1. ECONOMIC DEVELOPMENT IN IRAN

2. ∗ Under Shah Mohammed Reza Pahlavi (1953-1979), Iran was a major powerbroker in Middle East because of its oil wealth ∗ Oil boom of 1970s allowed the Shah to expand Iran’s global influence ∗ Oil wealth gave the illusion that all Iranians benefitted, but cleavages soon emerged and contributed to the overthrow of the Shah’s regime Historical Background

3. ∗ Under the Shah, Iran’s economic development approach was known as statism. ∗ In a statist economy, market economic principles are generally respected but the government plays a strategic role in the economy. ∗ In statist economies, it is not unusual for the government to own key industries like natural resources, banking, and airlines. Iran as a Statist Economy

4. ∗ One advantage of statism is the protection governments can give to domestic firms, protecting them from global competition. ∗ It can also link domestic industries to a sense of national pride. ∗ Disadvantages include the inability of state-run industries to innovate and operate efficiently, often leading to economic sclerosis. ∗ State-run industries also serve as patronage machines, giving lucrative employment to political supporters in return for their political loyalty. ∗ Such arrangements often lead to widespread corruption and growing cynicism among the population who don’t have access to patronage.

5. ∗ Ironically, Iran’s theocratic government maintained the statist approach to economic development. ∗ Revenues from oil production served as easy money to build infrastructure, subsidize the poor, and gain the support of key political supporters. ∗ Like the Shah, Iran’s revolutionary rulers used state- owned industries to reward political allies, buy off potential opponents, and amass substantial wealth. Impact of the Islamic Revolution (1979 – present)

6. ∗ Iran continues to be highly dependent on oil revenues as the source of economic growth…oil makes up 75% of government revenues ∗ Iran’s religious power elite uses oil wealth to garner political support and personal wealthreligious power elite ∗ As population increased in the 1980s, the Iranian state had difficulty delivering basic services ∗ Deepening international sanctions has reduced Iran’s ability to grow its economy, leading to widespread disenchantment among citizenseconomy IMPACT OF IRAN’S ISLAMIC REVOLUTION

7. ∗ Double digit inflation ∗ Increase in poverty rate in urban and rural areas (nearly 1/3 of urban residents live below poverty line) ∗ consumer goods shortages ∗ government attempts to subsidize imports and prices of basic commodities has strained the budget ∗ Iran is increasingly dependent on foreign loans to sustain its economy ∗ By 2013, political incompetence and the harsh effects of international sanctions have brought Iran’s economy to a standstill.political incompetence Results of Iran’s Overdependence on Oil as the Driver of Economic Growth

8. ∗ Examining the Effects of Economic Sanctions on Iran Examining the Effects of Economic Sanctions on Iran Deepening Knowledge through PBS NewsHour

9. ∗ Carnegie Endowment Carnegie Endowment Understanding Iran’s economic development