Iranian Economy Development - Essay Example

Iran: A Comparative Country Profile of Development, Urbanization and Housing INTRODUCTION The performance of the Iranian economy in the earlytwenty-first century has witnessed a marked deterioration, in absolute terms as well as relative to other countries in the region. The growth of the economy has slackened drastically (Ramin, 2004). The economy, with a rapidly expanding population, has experienced a marked decline in investment, low labor productivity, a widening trade gap, a fast accumulation of debt and, above all, a sharp decline in the standard of living. What are the determinants of economic performance There is broad agreement among economists that macroeconomics stability - characterized by moderate and predictable inflation, a small budget deficit, and the relative stability of the real exchange rate - is essential for long-term economic growth (Sciolino, 2005). Several empirical studies suggests that stable prices, a sensible exchange rate that does not discourage exports and good fiscal and monetary disciplines are necessary, though not sufficient, conditions for a sustainable improvement in living standards. Viewed from this perspective the deterioration of in the performance of the Iranian economy since 1980 can be largely explained by the macroeconomic stability that has characterized this post revolutionary period (Sciolino, 2005). The theme of this proposal is centered on the role of the state in the process of economic and social development in the post revolutionary period. The emphasis, however, is on economic performance. BACKGROUND 1. The Expanded Role of the State since the Revolution and Economic Performance The active role of the Iranian State in the economic sphere has historical and structural foundations. The centrality of the Iranian State in determining the reproduction of the economic system has its roots in the medieval economy of Iran. The centralized and bureaucratic aspects of the medieval state, and the lack of a stable landed aristocracy, arguably differentiate Iran from medieval Europe (Sohrab, 1996). Regardless of the socio-economic environment that fostered the historical specificity of the Iranian state there is general consensus amongst close observers of the Iranian economy about the 'decisive' historical role of the state. Furthermore, a distinctive feature of the current Iranian state is that sizeable oil revenue accrues to the government because of its monopoly right over oil. The rentier nature of the state provides it with economic power and financial independence, although the state plays a central role in distributing this wealth to the population through direct subsidies and the creation of economic activities. 2. Iran's Economy in a Comparative Context There has been a remarkable deterioration in the growth performance of the Iranian economy since the late 1980s, both relative to its past performance and compared to international standards. This is reflected in the below table, which shows comparative per capita GDP trends for Iran and United States. Though the comparison does show a major difference, it is to be noted that here we have compared a lower middle income economy to a higher economy. Table: Comparative Figures of Iran and US Economy for the years 2003 - 2005 Source: World Bank Data Banks. 3. Economic Policy and Industrial Structure The rapid growth of the Iranian economy during the two decades preceding the 1979 Revolution took place in the context of an import substitution industrialization strategy. The paradoxical result of this strategy was to make the economy increasingly dependent on oil export revenues in order to finance the intermediate and capital goods imports needed by Iran's heavily protected industrial sector (Halliday, 1979). In the immediate aftermath of the revolution a considerable portion of large-scale modern industry, and the entire banking and insurance systems were nationalized. However, these nationalizations were later forced on the government as in many cases the owners and managers of factories had left the country and some enterprises were on the verge of collapse. The expanded government role in the post-revolutionary period was thus not solely or even primarily through a shift of balance from private to public ownership (Charles, 2004). It was manifested in direct interventions in the operation of markets - foreign exchange controls, maintenance of a system of multiple exchange rates, control on interest rates and bank credits - as well as direct price control in a large number of product markets. 3.1: Industrial structure and performance Up to the mid-1960s, Iran, Korea and Turkey followed similar import substitution industrialization policies. By the early 1960s, however, Korea started to combine this strategy with the promotion of manufacturing exports, which was soon to become one of its main engines of growth in the post-war period (Amuzegar, 1977 and Charles, 2004). Although an understanding of Korea's industrial strategy and its outward orientation is the key to an explanation of its superior growth performance in recent grades, fundamental differences in its initial conditions should not be overlooked. Table: Selected economic indicators for Iran, Korea and Turkey, 1965 - 95. Notes: * Labor productivity and yield are in wheat-equivalent units in kg per person and per hectare respectively. Sources: FAO, UNIDO, World Bank Data Banks, Amuzegar, 1977. DEVELOPMENT STATUS There are several ways to classify the development status of the world's economies. One common classification divides the world's 208 economies by per capita income, identifying the low-income, middle-income and high-income countries. A