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Winners and Losers of The Iranian Revolution: A Study in Income Distribution

Published online by Cambridge University Press:  29 January 2009

Sohrab Behdad
Sohrab Behdad
Affiliation:
Department of EconomicsDenison University
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Extract

The income inequality gap in prerevolutionary Iran was no doubt a contributing factor to the mass mobilization of Iranians in the 1979 Revolution. The Resolution of the Ashura March (December 11, 1978) demanded the establishment of “social justice, the right of workers and peasants to the full benefit from the product of their labor” and an end to “any form of discrimination, exploitation, profiteering and economic domination which may result in the accumulation of great wealth, on the one hand, and deprivation and poverty on the other.”

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Articles
Information
International Journal of Middle East Studies , Volume 21 , Issue 3 , August 1989 , pp. 327 - 358
Copyright
Copyright © Cambridge University Press 1989

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References

NOTES

Author's note: An earlier version of this paper was presented at the Middle East Economic Association, December 27–30, 1986, in New Orleans. I wish to acknowledge the encouragements and helpful comments of Bahram Tavakolian, Hamid Mohtadi, and my colleagues in the Department of Economics, Denison University, especially Robin Bartlett, Paul King, and Timothy Miller. I would also like to thank the anonymous referees for their helpful comments. Some of the computations were done by Greg King whose assistance is acknowledged. This study was supported by a Faculty Development Grant from Denison University.

1 For the analysis of income distribution in prerevolutionary Iran see Pesaran, M. H., “Income Distribution and its Major Determinants in Iran,” in Jacqz, J. W., ed., Iran: Past, Present and Future (Aspen, Colo., 1976);Google ScholarPesaran, M. H. and Gahvari, F., “Growth and Income Distribution,” in Stone, R. and Peterson, W., eds., Econometric Contributions to Public Policy (New York, 1978);Google Scholar World Bank, “The Economic Development of Iran: A Basic Report,” Vol. 1 (Washington, D.C., 1974), pp. 27–34; Skolka, T. P. and Garzuel, M., “Income Distribution and Employment Programme-Changes in Income Distribution, Employment and Structure of the Economy: A Case Study of Iran,” ILO Working Paper (Geneva, 1976); Plan and Budget Organization of Iran, Motale'-ye tatbiqi-ye vaze'-e daramad-ha va hazineh-ha dar manateq-e shahri-ye Iran, 1351–1357 (Tehran, 1981);Google ScholarMohtadi, H., “Industrialization and Urban Inequality: Analysis and Evidence from Iran Before 1979,” paper presented to the Middle East Economic Association, December 27–30, 1986, New Orleans;Google Scholar and Hakimian, H., “Industrialisation and the Standard of Living of the Working Class in Iran, 1960–79,” Development and Change, 19, 1 (1988), 3–32.CrossRefGoogle Scholar

2 This resolution has been considered by Ayatollah Khomeini and the leading politicians of the Islamic Republic as the public demand for ending the Pahlavi regime. This Resolution is reprinted in Khalili, Akbar, Gam be gam ba enqelab (Tehran, 1981), pp. 114–16.Google Scholar

3 There is little reason to believe that the deficiencies in the Iranian statistics have increased after the Revolution. In fact, the data collection and processing have somewhat improved in the post-revolutionary period. With the war mobilization and the extensive effort of the government to regulate the economy, reliable statistics have become indispensable for the conduct of the affairs of the state.

4 Bakhash, S., The Reign of the Ayatollas: Iran and the Islamic Revolution (New York, 1984), ch. 7.Google Scholar

5 Bank Markazi lran-BMI, Barresi-ye tahavvolat-e eqtesadi-ye keshvar ba'd az enqelab [A Survey of National Economic Conditions after the Revolution] (Tehran, nd. [c. 1984]), p. 434.

6 ”The Law for Nationalization of Banks,” Ruzname-ye Rasmi-ye Keshvar, 10012 (Tir 7, 1358 [June 28, 1979]).

7 ”The Law for Protection and Development of Iranian Industries,” Ruzname-ye Rasmi-ye Keshvar, 10031 (Mordad 9, 1358 [July 31, 1979]).

