Last month, the publication of an advertisement on the “Divar” website regarding a request from a poor family in Semiram, located in Isfahan province, was met with a lot of reactions from social media users. In the published advertisement, this family has asked citizens not to throw away their “extra food” and to give it to the four members of this family who do not have food to eat.

In the past decade, the issue of poverty and its widespread expansion has been significantly visible in most areas of the country, and the majority of citizens have faced various forms of poverty throughout the day. There are fewer trash cans on the streets where a citizen has not rummaged through for food, plastic waste, or aluminum cans. Such a phenomenon was less common in the previous decade and if seen, it was mostly related to drug addicts or homeless people. But what are the reasons for the prevalence and spread of poverty in Iranian society and why is the middle class on the verge of collapse and destruction?

In the past decade, the result of government economic policies has been nothing but an increase in inflation (except for short periods). The recent two-day closure of bakeries and the subsequent increase in bread prices has caused public concern about the rise in prices of other essential goods, especially gasoline. Although the 13th government has denied any increase in gasoline prices, the social capital of the government is not enough to make such statements acceptable to the public. It is natural that the root cause of inflation is not the focus of this writing; however, it has certainly not had a positive impact on reducing poverty. The effectiveness of economic policies in terms of economic growth has also not been pleasant for the poor.

As the most important driver of economic growth in our country is the income from oil sales and its distribution through the government, the path to effective economic growth in reducing poverty lies more in the way income is distributed rather than through its impact on employment and income generation. In addition, the high dispersion of inflation and economic growth rates is evidence of increasing uncertainty in the country’s economic policy space, which is also in contrast with increasing prosperity and reducing poverty in society.

The economy of Iran is sick.

This is a statement that all economists today acknowledge and consider the most important solution to be the involvement of experts and the use of economic principles in governance; at the same time, they emphasize active diplomacy and communication with all countries of the world and the lifting of sanctions as a prerequisite for improving the economic situation.

Today, the first and most important demand of the people from the officials is to bring stability to the country’s economy. The occasional protests, especially the widespread protests of the second half of last year that took to the streets and went beyond economic demands, had their roots mainly in the economic and social deprivation caused by the actions of officials who, while ignoring the daily needs and the growth of society, pursued their personal and group interests and enriched themselves in power. This resulted in a flawed political-economic structure prone to corruption, which destroyed the relative welfare of society and replaced it with widespread poverty.

In 1978, people were seeking political freedoms and during the demonstrations, there was no economic slogan raised because the society was relatively prosperous. However, the current dire and unfortunate economic situation has put the daily livelihood of many members of society at risk. More than 60 million people are unable to meet their basic needs, more than 30% of Iranian households are either renters or have resorted to other forms of housing. The continuous rise in the prices of goods and services in the process of chronic inflation has taken the breath away from the people and has made the heads of households ashamed and has damaged their dignity and has provided the means for the collapse of families.

The highest share in the society’s consumption basket is related to livelihood and housing, which has the highest percentage of inflation in the combination of commodity inflation, and incomes are not able to cover it. As a result, renters, wage earners, retirees and pensioners, teachers and other classes, outside the circle of the minority dependent on government and non-governmental rents, are exposed to the most severe economic, social and moral damages.

The death of Mahsa Amini was a spark that ignited the explosion of pent-up economic and social grievances in society, leading to widespread street protests. Although these protests have subsided for various reasons, they have added to the volume and nature of societal demands and changed the method of protests.

Unfortunately, there has been no change in the government’s domestic economic policies to address the growing demands of the society, as corruption and rent-seeking have deeply rooted themselves in the government’s economic system like a malignant tumor, making it resistant to any reform efforts. Therefore, the only solution is to establish an economic structure based on the principles of economics and governed by the rule of law, capable of organizing the economy and providing welfare and comfort for citizens, on the condition that policymakers, decision-makers, and implementers see themselves as servants of the society, as they are funded by the people’s resources.

In a society that has been witnessing high inflation rates and low economic growth rates for years, the increase in poverty is not a strange phenomenon. With the rise in general price levels and chronic inflation caused by fiscal policies, the government, alongside the pressure of unemployment and underemployment on people’s livelihoods, once again brings the issue of poverty to the forefront in newspapers and economic and social discussions. Social and occupational groups also try to increase their bargaining power by proposing various figures as the poverty threshold, which is referred to as the poverty line, in order to increase wages and prices.

