Introduction
During the reign of Pahlavi, Iran witnessed many developmental projects in the country. Pahlavi led in the introduction and implementation of many major development projects that helped put Iran into another level in the global economic development. What was majorly known as an “Iranian economic miracle” involved dramatic economic developments in almost all areas including education, legal sector, industrialization as well as oil extraction and exportation. A nation that was initially undergoing economic hardship moved rapidly into the global economic stand. While oil was the major boost to the economic development of Iran, other sectors also added to this growth. Pahlavi introduced reforms in almost all sectors including education and legal system that promoted both education and justice system. At the same time, exportation of oil and other local products was boosted the gross domestic product. Iran experienced an increase in industrial development, foreign trade expansion, reforms in education and health sectors as well as stable oil prices which led to rapid economic development.
Background of Economic Development in Iran
During the Pahlavi era, Iran witnessed dramatic growth in the oil revenues majorly between 1973 and 1974. This made a landmark in the country’s economic development, with the country making huge growth over the last decades. Oil provides revenue and the capital required to develop other sectors of the economy. During the period between 1960 and 1978, Iran experienced major changes in its oil industry which led to the increase in the oil revenue. The revenues from Iran’s oil increased from 1960 onwards as a result of increased production. The major factor that made a huge turn in the Iran oil production was the increase in the price of oil towards the 1970s ( Mohaddes & Pesaran , 2013). Most of the oil was exported to foreign countries thus earning Iran revenue. The economy was fairly a mixed one where the oil and gas sector was publicly owned while the agriculture sector was owned by private individuals. Industry and mining sectors, on the other hand, were divided fairly between the public and private sectors. At the time, the revenue generated from the public sector accounted for more than two-thirds of the investment in the country while public sector remained leading in the industry and mining sectors.
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A significant way to understand the structure of the economy of Iran during the Pahlavi era is to identify the relationships that existed between the different sectors which included oil, non-oil and agricultural sectors. Generally, oil sector provided the capital that was required for the growth of other sectors such as agriculture. This made Iran move away from the major constraint that has always prevented the economic growth of most of the developing countries. The three sectors worked interdependently with the modern sector getting its capital from the oil sector while agriculture got its labor and other raw materials. Despite the supremacy that existed in the oil sector, the economy of Iran remained relatively balanced in all sectors. The agricultural development becomes rapid, with most of the products being exported to other countries to bring revenue. The GDP for the agriculture sector stood at 18.1%, trailing oil which stood at 19.5%. Industry and mining remained high at 22.3% ( Mohaddes & Pesaran , 2013).
During the Pahlavi period, the country witnessed the introduction of modern industries. By 1925, there were less than 20 modern industries, but towards the end of 1941, more than 800 new plants and industries were created. This was done with the intention of reducing the overreliance of the country on the imports. Industrialization was encouraged by increasing tariffs, providing finance for the modern industries as well as imposing government monopolies in the industrialization sector. The witnessed reforms in the legal system, tax structure, and the trade policies led to the attraction of the domestic financial resources and the coming up of a new young group of entrepreneurs. Pahlavi himself became one of the biggest investors in the new industries in the country. There was increased investment in the mining, manufacturing as well as construction industries ( Mohaddes & Pesaran , 2013). This led to the creation of the employment opportunities for the thousands of Iranians. These industries also added to the GDP of the nation thus enhancing economic growth and development.
Infrastructure grew significantly during the Pahlavi era. By the year 1925, there were only 250 kilometers of railroads in Iran. The country also had 2400 kilometers of the roads by the year 1925. However, towards 1938, there were more roads and rails constructed nationwide. There were more than 1700 kilometers of railroads and 12000 kilometers of gravel roads constructed ( Mohaddes & Pesaran , 2013). Transportation was made easy as the traders would easily move their products from one area to another. Roads and railways are essential elements for the economic development of any nation. Since agriculture had advanced, most farm produce could easily be transported to the marketplaces thus increasing the revenue generation as well as GDP. More roads also attracted more investors who came in with capital to invest. As more people invested, more revenue was generated which further increased the nation’s GDP. As a result of infrastructure, trade was boosted both local and international. Some traders could transport their goods to neighboring nations using roads and railways which further boosted the economy of the country.