8 For details about the organizational structure and the nature of activities of the FFO see FFO, Gozareshi az bonyad-e mustaz'afan (A Report from the Foundation for the Oppressed) (Tehran, n.d. [c. 1983]); “The Law for Establishment of the Foundation for the Oppressed,” Ruzname-ye Keshvar, 10326 (Shahrivar 4, 1358 [August 9, 1979]).

9 BMI, A Survey of National Economic Conditions, p. 270. See also FFO, A Report.

10 Statistical Center of Iran (SCI), Salname-ye amari-ye keshvar, 1362 (Tehran, 1985), pp. 434–35.

11 SCI, Salname 1979 (Tehran, 1981), p. 746. The figures for value added or output are not available.

12 SCI, Salname 1983, p. 434.

13 Bakhash, The Reign of the Ayatollas, ch. 8.

14 For a comparison between the land reform of the shah in 1962 and the postrevolutionary land redistribution see Parvin, M. and Taghavi, M., “A Comparison of Land Tenure in Iran under the Monarchy and under the Islamic Republic,” in Amirahmadi, H. and Parvin, M., eds., Post-Revolutionary Iran (Boulder, Colo., 1988), pp. 168–82.Google Scholar

15 Ettela'at, November 24, 1986.

16 SCI, Salname 1983, p. 297.

17 Foxley, A., Aninat, E., and Arellano, J. P., Redistributive Effects of Government Programmes: The Chilean Case (New York, 1979), p. 193.Google Scholar

18 Ibid., p. 195.

19 Ibid., pp. 190–96.

20 The flight of some owners of enterprises and some well-paid managers from Iran does not necessarily result in a change in the pattern of income distribution. What matters is what happens to the income earning assets or the managerial positions held by the emigrants when they leave the country. If the income earning assets of these individuals are transferred to other individuals, or if another person occupies the same position (with the same salary), there will not be necessarily a reduction in income inequality. In fact, under certain circumstances the inequality gap may increase. On the other hand, if these assets are expropriated and held by the government, or if the high paying positions are eliminated, whether or not the original owner or manager leaves the country, income inequality will be reduced.

21 The large loss of income that owners and managers of nationalized firms experience causes a significant reduction in the mean expenditures of high-income households. Therefore, the expropriation effect of nationalization is significant, even though these owners and managers constitute a very small portion of the population.

22 About 343,000 of 5 million workers were employed in the urban economy in 1982. See BMI, “Natayej-e barresi-ye kargaha-ye bozorg-e san'ati-ye keshvar dar sal-e 1362” [National Survey of Large Manufacturing Establishments, 1983], mimeo (1984), Table 8; and SCI, Salname 1983, p. 63.

23 Halliday, F., Iran: Dictatorship and Development (Harmondsworth, Middlesex, 1979), pp. 189–90.Google Scholar

24 Average yearly wages and salaries of employees of “large” manufacturing enterprises (with 50 or more workers) was 837,000 rials (786,000 rials for blue-collar workers) in 1983 (BMI, “National Survey of Large Manufacturing, 1983,” Tables 14 and 21). In the same year, the average annual income from wages and salaries in the private sector for the households of urban private sector workers was 484,000 rials. The corresponding figure for civil servants was 783,000 rials (SCI, Natayej-e tafsili-ye amargiri az hazineh va daramad-e khanevarha-ye shahri, 1362 [Tehran, 1985], p. 101).

25 Some items of household consumption, such as sugar, soap and detergents, shortening, meat, and cheese are distributed by a rationing system. Consumer durables and producer goods produced by the publicly managed enterprises, or imported by the government, are generally distributed for sale at the official price through the network of “cooperatives.” Consumer cooperatives have been formed in the neighborhoods and at the places of work. Producer cooperatives have been formed by associations of various trades in different localities. This system of distribution coexists with a “free” or “black” market for the same products.

