Iran's Economy after the Revolution

Abstract

Iran's economic developments in the post-1979 revolution are of interest to all students of Iran's political economy regardless of personal sympathy or antipathy toward the Islamic Republic. These developments, according to the government's own agencies, paint a rather unflattering picture of the regime's economic record. The 1991/92 GOP in constant prices was barely different from the figure for 1977/78 signifying no overall growth. Per capita real income was down by 37 percent. During the 13-year period, the economy was persistently plagued by chronic inflation, budgetary deficit, unemployment, a balance-of-payment gap, and a declining standard of living. The regime tends to attribute its acknowledged economic shonrtcomings to the war with Iraq, Western enmity toward the Islamic revolution, sabotage by the domestic opposition, and natural disasters. There is no doubt that certain internal and external impediments have indeed stifled growth. Internally, repercussions of the early revolutionary turmoil, the exodus of professional cadres, flight of capital, uncertainties regarding property ownership, and friction among clerical groups were factors inimical to private investment and product expansion. Externally, a costly and devastating war, harmful fluctuations in the global oil market, Western trade sanctions, diplomatic isolation, and the influx of more than 3 million refugees from neighboring countries played havoc with economic planning. Nevertheless, while some of these adverse factors were beyond the regime's control, some others were certainly of the government's own making. Specifically three policies stand out. First, the regime's constitutional undertaking to export the revolution throughout the Muslim world (and beyond) sapped a good measure of the country's resources and contributed to its diplomatic isolation. Second, the pursuit of an old Russo-Indian economic model favoring public enterprise, price control, import-substitution, and overall economic regimentation discouraged private investment, increased inefficiency, and gave rise to widespread corruption. And third, attempts to impose an austere and puritanical Islamic culture on inhospitable Persian cultural traditions led to a mass exodus of managerial and entrepreneurial talent. More disappointing still, from the regime's standpoint, is the fact that none of early promises by the victorious revolutionaries to change the course of the Pahlavi's economic strategy has been achieved. Iran continues to be an oil-based economy, deficient in food, and dependent on industry and services for rapid growth. The success of the present "moderate" administration in its reconstruction and revival depends on the results of present economic reforms for which a national consensus has yet to be found.