Unfortunately, due to the lack of independent institutions and research organizations, studies on measuring and monitoring poverty are also scattered and often discontinuous. As a result, there is always a lingering ambiguity in the acceptable level of the poverty line in terms of implementation and policy-making. This ambiguity not only exists in the practical application of the poverty line, but also in the theoretical concepts and measurement methods of poverty and the poverty line, which further complicates the issue.

Generally, poverty, as an economic concept, refers to the inability of an individual to meet the minimum requirements for a healthy life according to societal standards in which they live. This definition is more of a conceptual expression of deprivation and limited ability rather than a guideline for calculation and measurement. The needs are open to interpretation and can change over time. In the present era, needs are not limited to food, clothing, and shelter, but other needs such as access to communication tools like the internet, freedom of expression, visibility, and participation in society are also considered basic needs. Many needs are not defined and standards also change over time and across different locations. This is why we see different numbers and percentages of poverty and poor individuals even in a specific time and place.

As usual, statesmen and powerful individuals consider poverty to be decreasing, while opponents and seekers of power see it as increasing and growing. The search for the true value of the poverty line is like playing the game of “how many eggs does a chicken lay in a day”, and ultimately, in order to use the poverty line in policymaking and executive programs, a consensus must be reached; a consensus that is mostly the result of bargaining and distribution of power. However, what seems important from an economic perspective is the trend over time and changes in poverty over time, which can reflect the efficiency of the current economic system. In other words, by considering the same definitions and measurement methods in consecutive years, we can focus on changes in the poverty rate over time.

In poverty studies, mostly micro-level information is used, which is collected from households through statistical cost-income surveys. However, since household expenses and income are directly related to current economic policies, changes in macroeconomic variables can also provide a comprehensive estimate of the trend and changes in poverty rates for interested parties. From this perspective, three variables of economic growth rate, inflation rate, and per capita income can together provide a comprehensive picture of the welfare status of society. It is undeniable that increasing inflation reduces the welfare of the people in society and increasing economic growth is a necessary condition (sufficient condition for proportional distribution of the proceeds of growth) for increasing their welfare.

Bold line of poverty for the new century

The national poverty line in the year 1400 was around 4 million and 500 thousand tomans for a family of four, and in Shahrivar 1401 it reached 7 million and 500 thousand tomans. Considering that wages have not increased in line with poverty, the minimum approved wage for a family of four in 1401 was 775 thousand tomans below the poverty line. The mismatch between income and expenses has caused more than 30% of the country’s population to fall below the poverty line at the beginning of the new century. This means that approximately 25 million and 500 thousand people in the country have become part of the impoverished population.

The Center for Parliamentary Research has announced through its research that the poverty rate in the 90s has increased by 11 percentage points, from 19.4% in 1390 to 30.4% in 1400.

Furthermore, in a research conducted by the Welfare Deputy of the Ministry of Cooperatives, Labor, and Social Welfare, the poverty rate for the year 1398 has been reported to be around 32%. This ministry has gathered information from 46 sub-sites in a comprehensive database called the Iranian Welfare Information Database, with the goal of creating an economic welfare identification document for all Iranians to determine the economic status of households and identify the poor and deprived.

The use of registration information in this database, unlike other existing data which is based on a general sampling, allows for the analysis of poverty and household welfare at the national, provincial, district, and even neighborhood and postal block levels with the least possible margin of error.

According to this research, the poverty rate in 1398 (2019-2020) has reached around 32%, which is the highest rate in the past 10 years. High inflation, economic recession, and continuous decrease in per capita national income have caused Iranian households to face a decline in welfare repeatedly in the 10 years prior to that, and ultimately in 1398, around 26.5 million people fell below the poverty line. In fact, the price shock, regardless of its substitution effect and the decrease in the quality of household consumption, will likely lead to a decrease in consumption for many households in the short term. Therefore, with the sharp increase in the poverty line, it can be said that due to the lack of proportional increase in incomes and the absence of high economic growth, it is highly likely that a larger number of households will fall below the poverty line and we will witness an increase in the poverty rate in the years 1401 and 1402.

