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Political Economy of Growth and Destruction: A Statistical Interpretation of the Iranian Case

Published online by Cambridge University Press:  01 January 2022

Manoucher Parvin  and
Amir N. Zamani
Manoucher Parvin
Affiliation:
University of Akron
Amir N. Zamani
Affiliation:
Department of Economics, Columbia University
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Extract

The completion of this article preceded the triumph of the Revolution in Iran. During the previous regime, critical studies on the subject of political economy of Iran, either went unpublished or were sufficiently diluted to cause no alarm and thus no harm. We write from personal experience and from knowledge of the experiences of other colleagues.

This study is not free from the effects of such constrictions since most available official data generated in Iran during the past regime were tampered with somewhat to satisfy political interests and concerns. The data at hand fail to reflect what we think of as the “economics of growth and destruction.” By using available data, reaching for alternative sources when possible, and pointing out the observed inconsistencies, we have uncovered a bleak picture, despite the distortions by authorities who, unwilling to reform the condition of life in Iran, kept reforming the data.

Type
Articles
Information
Iranian Studies , Volume 12 , Issue 1-2 , Spring Winter 1979 , pp. 43 - 78
Copyright
Copyright © Association For Iranian Studies, Inc 1979

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References

Notes

1. The following formula gives the correspondence of Iranian and Gregorian calendars: G=I+621; thus 1338-1355 corresponds to 1959-1976.

2. See, for example, Ashraf, A. “Historical Obstacles to the Development of a Bourgeoisie in Iran,” Iranian Studies, Vol. II, Nos. 2-3 (Spring-Summer 1969)Google Scholar; M. A. Katouzian, “Land Reform in Iran: A Study in the Political Economy of Social Engineering,” Journal of Peasant Studies (January 1974); M. A. Katouzian, “Oil versus Agriculture: A Case Study of Dual Resource Depletion in Iran,” ibid. (April 1978); and L. Rey, “Persia in Perspective,” New Left Review (1963). Katouzian's (74) article gives a Wittfogelian interpretation of Iran's recent history.

3. The official price index was generally computed using the officially prescribed prices. As such they systematically underestimated the inflation rate; however, in the absence of any other source, we were forced to rely on the official price index.

4. The rate of population growth of the urban center during this period was much higher than that of rural areas, suggesting that there had been a large shift of resources from rural to urban sector.

5. We have used consumption-expenditures figures instead of incomes. They are clearly different, the difference being savings. However, inclusion of savings will not alter our results.

6. Oshima, H. T. Employment and Income Policies for Iran (Geneva: I.L.O., 1973).Google Scholar

7. As we mentioned before, all variables are expressed in. 1338 (1959) prices. Thus, the decline points to a real decrease in the economic well-being of this segment of the rural population. Some might argue that the use of C.P.I. as the deflator might not be appropriate. However, in the absence of any comparable data for rural areas, we had to rely on the urban figures. Furthermore, there is no reason to believe that the rate of inflation was lower in rural areas than in major cities and towns. In fact, during most of the period under consideration the rate of inflation in 22 small towns was greater than the comparable rate for nine major cities, which in turn was greater than the inflation rate of Tehran (see for example: B.M.I. 1349, Table 43, p. 145). Note further that had we used the rural private consumption expenditures figures, it could be shown that the lowest 40 percent of the rural population had, on average, a greater per capita private consumption expenditure in 1342 than in 1352. Our results, incidentally, suggest that there can be a positive association between economic growth and absolute impoverishment of some segments of the population.

8. Article I (ii) of Land Reform Law of 9 January 1962 defines peasant (zari˓) as “one who is not the owner of the land but who, possessing one or more of the agricultural inputs, personally or with the help of members of his family, cultivates land belonging to a landowner, to whom he gives a portion of the crop in cash or in kind.”

9. See Katouzian (1974), op. cit.

10. When a farm corporation is formed, the participating peasants exchange their permanent farming rights for shares in the corporation. Farmers then are supposed to be employed by the corporation as wage laborers and are entitled to receive, as shareholders, a share of the corporation's profit.

11. Lambton, A. K. S. The Persian Land Reform (Oxford: Oxford University Press, 1969), p. 359.Google Scholar

12. A recent I.L.O. study suggests that farm corporations and agri-business companies employ only between 40 and 50 percent of the economically active population of the areas they cover. It further suggests that in 1973, under prevailing techniques of cultivation, the same agricultural output could be produced by 2.6 million workers, thus suggesting that about 1 million workers in agriculture may be potentially wholly unemployed. See Hirsch, E. Employment and Income Policies for Iran (Geneva: I.L.O., 1973), pp. 24-29Google Scholar (hereinafter E.I.P.I.).

13. The production cooperatives were another attempt by the government to consolidate small peasant holdings into large units. The farmers who joined production cooperatives, as opposed to farm corporations, retained full ownership of their land.

14. Notice that the just mentioned figure shows the number of Khoshneshins in 1974. Thus, compared to the pre-Land-Reform figure of 1 million, it suggests that about 200,000 landless peasants were forced to migrate to the cities.

