presented by Williamson to explore the role of oil in Iranian economy which implies in turn the rent seeking big government and the resulting fall in institutional quality. The paper also regarding the phenomenon of shortsightedness, expansion of underground economy, crowding out of productive factors, extension of bureaucracy and lack of property rights, proposes some ideas to provide the economy with an accountable government that recognizes and guarantees the property rights of economic agents to pave the way for an Islamic-Iranian model of progress which in turn facilitates the realization of the ideals of the Iranian constitution and the goals of the development (progress) vision. Finally, the paper concludes that the essential precondition of the progress in the rent seeking Iranian economy is the elimination of oil rent through a fundamental change of its institutional position. This is possible only through codification of the fundamental policies of article forty five of the constitution. This article states that Public wealth and property, such as uncultivated or abandoned land, mineral deposits, seas, lakes, rivers and other public water- ways, mountains, valleys, forests, marshlands, natural forests, unenclosed pastureland, legacies without heirs, property of undetermined ownership, and public property recovered from usurpers, shall be at the disposal of the Islamic government for it to utilize in accordance with the public interest. Law will specify detailed procedures for the utilization of each of the foregoing items. So, the article gives the authority of exploiting Anfal including oil and gas to the Islamic state. Codification of the fundamental polices of this article modifies the institutional role of oil and improves the role of the government. We found out that the framework for establishing those fundamental policies of article forty five should include Pattern of ownership, management, administration, operation and monitoring the distribution of the yields among different agents in the economy to guarantee the well-being of all especially the poor; furthermore, recognize and guarantee property rights (physical and intellectual), intra-generational and inter-generational regulations to achieve justice, implementation and monitoring (equality of opportunity, the share of qualified agents, the equitable distribution of resources and the like), establishment of maximum efficiency (allocative and technical) and effectiveness in all processes, formulation, implementation and monitoring indicators of operational protections (depletion rate optimal strategic allocation of assets and similar standards), development and ensuring environmental rights and other rightful, capture of resource rents by the government via the equity (tax and other receipts required) and depositing those revenues in the sovereign and autonomous national development fund to be invested in profitable activities and to use the benefits in the infrastructure of the Iranian economy and make a better business environment for the private sector to make the economic activities more competitive in relation to the world economy.

Keywords

New institutional economics; Williamson's four-level model; rent; institutional quality

References

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References (in English)

[7] Coase, Ronald H. (1998) “The New Institutional Economics”; American Economic Review, Vol: 88, PP: 72-4. 28.

[8] Glyfason, Thorvaldur (2001), “Lessons from the Dutch Disease: Causes, Treatment and Cures”, Faculty of Economics and Business Administration, University of Iceland.

[9] Klein, Peter G. (1999) “New Institutional Economics”; in “Encyclopedia of law and Economic”, Edited by Boudewijn Bouckaert and Gerrit De Geest, Edward Elgar.

[10] Wilber, Charles K. and Harrison, Robert S. 1978 (). The methodological basis of institutional economics: Pattern model, storytelling, and holism. Journal of Economic Issues, 12 (1), 61-89.

[11] Williamson, Oliver E. (1991) “Comparative Economic Organization: The Analysis of Discrete Structural Alternatives”, Administrative Science Quarterly; Vol:36, No.2, PP: 269-296.