Thursday, June 25, 2009

Some Religious Political Economic History of Iran (long under the fold)

As news coverage of events in Iran goes dark even as those events reportedly continue, I thought it might be worth putting up some background material on the religious political economic history of Iran, known as "Persia" prior to 1935 when Reza Shah changed the name to please his pal Hitler with his "Aryan" racial theories. The material is based on Chap. 17 of the 2004 (second) edition of Comparative Economics in a Transforming World Economy, MIT Press, by me and Marina V. Rosser. I note three interconnected themes in play before I go under the fold: national identity against outside powers (with Persia/Iran being the only Muslim nation besides Turkey not to be completely militarily conquered or directly ruled by an outside power during the past 500 years), its assertion of its Shi'i religious identity with this more recently coinciding with the effort to establish a "new traditional" Islamic economy, and, of course, the dominating role of oil in its economy in more recent decades (never below 85% of export earnings even in the 1960s when the price of oil was quite low). So, see those of you more interested below the fold, hopefully.

Persia achieved essentially its modern borders in 1501 with the coming to power of Shah Ismail, founder of the Safavid dynasty, who also imposed Shi'ism on most of the country in place of the previously dominant Sunni form of Islam. I shall not further here discuss details of Shi'ism versus Sunnism other than to note the importance of the concept of martyrdom in it and its tendency to a certain millenarianism based on the waiting for the reappearance of the Hidden Twelfth Imam, whom Shah Ismail claimed to be and who current President Ahmadinejad claims is actively supporting his government. Until the replacement of the Safavid dynasty by the Qajar one in 1785, the main foreign rival and competitor of Persia was its neighbor, the Turkish-ruled Ottoman Empire, which would become the "Sick Man of Europe" in the 19th century.

During the 19th century under the Qajars, Persia became a plaything in the Great Game between Britain and Russia, both of which had territory bordering on Persia. The Islamic clergy were the main base of nationalist resistance to them in this period, provoking a war with Russia in 1828 and pushing the cancellation a year later of the 1872 Reuter concession to Britain that allowed its companies to control mines, the national bank, and railroad construction.

However, in 1901 they failed to resist the first oil concession given anywhere in the Middle East, the d'Arcy concession to Britain in 1901. This would lay the foundation for what would first be the Anglo-Persian Oil Company, which changed its name to Anglo-Iranian Oil Company in 1935, and would later become the current British Petroleum. It was this company's holdings in Iran that democratically elected Premier Mohammed Mossadegh nationalized in 1951, which triggered MI6 to invite the CIA to organize his overthrow in 1953 in Project Ajax, which led to the reimposition of the autocratic Shah Mohammed Reza Pahlavi, and the allowing of some US oil companies to participate in the oil concession with BP, even though the Shah would nationalize all these in the 1970s.

In 1906 a combination of western-oriented intellectuals and liberal clerics overthrew the Qajar dynasty in the "Constitutionalist Revolt" and established a government based on the Belgian consitution of the day (a participant in that government was the then young Mohammed Mossadegh). The tsarist Russians organized the overthrow of this government and the reimposition of the Qajars in 1911. During WW I, Persia was humiliated by both the Russians and the British occupying parts of the country. Reaction to this led to the overthrow of the Qajars in a military coup by Reza Pahlavi, a military officer, who became Reza Shah and was father of the later Shah, Mohammed Reza Pahlavi. Reza Shah would side with the Germans in WW II to offset the Soviets and the British, and they had him removed and replaced by his son in 1941. The son was removed by Mossadegh in 1951, but would rule after his reimposition until his overthrow in the Islamic Revolution of 1979. Needless to say, since 1953 the US has been the center of attention as a foreign power (except for Iraq during the 198os war).

It should be noted that Reza Shah started many trends and patterns that remain today in the Iranian economy. He was a secular nationalist whose role model was Kemal Attaturk of neighboring Turkey. He banned Islamic clothing for women, stripped the religious foundations of their lands and the Islamic ulama of their control over the courts. He also asserted a strong state role in the government, with state-owned enterprises leading in various parts of industy using modest oil revenues available, including textiles, sugar, cement, iron, and steel. His son would establish indicative central planning in 1944, which is still in place and used today.

