This blog post embarks on a journey through Iran’s transformative “Targeted Subsidy Programme”, delving into its initial two years—the zenith of a universal social cash transfer initiative. This groundbreaking policy, akin to Universal Basic Income (UBI), holds invaluable lessons for global implementation. It not only reshapes the social contract but also confronts poverty and inequality. Through a meticulous historical retrospective, this post distils essential insights for the future.
Social protection provision is interwoven with the social contract.
Prior to the 1979 revolution, Mohammad Reza Shah Pahlavi orchestrated a comprehensive top-down allocation of oil revenues in 1974, predominantly channeling credit subsidies towards the private sector, particularly those aligned with the Shah. While this strategy led to rapid industrialisation, it also exacerbated a starkly uneven pattern of development (Salehi-Isfahani, 1989).
According to Salehi-Isfahani (2009, pp. 23-24), the 1979 revolution in Iran gained a significant support from individuals living in poverty, those who had been left behind in the whirlwind of rapid development under Shah’s rule. Often dubbed the “revolution of the disinherited,” it was followed by a series of highly effective pro-poor policies, including substantial investments in basic infrastructure for deprived and remote regions.
Article 43 of Iran's constitution echoes the voice of the poor supporters of the revolution, signifying a determined commitment to eliminate poverty and ensure freedom through the provision of basic necessities like food, clothing, and education (Article 43, 1979). This provision of basic needs is an integral part of Iran’s social contract, a mutual agreement between social groups and authorities that outlines reciprocal rights and responsibilities. As shown in Figure 1, these agreements commonly mandate the government to protect citizens (protection), provide essential social and economic services (provision), enable political participation (participation), in return for the citizens’ acceptance of governance (Auktor & Loewe, 2022; Loewe & Zintl, 2021).
Figure 1 Reciprocal Rights and Mandates in Social Contract. Source: (Auktor & Loewe, 2022)
UBI may appear simple but is deceptively complex.
Governments combat poverty widely through social protection programmes, including cash, subsidy, and in-kind transfers (Loewe & Schüring, 2021). However, a rare and “radical” form of cash transfer is UBI: A social protection programme that unconditionally transfers cash to all individuals (Gentilini et al., 2020, p. 3; Ortiz et al., 2018, p. 1). The design features of UBI programmes and the context in which they are implemented vary across countries, leading to diverse outcomes and impacts. Such design variations can be found in the transfer characteristics, including the frequency of cash transfer (monthly, annually) and the transfer amount, as well as the inclusion criteria (such as the age range and citizenship of the recipients) (Gentilini et al., 2020, p. 21).
For more in-depth discussions on UBI, watch the compelling debate “Universal Basic Income—For or Against?” featuring Karl Widerquist and Oren Cass.
At the core of UBI lies the driving force of political will.
Iran embarked on a pioneering endeavor in 2010, introducing a universal social cash transfer programme imbued with UBI features by holding all Iranians eligible to receive a montly cash transfer (Haji Hosseini & Bilo, 2022). This quasi-UBI programme is one of the few in the world implemented nationwide (Gentilini et al., 2020, p. 254). In most cases, UBI implementation has largely been confined to pilot experiments, typically involving few number of participants and conducted over a relatively brief timeframe (Mathebula, 2021). Iran’s UBI is particularly intriguing due to the distinctive context in which the decision emerged—a landscape devoid of prior experimental studies or comprehensive UBI discussions.
It all began with the government’s objectives of alleviating the financial burden of subsidies while safeguarding individuals and businesses from the ensuing price increases. However, there was a backdrop of political uncertainty during this period, as the Ahmadinejad government frequently adapted its economic policies in response to the concerns voiced by parliamentarians and other stakeholders (Harris, 2010).
Ultimately, the government opted to introduce an unconditional universal cash transfer with the intention of providing compensation for the price surge caused by subsidy removals, and simply due to lacking the targeting mechanisms and administrative capacities to identify the poor (Haji Hosseini & Bilo, 2022; Loewe & Zintl, 2021). This economic reform led to the phasing out of approximately US$50–US$60 billion in annual product subsidies. Within the first year, Iranian households received a minimum of US$30 billion in cash by December 2011 (Guillaume et al., 2011).
This programme symbolised a resolute commitment by Iran’s government to implement sweeping economic reform, demonstrating political will.
Adequate UBI reduces wealth inequality and combats poverty.
