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Oil, Economic Diversification and the Democratic Process in Iran

Published online by Cambridge University Press:  01 January 2022

Massoud Karshenas  and
Hassan Hakimian
Massoud Karshenas
Affiliation:
SOAS, University of London and at the Institute of Social Studies, The Hague, Netherlands
Hassan Hakimian
Affiliation:
Cass Business School, City University, London
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Extract

Since 1979, Iran has witnessed important socio-economic and institutional changes and has been affected by significant economic and political upheavals. These years have witnessed a succession of oil booms and busts, external war, trade sanctions and of course, more recently, heightened internal strife within the state. After 25 years, however, Iran's political outlook seems opaque to most observers and the economic record is equally lacklustre with many Iranians experiencing a considerable retrogression in their living standards by regional and international standards.

Type
Articles
Information
Iranian Studies , Volume 38 , Issue 1: Special Issue: Iran Facing the New Century , March 2005 , pp. 67 - 90
Copyright
Copyright © Association For Iranian Studies, Inc 2005

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References

1 For a discussion and analysis of Iran's economy in this period, see: Hakimian, H. and Karshenas, M., “Dilemmas and Prospects for Economic Reform and Reconstruction in Iran” in Alizadeh, Parvin (ed.), Iran's Economy: Dilemmas of an Islamic State (London, 2000)Google Scholar; M.H. Pesaran “Economic Trends and Macroeconomic Policies in Post-revolutionary Iran” in Alizadeh Iran's Economy; Behdad, S., “The Post-Revolutionary Economic Crisis” in Rahnema, S. and Behdad, S. (eds.), Iran after the Revolution: Crisis of an Islamic State (London, 1996)Google Scholar; H. Hakimian, “Institutional Change and Macroeconomic Performance in Iran Two Decades after the Revolution (1979–1999)”, (ERF, Cairo, 1999), Working Paper, No 9909; Karshenas, M., “Structural Adjustment and the Iranian Economy”, in Shafik, Nemat (ed.), Economic Challenges facing Middle East and North African Countries (London, 1997)Google Scholar; and Esfahani, H. Salehi, “Political Economy of Growth in Iran, 1963–2002”, mimeo, University of Illinois, Urbana, 2002Google Scholar.

2 See Alizadeh, P., “Iran's Quandary: Economic Reforms and the ‘Structural Trap’”, The Brown Journal of World Affairs, ix (2003)Google Scholar.

3 See, for instance: Hakimian and Karshenas, “Dilemmas and Prospects”.

4 For example during the 1980–2001 period investment ratio in Iran was on average 24.1 percent while in Turkey the average for the same period was 21.8 percent.

5 The recent increase in the share of manufacturing exports from Iran is mainly due to petrochemicals which benefit from subsidized energy and oil input. The growth of the Iranian economy is still geared to the growth of volatile oil revenues, as we shall see below.

6 See Hakimian and Karshenas, “Dilemmas and Prospects”.

7 Based on Bank Markazi data (Tehran, Iran).

8 Bank Markazi data (Tehran, Iran).

9 On Iran's population, see H. Hakimian, “From Demographic Transition to Population Boom and Bust: The Experience of Iran in the 1980s and 1990s”, (ERF, Cairo), Working Paper, No 0109.

10 World Bank, “Iran: Medium Term Framework for Transition – Converting Oil Wealth to Development”, Report No. 25848-IRN, A Country Economic Memorandum, Social and Economic Development Group, (Washington, April 30, 2003).

11 All figures based on data provided by UNCTAD (Geneva).

12 See also H. Hakimian, “Institutional Change and Macroeconomic Performance in Iran”.

13 See P. Alizadeh, “Iran's Quandary: Economic Reforms and the ‘Structural Trap’”.

14 See further, Ali A. Saeidi, “The Accountability of Para-governmental Organizations (bonyads)”: The Case of Iranian Foundations, Iranian Studies, 37, 3, September 2004.

15 See, International Monetary Fund, “Islamic Republic of Iran: Staff Report for the 2003 Article IV Consultations”, IMF 2003.

16 Bank Markazi Iran, Economic Trends.

17 See P. Alizadeh, “Iran's Quandary: Economic Reforms and the ‘Structural Trap’”.

18 Increased confidence in the Iranian economy recently led to a successful Eurobond offering, Iran's first since 1979, in which EUR 300 million worth of sovereign government debt was subscribed by regional and European investors (MEED Quarterly Review, 3 September 2002). Meanwhile, the Tehran Stock Exchange (TSE) rose by 30 percent in 2003 and was one of 2002's best performing stock markets in the world (BBC, 14 November 2002).

19 Similar measures are employed by some industrialized countries, e.g., the United Kingdom, where short-term subsidies are provided to the private firms for employment and training of the youth. But the systematic use of such measures in an oil economy such as Iran is unsustainable and counterproductive.

20 See, Iran, Medium Term Framework for Transition: Converting Oil Wealth to Economic Development, The World Bank, 2003. For a discussion of various government subsidies and their impact see, Karshenas, M. and Pesaran, M.H., “Economic Reform and the Reconstruction of the Iranian Economy”, The Middle East Journal, 49, 1995Google Scholar.

21 The case where the distributed shares across the population are not marketable, is a special case of the second proposal which is discussed below.

22 See, e.g., R.D. Rotunda, “Iraq, Oil, and Democracy”, Cato Institute, April 2004, http://www.cato.org/dailys/04-23-04.html.

23 See, e.g., T.I. Palley, “Combating the Natural Resource “Curse” with Citizen Revenue Distribution Funds: Oil and the Case of Iraq”, Foreign Policy in Focus, December 2003, http://www.fpif.org/papers/ordf2003.html.

24 See, e.g., R.D. Rotunda, “Iraq, Oil, and Democracy”.

25 See e.g., Ariel Cohen, “Oil Privatization key for Iraq”, United Press International, 06/17/2003, web address: http://www.upi.com/view.cfm?StoryID = 20030617-115909-7172r.

26 See, H. Bagherzadeh, “Tarhe Democratizeh Kardan e Sanat Naft dar Iran/Proposal for Democratization of oil Industry in Iran”, Iran-e Emruz, March 2002 http://www.iran-emrooz.de/archiv/bagerzadeh/1380/bagerz801229.html

27 Standing, G., “Oil and Iraq”, Letter to the editor, The Financial Times, (26 June 2003): 18Google Scholar.

28 In the popular media, this proposal is often confused with the operation of the Alaskan Fund. In Alaska because of the extremely low absorptive capacity of the local economy oil surpluses have been invested by the government in a diversified foreign investment fund. The accumulation of these funds and the relatively high flow of dividends from the investments has led the government to distribute the dividends amongst the population, which has the added benefit of attracting people to reside in that harsh and remote part of the world. This Alaskan practice is not different from the current practice in Iran or other oil exporting economies, where the government invests oil revenues on behalf of the people. The main difference is that because of the high absorptive capacity of the Iranian economy, much of the oil rent is invested in the domestic economy. On the contrary, the oil to the people proposal being discussed here is aimed at removing the government from being in charge of investing the oil rents.