The government further expanded the international trade using certain techniques such as the control of foreign exchange that was imposed in the year 1936. The country focused on raising more revenue from exports while at the same time minimizing the imports. Oil became the major export of Iran yielding a huge percentage of the revenue for the nation and becoming the largest GDP contributor. However, agricultural products were also exported to other countries thus contributing to the country’s GDP. By 1940, Germany becomes one of Iran’s leading trading partners, representing 42% of Iran’s total income from the foreign trade ( Mohaddes & Pesaran , 2013). The second leading trading partner after Germany was the United States of America, which accounted for the 23% of the foreign trade. Other major trading partners of Iran included the Soviet Union with which they exchanged oil and gas. Foreign trade contributed greatly to the economic development of Iran. A lot of revenue was generated from the trade thus adding to earnings of the country. While the government sorts to increase exportation, it minimized importation of most of the products as it aimed at enhancing self-reliance in most of the products. The country produced agricultural products thus reducing importation of such products from the foreign countries. However, even after imposing both domestic and foreign policies, Iran remained an exporter of both the capital and consumer goods.
After Reza Shah Pahlavi was abdicated and replaced by his son Mohammad Pahlavi in 1941, there was less developmental projects witnessed. However, there were massive development projects that were witnessed between 1954 and 1960. Oil revenue became a major boost tote economy of Iran which provided capital for other investments. Oil and gas were produced in large scale and exported to other countries. There was a rapid increase in the GDP due to more revenue from the oil exports. While there were reduced imports, exports increased as many trade partners demanded oil. The various as well as domestic trade policies that were introduced by the government aimed at promoting exports and minimizing imports so that the country can realize more revenue generation than the expenditure on exports.
Towards 1961, Iran experienced a decline in the economic development and even the policies that were implemented to solve the problem never worked. In response to the economic setbacks, the country a third development plan which emphasized on industrialization. Between 1968 and 1973, there was the establishment of the forth development plan. During this period, the GNP increased at an average rate of 12% annually while the gross domestic investment increased to slightly over 15% ( Mehrara et al., 2013 ). Due to the witnessed oil prices in 1973 and 1974, the GNP increased dramatically moving to 34% and 42% respectively. The price of oil remained stable in the 1960s which further led to rapid growth as more revenue could be generated from the exports of oil and gas.
Planning became the central principle for the development of Iran. In 1948, there was the launching of the first national development plan. This first plan covered various social welfare issues which included education and health. Major reforms were done in the educator. More school was constructed and the accessibility of the school increased for most of the Iranian children. Investment in education is considered an essential tool for development. Accessibility to education increases creativity and innovation of a country which can then lead to economic development. Educating the youth is the key to the future economic development of the country. Education helps reduce the rates of unemployment and increases the living standards of individuals. At the same time, there was an improvement in the health sector. More healthcare facilities were constructed to help improve the care services for Iranians. Improving the health care of a country is a key developmental factor. A healthy nation is a wealthy nation. When the citizens receive better healthcare services, they will be able to actively take part in the developmental and economic activities of the country. The productivity of a country is heavily dependent on the health of the labor force. Making improvements in the healthcare sector improved the health conditions of the workers thus enhancing their productivity to the economy.
In 1974, the need to revise the initial fifth plan became apparent when the oil revenues increased dramatically. After the revised fifth plan, the government total revenue was projected at $122 billion, 80% of which was contributed by the oil sector ( Mehrara et al., 2013 ). However, there was a witnessed decline in the world oil demand in 1975 which led to the postponement of some of the fifth plan. This did not, however, affect the economy as the balance of payments remained healthy. The man Iran’s planning agency was renamed as plan and budget organization (PBO) which was aimed at enduring strict control of the budget.
Even though the population growth rate increased at a 3%, individual incomes for the people continued to rise and the living standards of people improved. Per capita income increased from $532 to $1344 between 1974 and 1977 ( Mehrara et al., 2013 ). The continuous increase in the oil revenue led to massive increase in imports. Most valuable items were imported from other foreign countries which led to the rise in the total expenditure on the imports. Other than oil, Iran also specialized in the exports of manufactured and processed goods which accounted for a greater percentage of the total revenue from exports. By 1974, Iran recorded the first ever largest exports in manufactured goods.