26 In November 1982 the ratio of black market prices to official prices for selected commodities were: sugar, 10.4; shortening, 9.2; butter, 3; detergents, 6; soap, 7.5; refrigerators, 3; T.V.s, 3.3. See “Price Increase: From Official Prices to Black Market Prices,” Ettela'at (Azar 5, 1361 [November 13, 1982]). See also “A New Look at the Problem of Profiteering and Hoarding,” Keyhan (Khordad 27–31, 1365 [June 17–21, 1986]), “Why Rationed Goods Are Not Easily at the Disposal of Consumers?” Ettela'at (Khordad 3–5, 1366 [May 24–26, 1987]). Iranian newspapers frequently report the discovery of large quantities of goods destined for the black market. In a recent case 65,000 television sets, 20,000 refrigerators, 20,000 machine made rugs and 2 billion rials worth of Paykan (Iranian made car) parts were discovered. All of these were in the stocks of one ring of black market “smugglers.” Keyhan (Tir 19, 1367 [July 10, 1988]).

27 In 1985 (1364), the FFO allocated 7 billion rials for “charitable” purposes. Of this amount, the items that are made public are: 1.5 billion rials “for support of the war,” 1.0 billion rials for payment to “the farmers who had a contract with the FFO,” 60 million rials for the health care of the poor, and 24 million rials for organization of Friday prayers. The operating budget of the FFO in 1986 was 526 billion rials. Keyhan (Esfand 27, 1364 [March 18, 1986]).

28 Some of the holdings of the FFO have been transferred to other “revolutionary foundations.” The Foundation for Martyrs is one of these foundations. It operates 106 enterprises in manufacturing, trade, and construction. See “A Review of Economic Activities of the Foundation for Martyrs of the Islamic Revolution,” Ettela'at (Ordibehesht 6–8, 1366 [April 27–29, 1987]).

29 No empirical study of these leasing arrangements is available. It is, however, reasonable to assume that only those with adequate financial means and sufficient entrepreneurial experience are capable of operating an enterprise. Generally, such individuals could not have been among the low-income groups prior to the Revolutionk. These leasing arrangements have been occasionally criticized by politicians and the press. For example, the representative from Noushahr complained in the Consultative Assembly: “Come to our province to see how these expropriated properties are put at the disposal of certain people who clearly do not deserve them.” Keyhan (Tir 19, 1365 July 10, 1986]).

30 Ahluwalia, M. S., “Income Inequality: Some Dimensions of the Problem,” in Chenery, H. et al. , Redistribution with Growth (London, 1975), p. 21.Google Scholar

31 In 1972, 86 percent of all agricultural units in Iran had less than 10 hectares of land (SCI, Salname 1979, p. 469).

32 Foxley et al., Redistributive Effects, pp. 196–97.

33 BMI, A Survey of National Economic Conditions, pp. 174–75.

34 Lecaillon, J. et al. , Income Distribution and Economic Development: An Analytical Survey (Geneva, 1984), pp. 187–88.Google Scholar

35 Ruzname-ye Rasmi-ye Keshvar (Ordibehesht 12, 1379 [May 2, 1980]).

36 Mehran, F., “Taxes and Incomes: Distribution of Tax Burdens in Iran,” ILO Working Paper (Geneva, 1975) quoted in Lecaillon et al., Income Distribution, pp. 120–21.Google Scholar

37 Mehran, “Taxes and Incomes,” in ibid., pp. 164–65.

38 BMI, A Survey of National Economic Conditions, p. 295. For a comparison of prerevolutionary and postrevolutionary income tax rates see ibid., pp. 612–17.

39 Behdad, S., “Structural Limits to Accumulation: Crisis in the Iranian Economy, 1973–1978,” paper presented to the Union for Radical Political Economics, December 27–30, 1986, New Orleans, p. 21.Google Scholar

40 Bayat, A., Workers and Revolution in Iran (London, 1987), especially chs. 7 and 10.Google Scholar

41 The data for capacity utilization are not available. The net domestic fixed capital formation in the 1978–1984 period (in constant prices), after accounting for war damages, is only slightly higher than the figure for just the last prerevolutionary year (1977) (see Table 3). Therefore, considering that the non-oil GDP in 1984 was 16 percent higher than that in 1977, the rate of capacity utilization in 1984 cannot be significantly less than the rate in 1977.

