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Iran
The Economy
REGARDLESS OF THE CHANGES in politics and ideology brought about
by each successive regime in Iran, the one constant has been lack
of fundamental economic change for the majority of Iran's people.
Since the Islamic Revolution in 1979, Iran has repudiated the
Western-style modernization initiated by Reza Shah Pahlavi and
continued by his son, Mohammad Reza Shah Pahlavi. The postrevolutionary
government of Ayatollah Sayyid Ruhollah Musavi Khomeini condemned
the Pahlavi policy of allowing all countries to invest in, and
trade freely with, Iran as unsatisfactory on political and cultural
grounds and initiated a program of "self-reliance." Moreover,
the modern production techniques introduced by the Pahlavis had
eventually proved inappropriate for Iran because they required
large capital investments. Having rejected Western models as inimical
to the needs of Iran and being obliged to manage a wartime economy,
the post-revolutionary government cut imports of luxury goods,
began rationing subsistence items, nationalized industries, and
expanded direct taxation. By late 1987, the result was a shortage
of many goods that had once been imported, an insufficiently productive
agricultural system, high unemployment, and a greater dependence
than ever on revenues from oil and gas exports.
In the early 1920s, only a few large or modern industrial plants
were in operation in Iran. The population was overwhelmingly rural,
and transportation remained primitive. Except for the petroleum
industry, still in its formative stage, production was geared
to small, local markets. Increasing quantities of oil were produced
for the international market, but with little impact on the domestic
economy.
After establishing the Pahlavi dynasty in 1925, Reza Shah began
to modernize Iran by developing a strong central government and
entering Western markets. The results were mixed. The government
improved communications, built an education system modeled on
the Western example, and began construction of the Trans-Persian
Railway. Centralization led, however, to authoritarianism, a state
monopoly on foreign trade, and stagnant agricultural productivity.
Many Iranians continued to reside in small, isolated settlements,
and an estimated one- quarter of the population consisted of fiercely
independent nomadic tribesmen. Modernization threatened the nomads'
way of life and generally brought little benefit to Iran's undereducated,
underemployed population because it focused on the development
of capital-intensive industries rather than of labor-intensive
enterprises.
When Mohammad Reza assumed power in 1941, he attempted to continue
his father's modernization efforts (see The Post-Mossadeq Era
and the Shah's White Revolution , ch. 1). By 1978 Iran had experienced
great changes, but progress had been uneven for various elements
of the population and different parts of the country over the
preceding half- century. The Revolution of 1979 substituted "self-reliance"
for Westernization as the focus of development. The importing
of luxury goods, such as color televisions and stereos, was stopped,
and the funding for development and construction in particular
was cut significantly. Reductions in construction spending affected
the entire economy and sent the gross national product (GNP--see
Glossary) on a downward spiral. The budget cuts made in the name
of "self-reliance," after the Revolution in 1979 and the onset
of the war with Iraq in 1980, did additional damage to the economy.
During the 1970s, oil and gas exports remained Iran's main source
of foreign exchange. This dependence increased in the years immediately
following the Revolution, as the price of oil peaked at US$40
per barrel. Although non-oil exports began to drop sharply because
of the 1980 international recession, earnings from oil exports
remained high until the mid-1980s, when the price of oil began
to decline. Oil revenues began to fall in 1984 and by 1985 averaged
only US$1 billion per month, the approximate equivalent of the
cost of continuing the war with Iraq. By 1986 monthly oil revenues
averaged US$6.5 million per month. After 1984 the decline in oil
revenues and the cost of the war created budget deficits. Consequently,
the government reduced nonmilitary spending, which did further
damage to the national economy. Domestic food production became
insufficient, which forced Iran to import 65 percent of the food
that it needed and to ration essential items such as meat, rice,
and dairy products. Black marketing, long lines for consumer goods,
and high unemployment exacerbated the effects of nonmilitary budget
cuts. To ameliorate the situation, the government tried to reduce
its dependence on declining oil revenues by investing in other
key industries, such as copper and steel production. As of late
1987, however, economic problems remained severe and essential
commodities scarce.
The Revolution of 1979 held forth to the Iranian populace the
promise of "national integrity" through "self-reliance". Although
intended to change Iran's economic and political course, the Revolution
had produced no structural changes in the economy by late 1987.
The growing need to sell oil on the international market demonstrated
Iran's continuing inability to isolate its economy.
By late 1987, Iran was actually more dependent on oil than ever
before. As in Reza Shah's time, attempts at modernization had
been initiated by an autocratic government that stressed Iran's
"unique" identity. In the late 1980s, that identity increasingly
has been defined by Islam, rather than by any particular economic
policy. Although much economic activity has occurred within Iran
since 1979, the lack of fundamental change has been the constant.
Oil earnings have fluctuated, banks have been nationalized, industries
have developed--yet the power structure has merely shifted from
the shah's circle to the clerical class.
Data as of December 1987
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