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WEEKLY NEWSLETTER
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Iran
Index
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 sectors.
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
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