42 Lewis, W. A., “Economic Development with Unlimited Supplies of Labour,” Manchester School of Economics and Social Studies, 22 (05 1954), 139–91.CrossRefGoogle Scholar

43 Kuznets, S., “Economic Growth and Income Inequality,” American Economic Review, 45, 1 (1955), 1–28.Google Scholar

44 For a survey of literature see Lecaillon et al., Income Distribution.

45 Altimir has considered the effects of the export led recession on income distribution in five Latin American countries. No relation is established theoretically or empirically. See Altimir, O., “Poverty, Income Distribution and Child Welfare in Latin America: A Comparison of Pre- and Post-Recession Data,” World Development, 12, 3 (1984), 261–82.CrossRefGoogle Scholar

46 Mendershausen, H., Changes in Income Distribution During the Great Depression (New York, 1946).Google Scholar

47 Hanna, F. A., Pechman, J. A., and Lerner, S. M., Analysis of Wisconsin incomes: Studies in Income and Wealth, Vol. 9 (New York, 1948).Google Scholar

48 See among others: Schultz, T. P., “Secular Trends and Cyclical Behavior of Income Distribution in the United States: 1944–1965,” in Soltow, L., ed., Six Papers on the Size Distribution of Wealth and income (New York, 1969), pp. 75–100;Google ScholarBeach, C. M., “Cyclical Sensitivity of Aggregate Income Inequality,” Review of Economics and Statistics, 59, 1 (1977), 56–66;CrossRefGoogle ScholarMetcalf, C. E., “The Size Distribution of Personal Income During the Business Cycle,” American Economic Review, 59, 4, Part 1 (1969), 657–68;Google ScholarBrimmer, A., “Inflation and Income Distribution in the United States,” Review of Economics and Statistics, 53, 1 (1971), 37–48.CrossRefGoogle Scholar

49 Blinder, A. S. and Esaki, H. Y., “Macroeconomic Activity and Income Distribution in the Postwar United States,” Review of Economics and Statistics, 60, 4 (1978), 604–9.CrossRefGoogle Scholar

50 For an analysis of the effects of economic fluctuations on the functional distribution of income see Hahnel, R. and Sherman, H., “Income Distribution and Business Cycle: Three Conflicting Hypotheses,” Journal of Economic Issues, 25, 1 (1982), 49–73. According to Hahnel and Sherman, the wage lag hypothesis holds true for the earlier phase of a recovery. In the later phase of recovery, wage raises and the increase in employment may cause wage payments to grow faster than profit.CrossRefGoogle Scholar

51 SCI, Salname, 1979, pp. 80–81.

52 Parvin, M., and Zamani, A. N., “Political Economy of Growth and Destruction: A Statistical Interpretation of Iranian Case,” Iranian Studies, 12, 2 (1979), 64–65.CrossRefGoogle Scholar

53 These funds became available to the small farmers as the result of government's policy to limit the availability of funds to the large, modern agricultural units, and to reduce the rate of interest from 7–12 percent to 0–4 percent. See BMI, A Survey of Economic Conditions, pp. 61–63.

54 Moghadam, F. E., “The Effects of Farm Size and Management System on Agricultural Production in Iran” Ph.D. Thesis, Oxford University, 1978.Google Scholar

55 Behdad, S., “Foreign Exchange Gap, Structural Constraints and the Political Economy of Exchange Rate Determination in Iran,” International Journal of Middle East Studies, 20, 1 (1988), 1–21.CrossRefGoogle Scholar

56 The high rate of growth in value added in trade may be in part accounted for by the flourishing black market. Because of the underground nature of black markets, it is, however, difficult to estimate the value of these activities. Official statistics generally underestimate the value of activities in the black market.

57 For estimates and analysis of costs and damages of the war see Alnasrawi, A., “Economic Consequences of the Iran-Iraq War,” Third World Quarterly, 8, 3 (1986), 869–95;CrossRefGoogle Scholar and Amirahmadi, H., “War Damages and Reconstruction in the Islamic Republic of Iran,” in H. Amirahmadi and M. Parvin, eds., Post-Revolutionary Iran, pp. 126–49.Google Scholar

58 This statement requires the additional assumption that prior to the war the population of the war zone was not disproportionately richer or poorer than the total population of Iran.

