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WEEKLY NEWSLETTER
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Iran
Index
A 9th century ceramic plate from Neyshabur
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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