15. In 1968, the IBRD made the financing of the Dez Dam Project conditional upon allocation of more than 100,000 hectares of the land irrigated by the dam for creation of large agricultural units, each covering at least 5000 hectares. Between 1968 and 1973 four such units with participation of Iranian and foreign investors were established. They received 30-year leases on land with low interest (2 percent, long-term loans) while the official rate of inflation during the same period was about 11 percent per year.

16. In 1355 the capital per households in farm corporations was about twenty times the comparable ratio in cooperative societies. It seems that some of the figures cited in Table 5 of Katouzian's recent (1977) article are erroneous. His conclusions, however, are valid.

17. Mostly cotton, sugar beet, fodder, fruits and nuts.

18. Business International, Operating in Iran, pp. 340; notice that these figures are for 1356 (1977). See, also Katouzian who has mentioned a study of the comparative performance of the agri-businesses, farm corporations and small-scale peasant farming, according to which peasant farming has had a better performance than farm corporations (and farm corporations, in turn, better than the agri-businesses), not only in land productivity, but also in labor productivity and in total productivity. See Katouzian (1977), p. 361.

19. Historically, the export potentials of the home-produced goods for various reasons (such as smallness of the home market, which results in higher unit costs) have been quite slim. Thus, traditional goods have been almost invariably relied upon for earning the needed foreign exchanges. The exchange constraints at the same time have forced the operating firms to rely more on domestic sources of the capital and intermediate goods.

20. Does not include oil sector. Notice that unless otherwise indicated, all references are to urban manufacturing establishments. Data on the rural establishments are sketchy; all we know is that the size of these establishments is quite small (one or two persons per establishment) and that they are mostly engaged in production of handicrafts.

21. Establishments employing ten or more workers.

22. A recent study suggests that even a not-so-radical redistribution of income will result in the following increases in the value-added of various sectors of the economy: agriculture 25 percent, food 39 percent, wearing apparel 10 percent, trade 16 percent. As a result, employment will be increased by 10 percent. This alternative distribution of income postulates that the share of the lowest 60 percent of the population will be 37 percent and that of the last decile, 18 percent of total income. See: Skolka, J. and Garzuel, M. Changes in Income Distribution, Employment and Structure of the Economy: A Case Study of Iran (Geneva: I.L.O., 1976).Google Scholar

23. The cost to the custom administration has been estimated to be one-quarter of the total custom revenues each year; see E.I.P.I., pp. 89-94.

24. Pyatt, G. “Methodology for Macro-Economic Projection” (Geneva: I.L.O., 1973).Google Scholar

25. The 1357 (1978) budget of the government of Iran listed 157 state-owned companies, among which 47 ran at a loss. The highest losses were reported by the National Steel Corp., Tabriz Machine Tool Plant, and Arak Machine Tool Plant. See Business International, pp. 23-24.

26. D. Kochav, Financing the Development of Small-Scale Industries, I.B.R.D., 1974, p. 52, Table I.

27. Foreign investments constituted a negligible part of the capital formation in these sectors. For example, it comprised .6 of one percent of the investment in food processing sector, whereas the comparable ratios for some other sectors were as follows: 19.9 percent in tire and rubber, 16.6 percent in home appliances, 16.5 percent in petro-chemicals. All figures are for the 1346-1352 (1967-1973) period.

28. In 1351 (1972) out of 5,651 large manufacturing establishments, 1,114 (about 20.2 percent) were engaged in the food-processing sector, and 1,732 units (i.e., 30.6 percent) in textile and apparel sector. Furthermore, in the same year, firms with foreign partners accounted for 40 percent of the firms employing 100 persons or more. Notice that if we take into account the fact that most of the large-scale manufacturing units are in the food-processing and textile sectors (in 1345, 55.5 percent of the units employing 100 or more were engaged in the food processing and textile sectors), one could assume that the majority of the non-food, non-textile units with more than 100 employees were subsidiaries of the foreign firms.

29. Aside from traditional exports which on average accounted for about 75 percent of total exports, the bulk of non-traditional exports came from the foodprocessing and textile sectors which, as we mentioned, were the least attractive sectors to the foreign investors.

30. Daftari, F. Multinational Enterprises and Employment in Iran (Geneva: I.L.O., 1976).Google Scholar

31. Daftari, op. cit., Table B-2.

32. Ibid., pp. 74-77.

33. Ibid., p. 75, Table 111-24.

34. As we mentioned before, the impact of foreign firms on the Iranian economy and the structure and growth performance of the modern manufacturing sector are two interrelated issues. Thus, most of the conclusions that we derived earlier about the modern manufacturing sector are relevant and applicable to the present subject.

35. In 1355 (1976) the maximum effective rate (including commissions and other charges) on two-to-five-year loans was 10 percent, while the rate of inflation, according to B.M.I., was set at 16.6 percent. For more details on the Banking System of Iran, see Business International, Operating in Iran, pp. 128-34. See also E. Hirsch, pp. 89-94.

36. In 1355, the two combined accounted for 92 percent of industrial loans. See B.M.I. (1355), pp. 63-67.

37. Daftari, op. cit., p. 116.