Transforming for future
Downsizing gov’t, revitalizing Iran’s economy
Iran’s economy has long been plagued by the challenges of having an oversized government. Official statistics indicate that in 2023, over 3,500 trillion IRR was spent on expenses related to the operation of the government, with 75% allocated to the salaries of public employees. The number of government employees in Iran exceeds 4 million, far surpassing comparable countries such as Turkey, which employs only 2.5 million public workers. This inefficient structure not only imposes a financial burden on the public budget but also limits the government’s ability to invest in infrastructure and developmental projects. A similar pattern is observed in state-owned enterprises (SOEs). Reports reveal that out of over 500 SOEs, nearly 70% are unprofitable, incurring annual operational losses of over 150 trillion IRR. Privatizing these enterprises could reduce costs and improve efficiency.
By Amin Shojaei
Guest contributor
Positive effects of downsizing gov’t
Downsizing the government could have profound positive impacts on Iran’s economic and social fabric. First, reducing government operating expenses frees up resources for critical investments in infrastructure and industrial development. Experiences from countries like Turkey and Argentina demonstrate that privatization and reducing state intervention foster private sector growth and job creation. For example, Argentina’s President Javier Milei achieved a 30% reduction in government costs in sectors like energy and transportation through strategic privatization.
Moreover, downsizing the government plays a vital role in curbing administrative corruption. Transparency International reports that countries with smaller governments generally score higher on transparency indices. Reducing overlapping institutions and limiting government interventions can enhance fiscal transparency and minimize corruption.
Priorities for downsizing
One of the most critical areas requiring reform is the unprofitable SOEs. Privatizing these entities, especially in the energy and transportation sectors, could reduce the financial burden on the government while boosting efficiency. For instance, privatizing 20% of state-run hospitals, according to Iran’s Islamic Parliament Research Center, could save the government up to 15 trillion IRR annually without compromising the quality of healthcare services.
Moreover, reducing the number of ministries and merging parallel institutions can have a significant impact on reducing administrative costs. In Iran, the existence of more than 18 ministries and affiliated organizations has increased overlapping responsibilities and inefficiencies. Merging related ministries, based on thorough expert studies, can reduce the operational costs of these entities by up to 10%.
Lessons from Argentina, US
Javier Milei, the president of Argentina, introduced sweeping economic reforms that brought significant changes to the nation’s economy. By reducing the number of ministries from 21 to 14 and privatizing unprofitable SOEs, he simplified the government structure and increased productivity. These measures led to a reduction in government expenses and improvements in key economic indicators. For example, monthly inflation dropped from 25% to 2.7%, and for the first time in nearly a year, the annual inflation rate fell below 200%, reaching 193%.
Former US president Donald Trump undertook efforts to reduce the size of the federal government and increase its efficiency during his presidency. He introduced plans to cut federal workforce numbers and emphasized privatizing government services. In his 2024 campaign, Trump promised to leverage innovative technologies and private sector capabilities to cut federal expenses by $2 trillion. His agenda included reducing bureaucracy in the healthcare, energy, and transportation sectors.
Additionally, Elon Musk, CEO of Tesla and SpaceX, whom Trump recently named the leader of a government efficiency commission, proposed using artificial intelligence and advanced technologies to streamline government processes and save billions in public spending.
Downsizing the government, though a significant challenge for Iran’s economy, is an unavoidable necessity to achieve sustainable development and social equity. The successful experiences of Argentina and the reform strategies proposed by Donald Trump in the US demonstrate that, despite challenges, a smaller government can lead to reduced expenses, improved transparency, and enhanced efficiency. It is time for Iran to learn from these experiences, embark on structural reforms, and pave the way for a brighter economic future.