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Percentage of the rural population in Sistan and Baluchestan living in poverty.

Although poverty has increased on average throughout the country, inequality in different provinces is very high. Studies show a 50% difference in per capita income among provinces. This inequality is such that while the average poverty rate in the country is 31%, it is reported to be 62% in Sistan and Baluchestan. If we calculate the poverty rate separately in the villages of Sistan and Baluchestan, this number reaches 80%.

Hojjatollah Mirzaei, an economic expert, has emphasized the importance of examining the per capita income of provinces. He stated, “85% of the country’s population lives in provinces where the per capita income is 50% lower than Tehran, and approximately 40% of the country’s population resides in provinces with a long-term and stable unemployment rate of over 15% for at least a decade. This situation has been ongoing for more than two decades in provinces such as Kermanshah, Lorestan, Khuzestan, and Sistan and Baluchestan, where the unemployment rate is almost twice the national average.”

He explained that the development gap between Sistan and Baluchestan and Tehran is similar to that of Ghana compared to South Korea, citing statistics that show the per capita income in Tehran is five times higher than Sistan and Baluchestan. He also stated that this ratio is between three to four times higher for other border provinces

Minimum wage, less than the poverty line.

The poverty line is increasing due to the impact of inflation. However, what receives more attention is the adjustment of household income in proportion to the increase in the poverty line, or in other words, the poverty rate. According to a research conducted by Zahra Kavyani, a poverty researcher, the average national poverty line in 1400 (2021-2022) for a four-person household was around 4 million and 500 thousand tomans. This research also estimates that this number has reached 7 million and 500 thousand tomans in September 1401 (2022-2023).

In the year 1401, the minimum approved salary by the Supreme Council of Employment was five million and six hundred and seventy-nine thousand tomans, and for a family with two children, it was approved to be six million and seven hundred and twenty-five thousand tomans. Therefore, in the year 1401, the minimum wage for workers was 775 thousand tomans less than the poverty line.

The minimum wage to poverty line ratio has been on an upward trend from 1392 to 1396 and then decreased from 1397. This study shows that the minimum wage has less ability to cover household expenses compared to previous years, which can lead to an increase in poverty in society. The minimum wage set for each year is the same for all regions of the country, while regional differences cause the poverty line to be different in different provinces and cities, as well as between urban and rural areas. The difference in the poverty line causes the minimum wage to have more coverage in some areas and less coverage in others. For example, while the poverty line in Tehran in 1400 was calculated to be over 8 million and 680 thousand tomans, the minimum wage was only 4 million and 236 thousand tomans. In 1401, despite the poverty line in Tehran being calculated to be over 14.7 million tomans, the approved minimum wage was only 6

Changing the characteristics of poverty.

The characteristic of poverty in the 1990s is fundamentally different from previous decades. Before the 90s, individuals could escape poverty by finding employment, but with the worsening economic situation and increasing inflation in the 90s, being employed was no longer a guarantee of escaping poverty. Since 2018, the gap between households with employed heads of household and those without has decreased, to the point that in 2020 there is no difference between the employment status of heads of poor and non-poor households. In 2020, approximately 60% of poor households and 61% of non-poor households had employed heads of household. In reality, with the decrease in economic growth and worsening macroeconomic conditions, income from employment is not enough to lift households out of poverty. The increase in poverty in the 90s and after 2018 has led to a lack of hope for escaping poverty, even with employment.

The severity of poverty has also increased.
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In addition to the poverty rate, another index is also examined which shows the level and intensity of poverty. This index is known as the poverty gap. The poverty gap indicates the average income gap between each poor individual and the poverty line. In fact, the poverty gap examines how much poorer the poor have become. Therefore, the higher and closer the poverty gap is, the less the income gap between the poor and the poverty line.