59 SCI, Natayej (Tehran, published annually).

60 Swamy, S. (in “Structural Changes and the Distribution of Income by Size: The Case of India,” Review of Income and Wealth, 1, 2 [1967], 161)Google Scholar maintains that in a country with a low level of living, household expenditures relate the concept of “share” to population needs more meaningfully than household income. He also maintains that because of particular difficulties in estimating income of rural households, expenditure data are more reliable than income data. For a detailed discussion see Swamy, , “Economic Growth and Income Distribution in a Developing Nation,” Ph.D. Thesis, Harvard University, 1965, pp. 113–16.Google Scholar

61 See S. Swamy, “Structural Changes,” 161.

62 SCI has estimated the size distribution of household expenditures for 1977, 1983, and 1984. The results are regarded confidential and the report has not been circulated.

63 For a critical evaluation and comparison of different methods of measuring income inequality see Atkinson, A., “On Measurement of Inequality,” Journal of Economic Theory, 2, 1 (1970), 244–63;CrossRefGoogle ScholarWeisskoff, R., “Income Distribution and Economic Growth in Puerto Rico, Argentina and Mexico,” Review of Income and Wealth, 16, 3 (1970), 303–32.CrossRefGoogle Scholar

64 Morgan, J., “The Anatomy of Income Distribution,” Review of Economics and Statistics, 44, 3 (1962), 270–83.CrossRefGoogle Scholar

65 Theoretically, the Gini index ranges between 0.0 (perfect equality) and 1.0 (perfect inequality).

66 The area under construction by the private sector in 1980 was 34 percent larger than that in 1977. The real wages of unskilled construction workers increased by 18 percent between 1977 and 1980 (BMI, Economic Report, 1983, pp. 178, 220).

67 A survey by Ministry of Labor and Social Affairs (MLSA) estimates the urban population in 1982 at 23 million (46.5 percent more than in 1976). MLSA, Barresi-ye masa'el kolli-ye niro-ye ensani va eshteghal (Tehran, July/August 1983), p. 4.

68 After the Revolution, many streets of Iranian cities, particularly Tehran, were occupied by the Continuous lines of Street vendors, as the city ordinance against Street vendors became unenforceable under postrevolutionary conditions.

69 Behdad, S., “Foreign Exchange Gap,” pp. 1–21.Google Scholar

70 Estimated from CBI, Hesabha-ye meli-ye Iran 1338/1356 (Tehran, 1981), pp. 370–71 and 390–92 (in constant prices).

71 Vakil, F., “Iran's Basic Macroeconomic Problems: A Twenty Year Horizon,” Economic Development and Cultural change, 25, 4 (1977), 725.CrossRefGoogle Scholar

72 Behdad, S., “Political Economy of Islamic Planning in Iran,” in H. Amirahmadi and M. Parvin, Post-Revolutionary Iran, pp. 107–25.Google Scholar

73 This part of the study is not extended to the rural sector since the distribution of landholdings, the most important determinant of the economic position of rural households, is not specified in the SCI surveys. The inclusion of landholdings of households in these surveys was suggested by this author to the SCI in 1980 but has obviously been ignored.

74 Only a small percentage of soldiers are the head of a household.

75 SCI, Nasayej 1977, p. 2.

76 Ibid.

77 The increase in the percentage of households in the “not employed” category between 1980 and 1984 is not necessarily inconsistent with the decrease in the rate of unemployment in these years. Other than the fact that unemployment rate is not equal to the rate of unemployment among heads of households, the “not employed” category includes not only the household of the unemployed persons but also those of absentee owners and retirees. With the widespread forced retirement of civil servants and managers of nationalized enterprises, the ratio of retirees in the “not employed” category must have increased.

78 The tables showing the distribution of households with different occupational or educational characteristics within each expenditure group will be supplied to the interested readers by the author.

79 Studies of the International Labor Office also show a high degree of correlation between income and the level of education. Lecaillon, Income Distribution, pp. 86–90.