The following are excerpts from “Iran: The Illusion of Power” by Robert Graham. The book was written in 1979 and that is why in many places it talks in present tense about the events of the time >>> Part 1
It was a performance to match the occasion. On 23 December 1973, while the ministers representing the Gulf members of OPEC were still in formal session, Mohammad Reza Pahlavi, Shah of Iran, called a press conference. His announcement was a staggering new increase in the price of oil. The Shah displayed his usual mannered polish but his tone had a new confidence – the confidence of a man who knew that his country’s financial resources had quadrupled in just over two months. From being a developing country with moderate wealth jostling for recognition in the world arena, Iran had suddenly entered that ranks of the world’s most prosperous nations with the chance to play a corresponding larger role. Unashamedly the Shah turned the occasion into a lecture. Typical of the message he put across was this answer to a question about the high price of oil: “We are only pricing the minimum it (oil) could be priced in comparison with other sources of energy…. Well, some people are going to say this is going create chaos in the industrialized world; that it is going to be a heavy burden on the poor countries….That is true; but as to the industrialized world they will have to tighten their belts, and they will have to work harder or eventually this help to the other countries of the world will be diminished, and this role taken up – in my opinion – by the wealth of the oil countries.” Some of his statements were more provocative: “Eventually all those children of well-to-do families who have plenty to eat at every meal, who have their own cars, and who act almost as terrorists and throw bombs here and there, will have to rethink all these privileges of the advanced world.” He clearly revelled in the uncomfortable message he was conveying to the outside world. He was riding the crest of the wave and knew it.
The most logical industrialisation was to expand the base of the oil industry and diversify into petrochemicals: a sector where Western companies were keen to participate, especially as the world petrochemical market was on an upswing. About the time of the Soviet agreement, three joint venture petrochemical projects were signed with American companies: a fifty/fifty export-oriented venture with Allied Chemical for ammonia, urea, phosphoric acid and diammonium phosphate; an LPG (Liquid petroleum gas) plant for export on a fifty/fifty basis with Amoco; and a plant to produce PVC and detergents for the domestic market on a 26/74 basis with B.F. Goodrich. The development of the petrochemical and steel industries through newly formed state enterprises, or foreign joint ventures with state enterprises, accounted for almost 70 per cent of the total industrial investment in the Third Plan (1963-7).
During this period foreign investment, especially American, provided an important stimulus to the private sector in rubber, pharmaceuticals and construction. The Fourth Plan (1968-72) envisaged greatly expanded industrial development with $1 billion earmarked for public sector projects. Meanwhile the private sector extended its activities to the automotive field, food processing, and a range of secondary industries protected by high tariff barriers and restrictive import licenses. Foreign investment in local ventures was often a means of getting round tariff barriers.
The accelerated pace of industrial development was reflected in the number of large units being established in towns throughout the country. In 1956 Iran possessed a mere 694 such units. By 1961 the number had increased to 1,191. This rose to 3,661 in 1966 and took a further leap in 1972 to 5,651. This represented an annual average increase of 44 per cent between 1956 and 1972. Half these plants consisted of operations in textiles and foodstuffs, but during this period the percentage of the industrial work-force employed in these sectors dropped from 77 per cent to 57 per cent; while the share of metal industries and machinery rose from 5 per cent to 20 per cent.
Over all between 1959 and 1972 industry’s share in GDP rose from 13.6% to almost 20 per cent. During the same period agriculture bell back sharply from 30 per cent of GDP to 16 per cent.
While these figures reflect the growing impact of industry on the economy, they give little idea of the problems involved in getting this far. Unlike many poorer countries that had been left a colonial infrastructure of communications and utilities, Iran started virtually from scratch. There was no trained industrial work-force and in most instances facilities such as power, water, approach roads and telecommunications had to be specially installed. The oil industry, for instance, developed its own separate communications network (as did the military later on). Building a factory was therefore an infinitely complex process, fraught with unforeseen problems. As a result the majority of plants were late in their start up and had high cost over-runs.
