Iran’s Political EconomyIran’s Political Economy

AP Comparative GovernmentAP Comparative Government

April 2007April 2007

Mr. SalianiMr. Saliani

1919thth Century Economy Century Economy Became integrated into the world system Became integrated into the world system

through railways (Trans-Caspian & Batum- through railways (Trans-Caspian & Batum- Baku), telegraph lines, & the flow of Baku), telegraph lines, & the flow of European goods.European goods.

Foreign trade increased (esp. w/Russia & Foreign trade increased (esp. w/Russia & Britain - 83%) – result – Britain - 83%) – result – eco. dependencyeco. dependency

Domestic goods suffered – competitionDomestic goods suffered – competition Cash crops introduced – cotton, tobacco, Cash crops introduced – cotton, tobacco,

and opium (instead of wheat – famines)and opium (instead of wheat – famines) Iranians had more class awareness and Iranians had more class awareness and

united against the central gov. and foreign united against the central gov. and foreign powers powers

The Oil Economy (Black Gold)The Oil Economy (Black Gold) British oil prospectors struck oil in 1908 in Khuzistan British oil prospectors struck oil in 1908 in Khuzistan

and soon made the transition to fuel its navy by oil and soon made the transition to fuel its navy by oil (1912)(1912)

Oil became a lightening rod between the British and Oil became a lightening rod between the British and Iran with it being nationalized in 1951 – later an Iran with it being nationalized in 1951 – later an agreement was made with U.S. & British companies agreement was made with U.S. & British companies

Oil revenue rose steadily & dramatically through the Oil revenue rose steadily & dramatically through the years (financed over 90% of imports and 80% of years (financed over 90% of imports and 80% of annual budget) which allowed Iran to take on annual budget) which allowed Iran to take on development programsdevelopment programs

Iran became a Iran became a rentier staterentier state – a country that obtains – a country that obtains much of its revenue from exporting raw materials much of its revenue from exporting raw materials (usually oil) or leasing out its natural resources to (usually oil) or leasing out its natural resources to foreign companies (led to a lack of reliance on foreign companies (led to a lack of reliance on taxation) which leads to… attempts to diversify taxation) which leads to… attempts to diversify economy failedeconomy failed

Society & Economy (positives)Society & Economy (positives)

Some oil revenue was squandered by Some oil revenue was squandered by Muhammad Reza Shah’s regime on palaces, Muhammad Reza Shah’s regime on palaces, corruption, military, bureaucratic waste, etc.corruption, military, bureaucratic waste, etc.

GNP grew at a 9.6% rate (1960-1977) SDGNP grew at a 9.6% rate (1960-1977) SD Land reform led to prosperity for farmersLand reform led to prosperity for farmers Modern factories tripledModern factories tripled Formal education increasedFormal education increased Health services grewHealth services grew Population doubled in under 20 years to 36 Population doubled in under 20 years to 36

million by 1979 – half the pop was under 16 million by 1979 – half the pop was under 16

Society & Economy (negatives)Society & Economy (negatives) Trickle down economics was a failureTrickle down economics was a failure High inequality of distribution of wealthHigh inequality of distribution of wealth In rural areas a landed elite dominated society (small In rural areas a landed elite dominated society (small

farmers couldn’t compete)farmers couldn’t compete) Industrial development was criticized as hollow – Industrial development was criticized as hollow –

simply assembly plants simply assembly plants Doctor-patient ratio was still abysmalDoctor-patient ratio was still abysmal Education reforms were still inadequate – Education reforms were still inadequate –

opportunities & high illiteracy rates (68%)opportunities & high illiteracy rates (68%) Tehran was developed while the rest of the nation Tehran was developed while the rest of the nation

lagged behind (high disparity of wealth and lagged behind (high disparity of wealth and opportunity)opportunity)

Dual SocietyDual Society (See Table) vertically (mod vs. trad) (See Table) vertically (mod vs. trad) and horizontally (urban vs. rural) which was sharply and horizontally (urban vs. rural) which was sharply stratified) stratified)

Impact of InequalityImpact of Inequality Fueled resentments against ruling elite Fueled resentments against ruling elite

which were expressed more in cultural & which were expressed more in cultural & religious terms rather than eco/class.religious terms rather than eco/class.

Anti-western resentment grew as it was Anti-western resentment grew as it was connected to the inequalityconnected to the inequality

The elite “had lost their way” – see pg. The elite “had lost their way” – see pg. 599599

Return to cultural roots and becoming self-Return to cultural roots and becoming self-reliant were paths to true reform - Shi’i reliant were paths to true reform - Shi’i Islam filled the void.Islam filled the void.

Jalal Al-e-Ahmad & Ali Shariati raised Jalal Al-e-Ahmad & Ali Shariati raised questions questions

Iran in the Global EconomyIran in the Global Economy

Under the ShahUnder the Shah Oil boom in 1970’s brought opportunity to play Oil boom in 1970’s brought opportunity to play

major role in international politics.major role in international politics. Iran was viewed as 2Iran was viewed as 2ndnd most important member of most important member of

OPEC (oil cartel) and could influence oil pricesOPEC (oil cartel) and could influence oil prices Influence in region grew - military presence in the Influence in region grew - military presence in the

Strait of Hormuz, offered aid to Afghanistan, etc.Strait of Hormuz, offered aid to Afghanistan, etc. Iran grew more tied to West and Japan (American Iran grew more tied to West and Japan (American

imports grew)imports grew) Oil revenues led to empty promises which led to Oil revenues led to empty promises which led to

resentmentresentment Economic dependency, rentier status, and Economic dependency, rentier status, and

vulnerability to world markets were a recipe for vulnerability to world markets were a recipe for disaster disaster

Iran in the Global EconomyIran in the Global Economy

Iran’s Economy Under the Islamic RepublicIran’s Economy Under the Islamic Republic Goals were to rapidly develop the economy and become Goals were to rapidly develop the economy and become

fully independent of oil and the west. Mixed resultsfully independent of oil and the west. Mixed results Instability of oil market has been problematic – still a rentier Instability of oil market has been problematic – still a rentier

state – vulnerable to oil market - monoculturestate – vulnerable to oil market - monoculture Oil production can only increase by a new influx of capital Oil production can only increase by a new influx of capital

or deep-drilling technology (both only found in W)or deep-drilling technology (both only found in W) Economic problems were exacerbated by the population Economic problems were exacerbated by the population

explosion, Iran-Iraq War, and the emigration of the explosion, Iran-Iraq War, and the emigration of the intelligensia (mostly to the west).intelligensia (mostly to the west).

Infrastructure improvements have occurredInfrastructure improvements have occurred Improvement in literacy rates, availability of consumer Improvement in literacy rates, availability of consumer

goods, health services & care, life expectancy, self-goods, health services & care, life expectancy, self-sufficiency, and foreign trade diversification.sufficiency, and foreign trade diversification.

Population explosion has led to pop controlPopulation explosion has led to pop control Improved oil prices and high GDP rates have led to a Improved oil prices and high GDP rates have led to a

sunnier future. sunnier future.

Comparative ImpactComparative Impact

How does Iran’s economy connect to other How does Iran’s economy connect to other nations that we have studied?nations that we have studied?

How does this section help you connect How does this section help you connect the nuclear program issue?the nuclear program issue?

What could you use to show support for What could you use to show support for the revolution against the Shah?the revolution against the Shah?

How would you evaluate the economy How would you evaluate the economy under the Islamic republic?under the Islamic republic?

What does economic future look like for What does economic future look like for Iran from what was in this section? Iran from what was in this section?