Political Economy and Development

SECTION 2

State and Economy

• British struck oil in 1908– bought most fuel from Anglo-Iranian Oil Company

• Oil income continued to rise over the yrs from $34 mil to over $100 bil

• Allowed Iran not to worry about feeding people

State and Economy

• Became rentier state: country that obtains much of its revenue from the export of oil or other natural resource

• Allowed Iran to be able to disregard its internal tax base…. State became independent of society… “little taxation meant little representation”

State and Economy

• 1950s-1970s Muhammad Reza Shah tried to get foreign investment in non-oil (carpet and pistachio)

• http://www.youtube.com/watch?v=HKvU9H8jjfA

• 1979- oil = 97% of country’s foreign exchange

• Foreign investors put off by corruption, labor costs, small internal markets, potential instability and fear of confiscation

State and Economy

• Under shah: Land reform created >644,000 prosperous farms; Modern factories tripled; Roads were built connecting villages with provincial cities; Trans-Iranian railway completed; GNP grew ave 9.6%/yr (1960-77)One of fastest growing economies in the world

Iran’s Economy under the Islamic Republic

• Main economic problem= instability in oil market

• Eco situation complicated by pop explosion (rose from 2.5% to 4%), Iran-Iraq war ($600b in damages and >218,00 dead), and emigration of 3 mil Iranians (Islamic rev scared many to the west)

RESULT: 20 yr eco crisis lasting into late 90s

• Incomes dropped 60%, unemployment hit 20%, 2/3 couldn’t find jobs, Tehran grew 4.5m to 12m

Iran’s Economy under the Islamic Republic

• Islamic Republic SUCCESSES:

-Reconstruction Ministry built 30,000 paved roads; 40,000 schools; and 7,000 libraries.

-Brought electricity and running water to 50,000 villages, registered vehicles increased 27,000 to over 3mil.

-Agricultural ministry distributed 630,000 hectares of arable land to peasants

Iran’s Economy under the Islamic Republic

• Govt has always exercised major control over economy (currently about 70% under state control)

• President Khatami took steps to increase privatization, supported by Ayatollah Khamenei and President Ahmadinejad

Iran’s Economy under the Islamic Republic

• Rise in petroleum prices = stabilized currency, improved creditworthiness

• Free of foreign debt

• Foreign investments channeled into oil, gas, cars, petrochemicals and minerals- but UN sanctions have hindered these inflows http://www.youtube.com/watch?v=80ksTLHxahE

Iran’s Economy under the Islamic Republic

• Ahmadinejad promises to steer oil wealth to help poor

• Self sufficient in food production, but dependent on foreign gas imports

• $100b was allocated for subsidizing bread, heating fuel, rice, milk etc… in 2011 trimmed subsidies and instead gave cash directly to the poor

Society and Economy

• During shah state investment went to social welfare

• The elimination of epidemics and famines, a rise in school enrollment, as did hospital beds, medical clinics = infant mortality drop and pop explosion

• Approach to development decreased popularity (that wealth would trickle down… didn’t… the rich were getting richer and poor were getting poorer)

• Despite aforementioned improvements, things continued to gather criticism (cheap labor, bad doctor-patient ratios, many landless peasants)

Society and Economy

• By mid-70s Iran was one of most unequal countries in the world

• Inequalities = dual society: sharply divided into a traditional poorer section (clergy, bazaar middle class, rural masses) and modern richer section (elites with ties to oil)

• Upper class = 0.01% of population; Middle class = 10%; Urban working class = 32%; rural masses = 45%

Society and Economy

• Inequalities = resentment expressed in cultural and religious terms rather than economic and class terms

• Fiercest critic was Jalal Al-e Ahmad: argued Iran was being destroyed by mindlessly imitating west, among other thing. He is founder of “back to roots” movement influenced Revolution

Society and Economy

• Ideas developed further by Ali Shariati(who was influenced in Paris by Marxist sociology, Catholic theology, algerian revolution, and Frantz Ganon’s theory of violent World revolutions against colonial oppression)

• His work so widely read and influential that many accredit him rather than Khomeini as true theorist of Islamic Revolution

Society and Economy

• Recent decades=life improved in Iran: social services have narrowed gap, literary rate rose, infant mortality rate fell, life expectancy rose

• Reopened birth control clinics, announced ideal family had no more than 2 kids (and took away social benefits from those with >2 kids)… pop growth fell to 0.66%/yr in 2005

Iran in the Global Economy

• Integration into world system began latter half of 19th century, most importantly b/c of industrial revolution in Europe and export to rest of world

• Economic dependency resulted.. Cash crops (cotton, tobacco, opium) reduced acreage for edible grains = disastrous famines

• New class awareness played role in constitutional revolution in 1905

• Under shah became 2nd most important member of OPEC

Iran in the Global Economy

• Iran occupied three small Arab islands in the Strait of Hormuz ultimately controlling oil lifeline through the Persian Gulf and creating distrust with Arab neighbors

• 1970s- significant regional, if not global power

• US relied on it to ensure security and stability in Persian Gulf (oil flow of the region to west)

Iran in the Global Economy

http://www.dailysilvernews.com/wp-content/uploads/2012/02/strait-of-hormuz-map.jpg

Iran in the Global Economy

• Most imports came from US.. Little trade with neighbors

• Oil revenue consequences paved way for revolution (widened class divisions, raised public expectations, fickle dependence on oil created instability, etc)

• Major promise of the Revolution was to end economic dependency on oil and the west

• Oil is considered resource curse (concept that revenue derived from abundant natural resource often brings unforeseen ailments to countries)

• Blamed for creating “rentier states,” “dual societies,” autocratic govts, unpredictable budgets, and issues with other economic activities in many other countries

• BUT oil has been influential in state development and social modernization and main reason Iran is currently so strong