In fact it would have been difficult for industrialisation to have started earlier. Before the Second World War the economy was too backward and although the war and the presence of Allied forces occupying Iran helped to generate more income, the occupation was a disruptive influence until 1947. Third, the loss of income and the disruptions of the abortive nationalisation in 1951 delayed serious industrial development by at least eight years.
The people who emerged as entrepreneurs during this dynamic growth came from often simple origins. Traditional wealth from land tended to invest in real estate or services like banking.
For the most part, the entrepreneurs graduated from trading operations in the bazaar, frequently transferring from traditional commerce via a dealership or agency for one of the international companies.
Ahmad Khayami, who founded International in 1962, which has become the biggest company in the automotive sector with one of the largest work-forces in the country, is an interesting example. Born in Meshed in 1928, he came from a traditional bazaar trading background.
“During the Second World War, I was in the export business selling dried fruits, and by the time the war finished I was bankrupt. So I established the first car wash service with a capital of Rs. 4,000. Within four years I became the representative of Mercedes Benz in my native province. I then left all my business to my brother and came north to Tehran, and 10 years after having this car service, I was able to establish International in Tehran. In the first stage we used to make buses, mini-buses and trucks by the trade mark of Mercedes Benz. By the order of the Shah I then started to make cars. As soon as I started making Peykans [a version of Hillman Hunter using ckd from Chrysler UK], I invited my brother to join me.”
Leaving the general running of International to his brother, Ahmad Khayami moved into chain stores. He established the Kouroush stores, the first attempt in Iran to Introduce large-scale retailing. Again this move was made at the request of the Shah. Then to provide direct supplies to the stores, he set up manufacturing facilities for clothing, branched into furniture production and agribusiness. Thus within one generation there has been a change from bazaar-type trade right into the heart of the modern sector of an industrial economy and the beginnings of a vertically integrated business.
Just as remarkable is the case of Habib Saabet. Born in 1903, he went out to work at 14 as an apprentice in a bicycle shop. With savings he was able to invest in a taxi and from his earnings he bought a second hand army truck which was the basis for Iran’s first road hauling company. He subsequently was able to obtain the Volkswagen and Pepsi-Cola concessions and develop ventures with General Tire and Rubber, and Squibb. His business interests now cover almost 50 companies and employ some 10,000 people. He has also become one of the single richest figures in Iranian business, demonstrating this with an exact replica reconstruction in Tehran of Marie Antoinette’s Petit Trianon at a requested cost of $15 million.
There are other examples, too. The Melli Industrial Group of the Iravani family developed from one of the principle cottage industries of the bazaar – shoe-making. In a generation Melli has become the best grated of all private industrial concerns, owing its own tanneries and dyeing plants, in addition to processing international outlets. However, the group has expanded so far beyond its origins that the hallmark, its shoes, in no longer part of the holding company’s name. Melli is now involved in such diversified interests as food processing and international haulage. The biggest private group also progressed from simple bazaar activity. The Behshahr Industrial Group was formed by the ladjevardi family in 1944 and was originally involved in the import of consumer goods, raw materials and textiles. Since then its empire has grown to over 22 wholly owned companies and 26 partnership ventures.
Conditions have been extraordinarily favourable for anyone with a modicum of initiative; nevertheless the adaptation from traditional trading has been remarkable. Now the new generation taking over from the parents have all had foreign education.
The growth of the Iranian economy has been exceptionally rapid, the majorpart having taken place since the mid-1950s. Industry in particular has expanded so fast, in such a short time, one forgets just how new it is: very little is more than sixteen years old. The first agreement to assemble passenger cars, the fiat 1100, was signed in 1960. The first comprehensive attempt to survey Iran’s mineral resources was initiated in 1962 with the foundation of Geological Institutes. In that year Iran’s first fertiliser plant at Shiraz began to operate at near capacity. The first Iranian-assembled tractor left its Romanian-built factory in Tabriz in 1968. In 1972 the first key engineering units – machine-tool plants at Tabriz and Arak – became operational along with a small aluminium smelter. The Isfahan steel mill, the Aryamehr Complex, began proper operation in 1973. The comparative lateness with which Iran reached these industrial milestones underlies the tremendous leap Iran had to make from the poverty and backwardness of the turn of the century.