similar classification distinguishes advanced countries from developing and transition countries. The vast majority of the world's population lives in low-income or middle-income developing countries. The World Bank classification identifies four categories of countries: low-income, upper-middle-income and high income countries. The low- income and middle-income countries are generally called developing countries or developing economies. Iran dropped from upper-middle income to lower-middle income status after the oil output disruptions during the 1979 Iranian revolution and the 1980- 1988 Iran-Iraq war (Sciolino, 2005). The World bank emphasizes that the term developing economies is a term of convenience and "it is not intended to imply that all economies in the group are experiencing similar development or those other economies have reached a preferred or final stage of development. Classification by income does not necessarily reflect development status". However, GNI (Gross National Income) - device used for measuring the economic value - has its own shortcomings. The concept of GNI is central to the calculations and per-capita GNI serves as a very rough indicator of how all the country's citizens are faring. It is only crude and indirect measure of personal affluence since it reflects an entire economy rather than individual citizen's purchasing power (Samih, 1992). GENERAL FEATURES Iran, formerly known as Persia, is the eighteenth largest country in the world. It is located in the geographical territories of the Middle East, Central Asia and the Caucasus. Its surface area is approximately one-fifth of the size of the United States, constituting a population of 70 million people. Some 16 percent of the total land surface of the country is mountainous and rough with an elevation of more than 2000m above mean sea-level. About 53 percent of the country has an elevation of 1000 to 2000m (Sciolino, 2005). High mountains extend along the western and northern margins of the Central Plateau, leaving the remaining part a broad upland with an average altitude of 1500m (Sciolino, 2005).Thus the two features of Iran's geography - mountains and aridity - have influenced its development. As salinisation of land and water is an increasing problem in arid and semi-arid regions, this effects the irrigation. Latitude is the decisive factor with respect to climate: heat received directly from the sun increases as latitude decreases, and vice versa. The southernmost portion of Iranian territory is only just north of Tropic of Cancer while Iran extends northwards to the 40th parallel (Mark & Andrew, 2004). The great contrasts alluded to above are in large part due to this latitudinal amplitude. Thus the climate of Iran is one of great extremes due to its geographic location and varied topography. The climatic influence makes Iran a more dunes prone area. ECONOMY There are various internal and external reasons behind the underdevelopment of the Iranian economy. The tremendous power and influence wielded by foreign sources in the politico-economic fields since the beginning of the nineteenth century, and the enhancement of their interests in Iranian economic matters in the twentieth century with the advent of oil, together with the incapability of the shahs to rule the country, resulted in the change from a relatively strong traditional economy to an oil-dependent economy. Increasing dependency on oil-revenues, while facilitating the starting of industrialization through capital-intensive techniques did not, however, bring long term economic growth to Iran (Amuzegar, 1977). Instead, the oil-based economy created an anti-development attitude which sought maximum returns from easy earning activities, and resulted in a lowering of attitudes towards innovation (Charles, 2004). Apart from the impact of external factors on the underdevelopment of the Iranian economy, the key reason as to why the countries economy has not developed has been the omission, in almost all development plans and policies, to meaningfully develop the ability of the people. It has been forgotten that people are the centre of development, and that without orienting all minds, behaviors and attitudes towards an evolutionary, long-term process of development, successful development becomes impossible. The main reason is the low capability of the workforce. It is because of this that a country such as Iran, despite having 50 years of development planning experience, has yet to witness any meaningful long-term economic development (Samih,1992). POPULATION, HEALTH & EDUCATION It is now fashionable in the population-economic growth literature to indicate that this final stage of the demographic transition provides a window of development opportunities. The window opens to positive development as a result of enhanced saving potential, reduced demographic dependency, a reorientation of investment toward capital widening and the potential for enhancing labor quality, through investment in the quality of education and in health. It must be emphasized that an opportunity opens at the last stage of the demographic transition, when fertility starts its secular decline converging towards low mortality and population growth-decline, while the working-age population continues to grow at high rates. The older term - labor replacement (Halliday, 1979) - implies that the average quality of the labor force will increase at a fast pace through better health and education. An integrated population-development policy should identify and minimize the effects of the negative forces and enhance the positive ones that maximize the development prospects associated with the presence of the 'window of opportunity'. At this stage of