Foreign investment also played a significant role in the economic development of Iran. A criterion used in the evaluation of the investment proposals was quite different from those used in other developing countries. While evaluating the proposal for foreign investment, there was a focus and emphasis on the ability of the foreign country to offer advanced technology and proper management instead of the ability to offer finance. There was a dramatic increase in foreign investors who invested in various sectors including industries, both manufacturing, and processing. Many companies owned by foreign investors were opened. This provided job opportunities for the citizens thus improving their living standards. At the same time, the government emphasized on the long-term investment that was essential for economic growth. Foreign investment also added to the revenue of the country through the payment of tax to the government. This further led to rapid economic development.
The banking sector also witnessed rapid growth and development. Banks such as Bank Markazi Iran and Bank Melli Iran experienced rapid growth in their services ( Mehrara et al., 2013 ). The number of banks increased rapidly with over 36 banks being opened between the 1970s and 1979. While some of the banks were locally owned, some were owned by Iranian German agencies. 22 banks were commercial banks while the rest were specific financial institutions devoted economic development in various sectors. Some banks provided funds and loans for the development of industries, agriculture or even housing. Man people could access loans to venture into entrepreneurship which significantly led to the growth of the economy. Banking spread rapidly with most banking services being available in major cities and even in rural areas where the economy was getting more monetized.
Other than the commercial banks, there was a rapid increase in the number of representative offices of the foreign banks in 1974. Towards the mid of 1976, the number of the representative offices of foreign had gone to 52. Several other merchants’ banks were also witnessed all over the country with many banks specializing in projects as well as corporate finance. Other financial institutions include insurance companies and the representative of the insurance companies. The expansion of both the public and private banks created a reliable credit market for the large and medium scale private manufacturers. Other than the cheap loans, the government also offered a variety of other incentive programs that aimed at encouraging both the Iranians and foreigners to invest in modern industries. More than two-thirds of the capital representing a nominal value of $42 million came from the banking sector while the public provided the remaining one-third ( Mehrara et al., 2013 ). Many new industries emerge to encourage the investment in the productive enterprise mainly housing as well as agricultural projects. This further increased revenue generation. The country became stable in most of the sectors, with oil sector and manufacturing sector leading to stability. The rest such as agriculture did not, however, receive a stable growth.
Discussion
The government also enhanced the investment in roads, dams, rail, seaports, and bridges so that private investors are attracted to invest in modern industry. The government also provided support to the agricultural farmers to increase production in large-scale production of meat, fruits, and dairy products. The forth and the fifth economic development plan marked a rapid increase in imports and foreign investment. Major cities enlarged due to the combination of revenues. Foreign investment and public spending, leading to urbanization in many areas. The spiking of the oil prices in 1973 that involved Egypt and Israel war led to more oil consumption and industrialization. Specialized banks gave more than 200 billion rials to the manufacturing and processing sectors. This led to rise in the investment rate to 56% annually. The military also benefited from the new economic development which led to increase in the modern military equipment as well as training. Iran’s gross national product grew at a constant rate of 13.2% in 1978. The oil and construction industries experienced a more than 500% growth during this era. The value-added manufacturing rose by 4%. The labor force became more skilled with the expansion of the education sector. More women got involved in the skilled labor force as more people joined institutions of higher learning.
Towards the 1970s, Iran’s economic growth increasingly became dependent on oil revenues. The revenues from oil lone had reached $20 billion which represented 79% percent of the total government revenue. Other sectors did not experience a uniform growth. Agricultural sector became a bit static towards the end of the 1970s. Throughout the reign of Pahlavi, Iran experienced political stability which gives the country a peaceful environment for foreign investment. Political stability attracted not only the foreign investors but also made the currency stable thus benefitting the country in the international trade.
Conclusion
Iran experienced rapid economic development during Pahlavi era. There was the rapid growth of industries which made the country into a modern industrial state. Oil became one of the major revenue generations as a result of the rise in the prices of oil. There was an investment in the banking sector which witnessed rapid growth thus offering cheap credit to manufacturers. Furthermore, reforms in the healthcare, education and legal sectors together with existing political stability facilitated economic growth in Iran. Despite the many uncertainties that were inherent, Iran managed to come out and experience a dramatic growth in its economy.
References
Mehrara, M., Abrishami, H., Boroujli, M., & Amin, M. (2013). Government expenditure and economic growth in Iran. International Letters of Social and Humanistic Sciences , 11 , 76-83.
Mohaddes, K., & Pesaran, M. H. (2013). One hundred years of oil income and the Iranian economy: a curse or a blessing? Pearson.