From the 1950s to the late 1970s, industrial investment was roughly evenly split between private and public sources, with industries then receiving public funds including in addition to those already mentioned, copper, machine tools, aluminum, and petrochecmicals, as well as auto assembly, paper, and synthetic fibres. An import substitution strategy was generally attempted, and some of these later investments involved joint ventures with foreign multinational corporations. By the 1970s, members of the Shah's families and his cronies had large interests in many of these operations, which would lead to much opposition due to corruption. Many of those firms would become those that would be taken over the bonyads, the Islamic foundations, after the Islamic revolution in 1979.

In 1963, the Shah initiated his "White Revolution" that further attempted to secularize the society (women were granted many rights), with attempts to redistribute land to peasants. Further taking of land from the Islamic foundations was an especially sore point for certain Islamic leaders, especially Ayatollah Ruhollah Khomeini, who went into exile and would return in 1979 to become the first Supreme Leader of Iran after the Islamic revolution. That revolution followed a period of increasing autocracy by the Shah following the oil price increases in 1973, which were accompanied by rising inflation and increasing income inequality, along with perceived corruption and excessive foreign cultural influences inimicable to Shi'i Islam.

The post-revolutionary regime has gone through several policy phases. We have labeled the first the First Radical Phase, 1979-1981, which was led by socialist oriented Islamic economists, with Ayatollah Taleqani one spiritual leader, who had been a supporter of Mossadegh in the early 1950s. Many nationalizations took place during this period, but there was also nearly constant fighting and much bloodshed.

The Second Radical Phase was 1982-1984, and was triggered by the Council of Guardians (appointed by the Vilayat-el-faqih, Supreme Jurisprudent or Supreme Leader, in this case, Khomeini) ruling as un-Islamic bills from the democratically elected Majlis to nationalize land and also foreign trade. This was the period in which the major Islamic elements of the economy were put into place, including the forbidding of interest in banks (which had been nationalized) as well as increased control by the bonyads of many sectors. Some industries that had been nationalized were re-privatized.

The First Pragmatic Phase was 1985-89, basically the second half of the Iran-Iraq war period, with current opposition leader, Mir Hossein Mousavi, as prime minister (a position that no longer exists). This involved opening to foreign trade and looseing of some regulations in support of the war effort. It ended with both the end of the war and the death of Khomeini, who was replaced by the current Supreme Leader, Ayatollah Ali Khamene'i.

The Second Pragmatic Phase was 1989-1997, coinciding with the two term presidency of Ali Akbar Hashemi Rafsanjani, now the leader of the Expediency Council, and apparently supporting Mousavi, with some of his children reportedly arrested in recent days. To a large extent, his policies were essentially an extension of those in the previous period, with more emphasis on private sector development, with his opponents accusing him of corruption and having achieved great wealth in this period. He was the opponent of Ahmadinejad in the 2005 election, and was veiwed then as the candidate of the entrenched clerical hierarchy against the upstart populist, Ahmadinejad.

The Social Reform Phase was 1997-2005, the period of the presidency of the somewhat moderat Mohammed Khatami. He attempted a social relaxation, but it ran into severe limits as the ulama and the Revolutionary Guards asserted their control over the police, security forces, and the courts under the authority of Khamene'i. In economics he was somewhat of a semi-socialist technocrat, emphasizing more of a state role and increasing the influence of the indicative central planners.

We do not have a label in our book for the period under Ahmadinejad, but I would call it the period of Populist Repression. He attempted to do some redistribution of income and also clamped down on social reforms. As it is, the Iranian economy remains as dependent on oil as it has been for many decades, and as I reported in another post, appears to be suffering from rising inflation and unemployment, especially youth unemployment, and ironically even rising income inequality, despite the stated goals to redistribute by Ahmadinejad.


kevin quinn said...

Barkley, thanks for this. What is Khatami's role in recent events? Is he allied with Mousavi? Do you see any chance of Rafsanjani turning back what seems to be a RG coup?

Shag from Brookline said...

" . . . and, of course, the dominating role of oil in its economy in more recent decades (never below 85% of export earnings even in the 1960s when the price of oil was quite low)."