development in Iran, these forces are only partly demographic and mainly socio-economic and political. They may be grouped into demand -side factors, supply - side factors and the factors that enhance and sustain social welfare. The most obvious factor on the in Iran is human resource development (HRD). The demand side includes the factors necessary for the productive utilization of the human resources, the promotion of economic growth and the minimization of unemployment and poverty (Charles, 2004). Education: Iranian government has been taking measures to develop the human-resource capabilities by enhancing the skills and talents of its people by providing them required benefits and later putting their skills and talent to optimized use. A comprehensive program was considered, fifteen years ago, to develop the human-resource capabilities. This resulted in increased enrollment ratios, extended educational opportunities to the poorest regions of the country, reduction of gender gaps in all levels of education. Consequently, Iran is well aimed to achieve the target with regard to the elimination of gender disparities. Also, the youth literacy rates had increasing from 86 percent to 94 percent in the recent years (World Bank, data source). Health: There has been a remarkable progress in the health outcomes in the past twenty years. This is relevant from the statistics which shows that many states have exceeded regional averages. A major contribution in this goes to the Iranian government's strong commitment to and effective delivery of primary health acre to all the citizens. Iran's "Master Health Plan", adopted in the 1980s for the period of 1983-2000 accorded priority to basic curative and preventive services as opposed to sophisticated hospital based tertiary care, and focused strictly on the population groups at highest risk, particularly in deprived areas (Data source: World Bank). Moreover, as a result of the prioritization and effective delivery of quality primary health care, health outcomes in rural areas are almost equal to those in urban areas, with outcomes in terms of infant and maternal mortality nearly identical between urban and rural areas (World Bank). Social Protection: In the recent years, a large number of programs have been undertaken to provide protection in all forms to the citizens. These programs aim in providing all types of social needs to the individuals. It includes housing benefits, employment benefits, basic necessities (such as food, clothing), rehabilitation and other social services and so on. Social protection has proved to be major challenge for the Iran government and they are working tremendously in overcoming all the obstacles. URBANIZATION, HOUSING & INFRASTRUCTURE Narrowly defined urbanization is when the proportion of people living in towns increases in relation to rural areas. This usually involves the movement of people living in the countryside to the city. Urbanization does not simply refer to an increase in the number of people living in the city; it is a change in the proportion of people living in cities compared to those residing in the countryside. Urbanization takes on a wider meaning when the term is used to refer to a stage in the social development of advanced industrial societies (Ramin, 2004). The growth of an economy is to a certain extent also depends on the urbanization rate as it is a key indicator of globalization, serves increasingly to predict other trends studied at global scale, like poverty, energy consumption, environment or resources. It is derived from the Iran - government statistics that the urban population in Iran doubled within eighty years, rising from 28 percent in 1921 to 61.3 percent in 1996. The growth in the urbanization rate had its own side effects. The flow of large population to the cities had resulted in housing problems, however, this problem was overcome to a large extent by the government once they started providing credits for private sector development. CONCLUSION Objective criteria such as degree of urbanization, rate of literacy and higher education and the like suggest that Iran has reached the threshold. A supply of rich natural endowments and many decades of oil revenue have resulted in a decent infrastructure and fixed capital. An educated and skilled labor force, a large domestic market and favorable geographic location have provided all major prerequisites for "convergence" and the rise to a high-tech economy. Neither material nor human resources constitute the main bottleneck of the Iranian economy. Iran's challenge is not to downgrade and erode institutions of civil society such as labor unions; it is rather to build them. Iran's economy has reached a level where among primary requirements for its further growth is provision of those regulatory public goods that necessitate state's accountability to the public. Appendix: Source: World Data Bank REFERENCES Behdad, Sohrab. 1996. Iran After the Revolution: crisis of an Islamic state. I.B.Tauris Publishers Cook Gail & Johnson, 1980. High Level Manpower in Iran: From Hidden Conflict to Crisis. Praeger Publishers Elliott Mark & Burke Andrew, 2004. Iran. Lonely Planet Publishers Elaine Sciolino, 2005. Persian Mirrors: The Elusive Face of Iran. Amazon Publishers Farsoun Samih, 1992. Iran: Political Culture in the Islamic Republic. Routledge. Fred, Halliday. 1979. Iran: dictatorship and development. Penguin Group (USA) Incorporated Jahangir Amuzegar, 1977. Iran - An Economic Profile. Middle East Inst Publishers. Jahanbegloo Ramin, 2004. Iran: between tradition and modernity. Lexington Books. Kurzman, Charles. 2004. The Unthinkable Revolution in Iran. Harvard University Press www.worldbank.data.com. Read More