1. Iran’s Political Economy AP Comparative Government April 2007 Mr. Saliani

2. 19 th Century Economy Became integrated into the world system through railways (Trans-Caspian & Batum- Baku), telegraph lines, & the flow of European goods. Became integrated into the world system through railways (Trans-Caspian & Batum- Baku), telegraph lines, & the flow of European goods. Foreign trade increased (esp. w/Russia & Britain - 83%) – result – eco. dependency Foreign trade increased (esp. w/Russia & Britain - 83%) – result – eco. dependency Domestic goods suffered – competition Domestic goods suffered – competition Cash crops introduced – cotton, tobacco, and opium (instead of wheat – famines) Cash crops introduced – cotton, tobacco, and opium (instead of wheat – famines) Iranians had more class awareness and united against the central gov. and foreign powers Iranians had more class awareness and united against the central gov. and foreign powers

3. The Oil Economy (Black Gold) British oil prospectors struck oil in 1908 in Khuzistan and soon made the transition to fuel its navy by oil (1912) British oil prospectors struck oil in 1908 in Khuzistan and soon made the transition to fuel its navy by oil (1912) Oil became a lightening rod between the British and Iran with it being nationalized in 1951 – later an agreement was made with U.S. & British companies Oil became a lightening rod between the British and Iran with it being nationalized in 1951 – later an agreement was made with U.S. & British companies Oil revenue rose steadily & dramatically through the years (financed over 90% of imports and 80% of annual budget) which allowed Iran to take on development programs Oil revenue rose steadily & dramatically through the years (financed over 90% of imports and 80% of annual budget) which allowed Iran to take on development programs Iran became a rentier state – a country that obtains much of its revenue from exporting raw materials (usually oil) or leasing out its natural resources to foreign companies (led to a lack of reliance on taxation) which leads to… attempts to diversify economy failed Iran became a rentier state – a country that obtains much of its revenue from exporting raw materials (usually oil) or leasing out its natural resources to foreign companies (led to a lack of reliance on taxation) which leads to… attempts to diversify economy failed

4. Society & Economy (positives) Some oil revenue was squandered by Muhammad Reza Shah’s regime on palaces, corruption, military, bureaucratic waste, etc. Some oil revenue was squandered by Muhammad Reza Shah’s regime on palaces, corruption, military, bureaucratic waste, etc. GNP grew at a 9.6% rate (1960-1977) SD GNP grew at a 9.6% rate (1960-1977) SD Land reform led to prosperity for farmers Land reform led to prosperity for farmers Modern factories tripled Modern factories tripled Formal education increased Formal education increased Health services grew Health services grew Population doubled in under 20 years to 36 million by 1979 – half the pop was under 16 Population doubled in under 20 years to 36 million by 1979 – half the pop was under 16

5. Society & Economy (negatives) Trickle down economics was a failure Trickle down economics was a failure High inequality of distribution of wealth High inequality of distribution of wealth In rural areas a landed elite dominated society (small farmers couldn’t compete) In rural areas a landed elite dominated society (small farmers couldn’t compete) Industrial development was criticized as hollow – simply assembly plants Industrial development was criticized as hollow – simply assembly plants Doctor-patient ratio was still abysmal Doctor-patient ratio was still abysmal Education reforms were still inadequate – opportunities & high illiteracy rates (68%) Education reforms were still inadequate – opportunities & high illiteracy rates (68%) Tehran was developed while the rest of the nation lagged behind (high disparity of wealth and opportunity) Tehran was developed while the rest of the nation lagged behind (high disparity of wealth and opportunity) Dual Society (See Table) vertically (mod vs. trad) and horizontally (urban vs. rural) which was sharply stratified) Dual Society (See Table) vertically (mod vs. trad) and horizontally (urban vs. rural) which was sharply stratified)

6. Impact of Inequality Fueled resentments against ruling elite which were expressed more in cultural & religious terms rather than eco/class. Fueled resentments against ruling elite which were expressed more in cultural & religious terms rather than eco/class. Anti-western resentment grew as it was connected to the inequality Anti-western resentment grew as it was connected to the inequality The elite “had lost their way” – see pg. 599 The elite “had lost their way” – see pg. 599 Return to cultural roots and becoming self-reliant were paths to true reform - Shi’i Islam filled the void. Return to cultural roots and becoming self-reliant were paths to true reform - Shi’i Islam filled the void. Jalal Al-e-Ahmad & Ali Shariati raised questions Jalal Al-e-Ahmad & Ali Shariati raised questions

7. Iran in the Global Economy Under the Shah Oil boom in 1970’s brought opportunity to play major role in international politics. Oil boom in 1970’s brought opportunity to play major role in international politics. Iran was viewed as 2 nd most important member of OPEC (oil cartel) and could influence oil prices Iran was viewed as 2 nd most important member of OPEC (oil cartel) and could influence oil prices Influence in region grew - military presence in the Strait of Hormuz, offered aid to Afghanistan, etc. Influence in region grew - military presence in the Strait of Hormuz, offered aid to Afghanistan, etc. Iran grew more tied to West and Japan (American imports grew) Iran grew more tied to West and Japan (American imports grew) Oil revenues led to empty promises which led to resentment Oil revenues led to empty promises which led to resentment Economic dependency, rentier status, and vulnerability to world markets were a recipe for disaster Economic dependency, rentier status, and vulnerability to world markets were a recipe for disaster

8. Iran in the Global Economy Iran’s Economy Under the Islamic Republic Goals were to rapidly develop the economy and become fully independent of oil and the west. Mixed results Goals were to rapidly develop the economy and become fully independent of oil and the west. Mixed results Instability of oil market has been problematic – still a rentier state – vulnerable to oil market - monoculture Instability of oil market has been problematic – still a rentier state – vulnerable to oil market - monoculture Oil production can only increase by a new influx of capital or deep-drilling technology (both only found in W) Oil production can only increase by a new influx of capital or deep-drilling technology (both only found in W) Economic problems were exacerbated by the population explosion, Iran-Iraq War, and the emigration of the intelligensia (mostly to the west). Economic problems were exacerbated by the population explosion, Iran-Iraq War, and the emigration of the intelligensia (mostly to the west). Infrastructure improvements have occurred Infrastructure improvements have occurred Improvement in literacy rates, availability of consumer goods, health services & care, life expectancy, self- sufficiency, and foreign trade diversification. Improvement in literacy rates, availability of consumer goods, health services & care, life expectancy, self- sufficiency, and foreign trade diversification. Population explosion has led to pop control Population explosion has led to pop control Improved oil prices and high GDP rates have led to a sunnier future. Improved oil prices and high GDP rates have led to a sunnier future.

9. Comparative Impact How does Iran’s economy connect to other nations that we have studied? How does Iran’s economy connect to other nations that we have studied? How does this section help you connect the nuclear program issue? How does this section help you connect the nuclear program issue? What could you use to show support for the revolution against the Shah? What could you use to show support for the revolution against the Shah? How would you evaluate the economy under the Islamic republic? How would you evaluate the economy under the Islamic republic? What does economic future look like for Iran from what was in this section? What does economic future look like for Iran from what was in this section?