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.