In the first two years, the level of UBI was around $45 for each person (Haji Hosseini & Bilo, 2022). This universal cash transfer resulted in not only less inequality (decreasing the Gini index from 0.39 to 0.36) but also less poverty, especially in rural regions (Zarepour & Wagner, 2022). Despite economic challenges stemming from sanctions and lower oil prices (2010-2013), poverty (headcount ratio)  decreased significantly from 4.3% to 2.5%, a noteworthy 1.8 percentage point drop. An in-depth analysis attributes a 1.1 percentage point rise in poverty to economic downturn, while the cash transfer program led to a 2.9 percentage point reduction. (Salehi-Isfahani, 2017). Remarkably, these positive outcomes defy the earlier predictions of parliamentarians, who had foreseen a potential surge in poverty rates upon the removal of subsidies (Harris, 2010).
Currency inflation and market-oriented policies eroded UBI’s positive impacts.
In recent years, the decline in poverty rates took a sharp reversal, worsened by accumulated sanctions, resulting in significant inflation. This was compounded by the government’s prioritisation of pro-market economic growth at the expense of redistributive policies during Rouhani’s administration (Salehi-Isfahani, 2017). Consequently, the poverty rate surged from 22% in 2017 to 32% in 2019, as reported by the government's poverty survey (Shahidi & Kaviani, 2021, p. 9).
UBI reaches the poor more effectively than social transfer programmes with poor targeting.
While Iran’s UBI was born out of necessity, the evidence clearly demonstrates that even substantial investments in enhancing administrative capacity and establishing social registries, do not guarantee success in means-tested programmes. As illustrated in Figure 2, an evaluation of 38 programmes in different countries reveals income-testing’s shortcomings in reaching the poorest, especially compared to universal approaches (Kidd & Athias, 2019).
A notable example of these shortcomings can be observed in the Philippines, a nation with a strong commitment to poverty eradication. Despite extensive investments in social protection, the Philippines’ social registry, “Listahanan”, has encountered numerous challenges, such as high exclusion error, resulting in inequality and injustice in the distribution of social benefits (Rahbari, 2023).
Figure 2 The Degree of Exclusion Error in Income-Tested Programmes Is Much Higher Than Those Employing the Universal Approaches. Source: (Kidd & Athias, 2019).
A gender-inclusive UBI maximises its potential for reshaping the social contract.
In Iran, despite a narrow gender gap in education, women's labor force participation is only one in seven, leading to limited social insurance coverage (IMF, 2018). In such a context, UBI acts as a crucial safeguard for women, offering protection against life-cycle risks, boosting bargaining power, and encouraging greater economic engagement (Perera et al., 2022). Nevertheless, the programme recognises the ‘oldest male’ as the head of the household, who as such receives the transfer for all members (Hamshahri Online, 2022), a deviation from typical UBI features.
Empowering women as equal beneficiaries reshapes the social contract, affirming their value and rights. This transformation cultivates an inclusive, envy-free society, where everyone receives their fair share, fostering greater social cohesion and gender equality (Davies et al., 2022; Burchi et al., 2022).
Iran’s “Targeted Subsidy Programme” with UBI-like features provides invaluable insights. The main takeaways from this blog are as follows:
- Social protection is intricately linked to the social contract, reflecting the government’s commitment to meeting fundamental needs.
- Iran’s introduction of a quasi-UBI programme in 2010 had a notable impact, effectively reducing inequality and poverty, especially in rural areas.
- Challenges like currency inflation and shifting economic priorities pose obstacles to the programme’s long-term sustainability.
- To build a robust social contract, UBI should be approached with a gender-inclusive perspective.
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Burchi, F., Loewe, M., Malerba, D., & Leininger, J. (2022). Disentangling the Relationship Between Social Protection and Social Cohesion: Introduction to the Special Issue. The European Journal of Development Research, 34(3), 1195–1215. https://doi.org/10.1057/s41287-022-00532-2
Article 43, (1979). Constitution of the Islamic Republic of Iran. https://www.refworld.org/docid/3ae6b56710.html
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 The poverty figures in this blog post pertain to the headcount ratio, indicating the proportion of individuals living below the poverty line (typically around $5 per person per day). These numbers vary by region, with approximately $7 in Tehran and $3.60 in rural Iran. These calculations are derived from data provided by the Central Bank of Iran and Household Expenditure and Income Surveys (HEIS) data files.