Oil Revenues and the Acceleration of Modernization, 1960-79
During the reign of Mohammad Reza Shah, significant increases
in oil revenues, coincident with the centralization of the economy,
compounded societal stress and imbalance. The modernization that
continued throughout the shah's rule affected the economic infrastructure
but not the monarchical political structure. The gap between the
two was accentuated by the Western industrial policies promulgated
by the shah.
In the 1960s, economic planning focused on four main goals. The
first was rapid development of large industries by capital-intensive
methods and the use of the latest technology; the second was employment
of foreign advisers and technicians to guide the modern industrial
complex. The third was encouragement of large industrial profits,
and the fourth was control of wages by reallocating savings from
labor costs to capital investment. It was assumed that wealthy
industrialists would reinvest their capital in the economy, thereby
stimulating economic development. But such investment did not
occur, and the gap in income between industrial owners and the
commercial class, or bazaar (traditional middle class merchants),
was never closed, which contributed to the revolutionary pressures
that eventually brought down the regime.
The bazaar did not benefit from the 1974-78 oil boom; as a consequence,
bazaar members helped lead and finance the Revolution. The series
of national reforms and development programs that Mohammad Reza
Shah had embarked on in the 1950s came to be known in 1963 as
the "White Revolution" (see The Post-Mossadeq Era and the Shah's
White Revolution , ch. 1). The White Revolution was simultaneously
the shah's attempt at economic modernization and his attempt at
political stabilization. He intended to accelerate nation-building
and to enhance his regime's image as the promoter and guardian
of the public welfare.
Land reform was a major element of the shah's economic development
program. Land reform affected both the economic structure and
the social mores of the agrarian component of society. The Third
Development Plan (1962-68) and the Fourth Development Plan (1968-73)
together infused US$1.2 billion into agriculture through land
reclamation, subsidized irrigation projects, and land redistribution
programs. These programs undermined traditional rural authority
figures, encouraged commercial farming, and transformed the rural
class structure. By the 1970s, the rural class was divided into
three components: absentee farmers, independent farmers, and rural
wage earners (see Land Use , this ch.).
The third plan was transitional to a new time frame of five years
for development plans. Oil revenues supported the US$1.9 billion
national budget, which fostered an economic boom in the public
and private sectors. The government concentrated its activities
on heavy industries, dam building, and public utilities, as well
as on expansion of oil and gas production. Private industry benefited
from bank credits given as part of the third plan.
The fourth plan accelerated economic growth and integrated sectoral
and regional concerns into a national development program. During
the fourth plan, the annual rate of growth in gross domestic product
(GDP-- see Glossary) averaged 11.8 percent, which exceeded the
growth target. The strongest growth occurred in industry, petroleum,
transportation, and communications. Several large projects under
construction during the fourth plan included a steel mill, an
aluminum smelter, a petrochemical complex, a tractor plant, and
a gas pipeline leading to the Soviet border. Farming and crop
production were given low priority during this period of industrialization,
which widened the large gap between the industrial and agricultural
The third and fourth development plans affected the urban population
in particular because of the emphasis on the increased production
of consumer goods and the expansion of industries such as gas
and oil. Between 1963 and 1977, many industrial facilities were
constructed, primarily in urban areas.
The Fifth Development Plan (1973-78) set investment at US$36.5
billion; this figure almost doubled to US$70 billion as a result
of large increases in oil revenues during the period. Almost two-thirds
of the capital allocated under the fifth plan was concentrated
in housing, manufacturing and mining, oil and gas projects, and
transportation and communications. Some additional oil revenues
were spent on ad hoc defense and construction projects rather
than on the fifth plan's priority areas.
In the period between the quadrupling of oil prices in 1973 and
mid- 1977, Mohammad Reza Shah pushed both industrialization and
the establishment of a modern, mechanized military much too rapidly.
As a result, inflation increased, corruption became commonplace,
and rural-to- urban migration intensified. In addition, because
of a lack of technically trained Iranian personnel, the shah increasingly
brought foreign consultants into Iran. This further exacerbated
an already severe housing shortage in Tehran.
In mid-1977, the shah appointed Jamshid Amuzegar as prime minister,
and the latter immediately launched a deflationary program. This
sudden slowdown in the economy led to widespread unemployment,
especially among unskilled and semiskilled workers, which further
increased the gap between rich and poor. The economic slowdown
was a major factor in radicalizing large segments of the population
and turning them against the shah.
Some argue that rapid modernization created the disequilibrium
that brought about the shah's fall. Others, however, stress the
importance of the way in which the rapid modernization was implemented.
After the economy's initial development, inequalities in income
distribution were not addressed. Those at the lower end of the
economic spectrum--for example, small merchants and businessmen,
urban migrants, and artisans-- felt disadvantaged in relation
to workers in large businesses, industries, and enterprises with
foreign associations. Western-educated Iranians rapidly became
a well-paid elite, as did factory workers. Bazaar merchants, students,
and the ulama, however, did not benefit so directly from modernization.
The increased availability of health and educational resources
in towns and cities that resulted from Mohammad Reza Shah's programs
contributed to an explosion of the urban population. In the 1950s,
urban areas accounted for 31 percent of the population; by the
late 1970s, that number had increased to about 50 percent. The
urban population became stratified into an upper class, a propertied
middle class, a salaried (managerial) class that included the
bazaar, and a wage-earning working class.
Data as of December 1987