Realist, not conformist analysis of the latest financial, business and political news

Black Markets Work – They’re Just Markets Without Bureaucrats, Right?

For the past forty years, the majority of policy-makers in Iran have been arguing for more government intervention in the economy. They think it is necessary to regulate and control the prices down (or up) to a desired point. Hence, we have multiple organizations for price control in the country. Some of them try to come up with the correct price for each and every good and service. Others, try to enforce the set prices and root out the wrongdoers.

However, anyone in the country will tell you, and all statistics supports the claim, it is not working. Prices of almost everything have increased up to 200% in the past year or so despite their efforts.

In the meantime, due to a number of factors, including over regulation, high tariffs, general bans on some items, forbidding the import of luxury goods, there is a growing black market in the country. Thanks to social media people have been coming up with all sorts of black market startups in which exchanging illegal goods is done more efficiently and in turn more cheaply.

Even though the government has blocked almost all social media in the country and people have to use VPNs in order to use simple messaging apps such as Telegram, and while the police is cracking down on these illegal businesses, nevertheless, they are flourishing. But interesting part is this: their prices aren’t rising.

There is another factor as well. When you buy illegal goods, if there is a problem, you cannot run to authorities and complain. This has an interesting impact on how black markets function; reputation is everything and you can lose your clientele by selling them low-grade goods. Yes, there are always those who try to earn a quick buck by cheating and running but even they attribute to strengthening black markets by cautioning people to be more careful and pay more attention to the dealer’s reputation. Eventually, no one buys from a dealer unless they come with enough stars. In this manner, the black market roots out the cheaters and keeps out the thieves.

Also, entering these markets needs no license, pays no taxes, and they can be operated without an office or shop (necessary in the regulated markets), which, thanks to the real estate prices and all sorts of property tax, etc. makes many businesses unviable to begin with. You don’t need to pay tribute to the police or other license giving authorities and you can enter and exit the business as you deem fit.

Your only concern, aside from dodging the long hand of the law, is your competition. There is plenty of that for above mentioned reasons. And as everybody knows, prices are usually the best way to compete. Well, given the situation the prices aren’t exactly going down in the black markets but they certainly aren’t going up, and when they do, nowhere near as high as they spike in the regulated markets.

So, we have an unregulated black market in which you can buy cheap quality goods and then we have a heavily regulated markets in which the government sets the prices but either you cannot find the goods you want, or they are increasingly more expensive and the quality is worse by the day. Our national car, ironically called Pride, was 7 million Toman a couple of years ago and now it is nearly 60 million while a half dozen agencies are overseeing the price and the quality of the car is such no sane human being with options would look at it twice. Yet, to buy a Pride (we’re getting more irony here, I realize) one has to take a number and hold their breath for at least a few months. In the meanwhile drugs are cheap as ever and readily available everywhere.

What if narcotics were legal and were regulated by the government and essentials from butter and cheese to cars and roads were illegal. One, at least in my shoes, cannot help but wonder.

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