According to the research conducted by Zahra Kavian, from 1396 onwards, in addition to the poverty rate, the poverty gap has also increased and in 1400, with a slight increase compared to 1399, it has reached its highest level. In 1398 and 1399, the poverty rate was almost equal and showed about 31 percent. However, in 1399, the poverty gap was 1.2 percentage points higher than in 1398. This means that although the number of poor people was equal in these two years, the poor in 1399 were poorer than in 1398. In 1400, although the poverty rate decreased by 0.9 percentage points, the poverty gap increased by 0.1 percentage points. This suggests that the growth in household incomes of those close to the poverty line has been greater than those below the poverty line, and despite the improvement in the economic situation of households close to the poverty line

Another interesting point in this study is the decrease in the distance between non-poor and poverty line. In the early years of the 1990s, poverty was mostly limited to very low-income groups, while higher income groups still had a larger distance from the poverty line and enjoyed relative prosperity. However, a decade of declining per capita income has led to a decrease in the distance between non-poor and poverty line since 2018. This means that poverty is not only limited to the disabled or those left behind by economic growth, but can also affect various other groups with different characteristics.

The basket of groceries became smaller and its cost increased.

Apart from the poverty rate and income gap, welfare variables also indicate a decrease in household welfare during the 1990s. Total household expenditure is recognized as one of the welfare indicators. Household expenditure had a decreasing trend in most years of the 1990s, except for 1395 and 1396, and the decrease was very severe and significant in the three years of 1397 to 1399. One of the most important variables used to examine the household welfare status is the ratio of food expenditure to total household expenditure. An increase in this ratio indicates that the household has allocated a larger share of its expenses to food, therefore having less money available for other expenses.

Housing also plays an important role among expenses, and the higher the share of housing and food in the expense basket, the less money the household has for other expenses. A decade-long study shows that the share of food in total household expenses has increased, confirming the trend of increasing poverty rates. The increase in food prices has caused households to allocate a larger share of their income to food. But does this larger share mean that they have been able to afford food as before?

The answer to this important question is negative. In the 1990s, except for a slight increase in 1396, household calorie intake has continuously decreased and, more importantly, since 1397, the average population consumes less than the minimum daily required calories. Therefore, Iranian households, facing an increasing trend of poverty, have reduced their expenses on other items and added to their food expenses, as well as decreased their food intake.

Examining household expenditure and income data shows that in 1398 compared to 1390, the average consumption of chicken decreased by 11%, red meat by 52%, dairy products by 35%, and rice by 34%. The increase in prices in previous years has had a steep slope and households have to pay a much higher cost to provide a fixed basket of goods. This is while, according to studies, firstly, incomes have not increased to this extent and secondly, even if there is an increase in income, the share of low-income households in this increase may be less and for many households, this increase may have been delayed. (5)

Increasing poverty and decreasing the share of other expenses, except for food and housing, is not only aimed at reducing welfare costs, but can also have irreparable consequences for households and lead to intergenerational poverty. For example, in the 1990s, the share of education expenses in total household expenses decreased by about 60%. This reduction in education expenses leads to the next generation being less educated, with lower human capital and lower productivity, increasing their likelihood of being poor compared to their parents.

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The shocks began in the late 1990s.

The study of poverty rates shows that poverty rates have been more affected by shocks in the second half of the 1390s decade compared to the first half. In 1392, the poverty rate had a growth of 1.5 percentage points compared to 1390, while this rate had a growth of 11.5 percentage points in 1398 compared to 1396.

In the past 10 years, with a natural decrease in per capita income, the overall per capita consumption has also decreased. However, it seems that this trend was different in the beginning and end of the 90s decade. In the years 2012 and 2013, despite a close to 23% decrease in per capita income, private consumption decreased by about 5%. This is while in the years 2018 and 2019, although there was a 20% decrease in per capita income, per capita consumption decreased by nearly 8%. The Research Center of the Parliament has mentioned three reasons for this trend:

The first thing to note is that, despite a significant decrease in household income during the first shock period (1390-1392), households in the middle class saw a decrease of only three percentage points in their consumption per capita, which was compensated for by a decrease in savings rates. However, in the face of shocks in the second half of the 90s, due to the lack of compensation for the previous period’s income decrease, the ability to respond to income shocks, especially in the middle-income class, has practically decreased and households have shown a reaction to the shock by reducing their consumption, which has led to a significant increase in the poverty rate. This indicates that the ability to form capital in the economy has also decreased and will continue to do so due to the decrease in savings rates. The second reason, according to Friedman’s theory, is worth considering. According to this theory, an individual’s consumption is a function of their expected permanent income. In explaining this, it should be

Middle class has become lower.