What if a plentiful source of safe energy is discovered that does not have negative environmental issues? What will happen to the economies of Iran and other oil-rich nations and how might such impact nations no longer dependent on oil for their energy needs?

Barkley Rosser said...


Khatami appears to support Mousavi, although he may have been really for the reformist cleric, Kourabi. However, he seems to be effectively sidelined. The heavy does seem to be Rafsanjani, who actually heads a group that could have Khamene'i removed. That is why it is significant that some of his children have been arrested. We are definitely seeing a coup by the RG with allied elements in the ulama, with, apparently Khamene'i having thrown in with them, although he was not all that close to, or supportive of, Ahmadinejad earlier in his presidency.


In the short-run the loss of revenues would hurt. However, in the longer run it would probably be better for Iranian society and economy and polity. The literature on what is now being called the "natural resource curse" (with oil the most accursed) is simply huge. Not very countries are able to pull off being Norway.

Brenda Rosser said...

Another bit of history for Iran.

Seymour Hersh in his article entitled, “Preparing The Battlefield” dated July 7, 2008, stated:

“ Congress agreed to a request from President Bush to fund a major escalation of covert operations against Iran…These operations, for which the President sought up to four hundred million dollars ($400,000,000.), were described in a Presidential Finding signed by Bush, and are designed to destabilize the country’s religious leadership. The covert activities involve support of the minority Ahwazi Arab and Baluchi groups and other dissident organizations…Clandestine operations against Iran are not new. United States Special Operations Forces have been conducting cross-border operations from southern Iraq, with Presidential authorization, since last year (2007) These have included seizing members of Al Quds, the commando arm of the Iranian Revolutionary Guard, and taking them to Iraq for interrogation…the scale and the scope of the operations in Iran, which involve the Central Intelligence Agency and the Joint Special Operations Command (JSOC), have now been significantly expanded… Under federal law, a Presidential Finding, which is highly classified, must be issued when a covert intelligence operation gets under way and… must be made known to Democratic and Republican leaders in the House and the Senate and to the ranking members of their respective intelligence committees—the so-called Gang of Eight.” It includes Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi, Senate Intelligence Committee chairman John D. Rockefeller IV, and House Intelligence Committee chairman Silvestre Reyes who viewed the C.I.A. torture tapes in 2002)... said...


You are right that the US is and has been funding various opposition groups to the Iranian government, a point mentioned by Fareed Zakaria in an op-ed in today's Washington Post, even as he in general praises the fairly cautious response by Obama to the situation there. Of course, the report you put here is the tip of the iceberg, with the US having been funding groups almost continuously since 1979, such as the Mujaheddin-el-Khalq, even as most of these are largely ineffectual, and some of them, such as the MEK being viewed as terrorist organizations by other countries the US is friendly with.


According to Juan Cole this morning, Rafsanjani has caved and is now siding with Khamene'i and Ahmadinejad against Mousavi. Not clear the degree to which this is a matter of him viewing the demos as a threat to the financial establishment that he is a leader of or is a response to the personal pressure on him from these guys arresting some of his children, or perhaps both.

Anonymous said...


Anonymous said...

A really good run-down of the antics of Kermit Roosevelt in project Ajax can be found at:
Rear Vision June 24th 2009

It is a rerun of an Australian Broadcasting Commission radio history program from 2007. The whole interview illustrates the chilling disdain with which the west viewed Iran, but also gives some insight into the way an overthrow happens.

The fact that the BBC news service was prepared to send coded messages to the Shah says a lot about the independence of the press. The local papers also paid a large role in the overthrow.


Barkley Rosser said...

A weird aspect of the whole Project Ajax thing is that the Brits continued to classify anything having to do with long afer it happened, even though Kermit Roosevelt wrote a book about it (bragging mostly) in the US. The book was banned in the UK. Of course, part of what had them all wanked out was that they were asking the US to come in and bail out their beloved oil company, which in those days actually had a slight majority of government ownership. That dated all the way back to 1917 when then Lord of the Admiralty, Winston Churchill, demanded the semi-nationalization in the middle of WW I in order to guarantee a supply of oil for the British navy, harrumph!

In this regard, perhaps it is not all that surprising that during the current strife over the elections in Iran, the government there has reverted to being more anti-British than anti-American.