Iran: Post-Revolution Developed Sick Economy
By Charles Recknagel
Prague, 11 February 1999 (Radio Free Europe/RL) -- At the start of the
Islamic Revolution, Iran's ruling clerics methodically set about destroying
the capitalist economy of the Shah to build a paternalistic welfare state
free of ties to the West.
But two decades later, revolutionary central planning is giving way
increasingly to free market mechanisms in the face of growing economic
difficulties. While reliable statistics are hard to obtain, many analysts
say the country now suffers from unemployment of 20 percent or more.
Since last year, Iran's economic problems have been aggravated by the
drop in worldwide oil prices. As the price of crude has dropped to its
lowest levels in 10 years, the Iranian government estimates it has lost
40 percent of its foreign currency earnings.
At the same time, the Iranian population has increased rapidly since
the revolution. With almost half of the population now under the age of
18, there is a strong need for the economy to expand and create jobs.
Iranian President Mohammad Khatami publicly acknowledged the country's
economic ills in a televised statement to his countrymen in March. He called
the economy "sick" and said structural reforms are needed.
Analysts say Iran's leadership is now embroiled in a fierce debate over
what shape those reforms should take. Some factions want more of the state
control of almost every sector which now forms the basis of the Islamic
Republic's economy. But other factions are arguing equally forcefully for
more market liberalization.
Jahangir Amuzegar, an international economic consultant, traces the
economic problems to what he calls the Islamic Revolution's ideological
bias. The revolution sought to create an idealized theocracy with a centrally
planned and fully self-sufficient economy but ran into a chain of practical
"This bias was reflected in a series of official proclamations
... reversing the Shah's course of modernization and secularization ...
encouraging population growth in order to breed and train new soldiers
of Islam ... developing a consumption model to encourage frugality ...
aiming at internal self-sufficiency, paying off foreign loans and seeking
no new ones, making agriculture the pivot of economic development ... limiting
oil production to domestic economic need, and diverting foreign trade from
the West and the United States to Islamic countries."
Those ideals directly repudiated the Shah's equally ambitious efforts
in the opposite direction. He had tried to turn Iran into an industrial
and regional superpower in a single generation using Iran's oil wealth.
The Islamic Republic's 1979 constitution declared the economy, to quote,
not an end in itself but only a means of moving toward God.
But the Islamic Republic's uncompromising rejection of the past set
off a mass exodus of professional talent and capital which crippled its
economic plans from the start. Jahangir Amuzegar:
"The whole idea of Islamization ... of the economy required in
fact that the managers and the technocrats who were running the show at
the time should be expelled, purged or eliminated. And as a result, a large
number of them ... between two to three million people, have left Iran
and they were all in these categories of professional, middle-class people
and managers of various enterprises. And they were replaced by people on
the basis of their loyalty to the new government and their fealty to Islam."
Iran's productivity in all sectors plunged and remains low. Washington's
freezing of Iranian assets abroad following the 1979 seizure of the U.S.
diplomats in Tehran and the 1980-1988 war between Iraq and Iran damaged
the economy still further.
Analysts say the military hardware and capital accumulated by the Shah
sustained Iran through its war with Iraq, when Tehran was isolated by most
of the world. But the need to reconstruct afterward forced the Islamic
Republic to rethink its economic strategy. Ever since it has been slowly
moving away from its official policy of self-sufficiency and a rejection
of materialism back to greater industrialization and development. Jahangir
"They have adopted strict population control to deal with growing
unemployment of high school and college graduates, abandoned the idea of
self-sufficiency, encouraged trade with the West, gone after foreign loans
... and emphasized oil and gas development ... as a source of income for
other development projects. Except for subsidies to the poor and a couple
of other minor things, there has been a 180 degree change from the original
So far, Iran's course back toward a market model remains slow and fitful.
According to Amuzegar, the state remains the largest employer and directly
or indirectly controls some 80 percent of the economy. And the state sector
continues to suffer low productivity. Oil revenue still accounts for a
huge portion of the state budget.
Many analysts believe that unless Iran's economy substantially restructures,
it ultimately may be unable to provide enough jobs for its increasingly
youthful population. The problem of unemployment is particularly acute
among Iran's urban youth who after graduation are unable to find jobs in
the stagnating public sector.
Amuzegar predicts that the pressure for work will force the government
to further privatize its money-losing state industries and encourage entrepreneurship
in hopes the country's now small private sector can generate the needed
But he warns such steps will not come easily. Much of Iran's economy
today is controlled by the quasi-state foundations that after the revolution
took over the businesses which once belonged to the supporters of the previous
regime. The foundations are now reluctant to lose the profits and power
And there is another problem. Every new change of Iran's economic model
requires the leaders who carried out the Islamic Revolution 20 years ago
to still further rethink their political and ideological preferences. And
that pits reformers, who believe the revolution must change to survive,
squarely against conservatives, who believe the changes will ultimately
betray the revolution itself.
(This is the second part of a three-part series on the 20th anniversary
of Iran's Islamic. Part three discusses Iran's foreign policy.)