For years, the middle class of the country has been weakened more than ever before, and the majority of the damages have been inflicted on the middle class due to the increase in currency prices. This group mainly consists of small capital owners in banks, and when the currency prices increase, the purchasing power of their deposits at banks significantly decreases. This decrease is transferred from the people’s pockets to the government’s pockets. This situation has caused the middle class to repeatedly become weak. In examining the deprived classes, we are also facing a large population that is a phenomenon after the Iran-Iraq war in the country and is referred to as the “underclass”; those who do not have a class identity and are somewhat unemployable.

We have people who have been deprived even of a poor life. They are the main victims of the decision-making system; like addicts, homeless people, and those who have been deprived of even the opportunities of a poor life due to these policies. Today, we can see their widespread and permanent presence in all parts of the city, including searching through trash cans. Part of the middle class has also fallen into poverty and the poor have been pushed into the lower class. The spread of the lower class can have a huge cost for society. These are clear signs of corruption in the country.

Today, the main protesting sector in our society is the middle class that has been marginalized in the process of the past few decades. They can understand, analyze and feel the issues well; because they have been the main victims of these policies. Of course, the poor also have these conditions. They can see well in governments that have declared themselves as popular and were supposed to strengthen the national currency, control inflation and promote production, the most unprecedented forms of corruption, the most stubborn inflation, especially in the field of livelihood issues, and the most unprecedented devaluation of the national currency have occurred. In such circumstances, people’s trust in public policies, which was the main asset of the government, has been shaken and destroyed.

Buttocks

Hossein Raghefar, a professor at Al-Zahra University, in an interview with Entekhab about the performance of the government and the history of poverty line expansion in Iran, says: “Certainly, it has never been like this before and there was not such a problem in families. Considering that the value of the national currency is constantly decreasing by the government, wages have not increased accordingly and this trend has created a disastrous living situation.”

Mahmoud Jamasaz, an economist, also believes that inflation these days is the result of the government’s economic performance. According to him, annual budgets have increased significantly since the beginning of the revolution. The total budget in 1978 was around 404 billion tomans, but this year it has reached about 5,260 trillion tomans. This abnormal trend, which reproduces waste within itself, is attributed to the corruption and expansion of the government’s role in the economy and the spread of financial corruption.

This economist wrote about the fate of inflation and increasing poverty in Iran: “With this description and the existence of financial corruption and continued distribution of rent and budget imbalances, the continuation of inflation and the rise of reputable foreign currency prices, the decrease in purchasing power of the people and the increase in poverty and internal unrest is not unexpected and will further damage the collapsing economy if it continues.”

Event 24 reported that in the Rouhani government, at least 18 million people have been added to the population of those living below the poverty line. Mehr News Agency, affiliated with the Islamic Propaganda Organization, had announced on August 2021 – at the beginning of the 13th government’s term – that 10 million Iranian households are living below the poverty line. Based on this, it can be said that in the two years of the Ibrahim Raisi government, the number of people living below the poverty line has reached 28 million.

The Economic Research Department of the Tehran Chamber of Commerce predicted four scenarios for future inflation in the coming months by examining the details of the July 1402 inflation. According to this report, inflation will reach 35.1%, 39.3%, 43.8%, and 48.5% respectively by the end of the year. If any of these scenarios are realized, the inflation rate will still be higher than the Central Bank’s target of 30%. (6)

Notes:

1- An internet advertisement that brought tears to everyone’s eyes, Khabar Online, 5 Mordad 1402.

2- The poverty line for a family of four in Tehran is 14.7 million tomans, Ministry of Labor, December 1401.

3- Poverty Status and Characteristics of the Poor in the Past Decade (90s), Research Center of the Islamic Consultative Assembly, Farvardin Month 1402.

4- Kaviany, Zahra, Five-Dimensional Poverty Reports, Mehr month 1401.

5- Summary of the results of household cost and income statistics in urban and rural areas, Statistical Center of Iran, year: 1398.

6- Future scenarios for inflation rate until the end of the year, Economic Research Department of Tehran Chamber of Commerce, July 2023.