Mohammad Reza Pahlavi (Shah or King of Iran) was forced into exile in January 1979 by nationwide citizen protests, worker strikes, failed autocratic rule and fading health. He appointed a new government under Prime Minister Shapour Bakhtiar. This government was toppled within weeks upon arrival from exile in France of Ayatollah Ruhollah Khomeini (Ayatollah) in February 1979 (The Revolution).
The Ayatollah decreed the nation’s name was The Islamic Republic of Iran and governed by Shia Islam’s laws and practices. Ultimate political authority was vested in a learned religious scholar called the Supreme Leader, who—according to the constitution—is accountable only to the Assembly of Experts. Iran became a theocratic government.
The Ayatollah authorized creation of the Islamic Revolutionary Guard Corps (IRGC)—a military force separate from the Iranian military. The IRGC served at the Ayatollah’s behest which included complete ownership or majority control in many businesses from crude oil and natural gas exploration and production, refining, export, petrochemical production, engineering and construction, military hardware, etc. Austrian economists call this economic intervention. As far as the economy of Iran,
The national constitution divides the economy into three sectors: public, which includes major industries, banks, insurance companies, utilities, communications, foreign trade, and mass transportation; cooperative, which includes production and distribution of goods and services; and private, which consists of all activities that supplement the first two sectors….
The government gained a virtual monopoly over income-producing activities by nationalizing private banks and insurance companies and increasing state control of foreign trade….
According to a Forbes article on Iran, “The Iranian government directly owns and operates hundreds of state-owned enterprises and indirectly controls many companies affiliated with the country’s security forces.” The IRGC are the security forces.
One Iran central planning example is the government provides flour subsidies which factors into bread pricing. In the summer of 2023, “Khorasan-e Razavi,. . .the province governor’s office did not agree to raise the prices more than 40 percent.” Further, “Earlier in June the Bakers’ Union had revealed that subsidized flour allocations to some bakeries had dropped by more than half their quota.”
An article entitled “Iran’s 2024 Outlook” states, “Several years of high inflation have eroded purchasing power in Iran, with over 80% of consumers’ spending now allocated to necessities. Consumer confidence will remain extremely low due to years of subsequent price increases and a depreciating currency.” This inflation uncertainty impairs future planning and saving by individuals and families due to decreased purchasing power of the Iranian rial. Reviewing Iran’s economic performance since the 1979 Revolution, another article states,
Using GDP ranking as another metric of economic importance, in 1960, Iran was the world’s 29th largest economy. Turkey ranked 13th and South Korea ranked 33nd. By 1977, Iran had climbed to 18th place, Turkey was 20th, and Korea 28th. In 2017, Iran was 27th, Turkey hovered around 18th, and South Korea had by now become the 13th largest economy in the world.
Iran’s GDP ranking declined since the 1979 Revolution and South Korea and Turkey’s GDP has increased. Iran’s GDP decline could be from IRGC owning and controlling many key companies, all business profits not reinvested into maintaining and operating equipment, some profits skimmed off to fund, supply, and train their terrorist proxy activities, bribes and corruption running each business, etc. Further,
Mirroring GDP trends, Iran’s per capita income has also grown far slower since the revolution. In real terms, the three decades before the revolution saw Iran’s per capita income jump by a factor of 3.2 times; in the four decades since the revolution, it has only doubled. In 1980, Iran’s nominal GDP per capita was higher than its comparators (In 1980: Iran= $2,374; Turkey = $2,169; Korea = $1,711; and Vietnam = $514; In 2018: Iran = $4,838; Turkey = $11,125; Korea = $32,774; and Vietnam = $2,482). In 2017, Turkey and Korea had reached a multiple and Vietnam over half of Iran’s.
Iran’s GDP growth since 1979 is not encouraging.
“. . .massive post-revolutionary nationalization and expropriations essentially removed Iran’s emerging entrepreneurial and industrial class that had risen in the 1960 – 1970s. The expropriated companies were handed over to be managed by trusted and ideological insiders. In its forty years, the Islamic Republic has not been able to foment a genuine and independent entrepreneurial class. Cronyism combined with corruption, vested interest, policy unpredictability, and a cumbersome business environment stymie would-be entrepreneurs.
The missed opportunities described in a February 2019 Atlantic Council report captures some of Iran’s core economic problems. A 2018 Brookings report states,
The unemployment rate for college-educated youth is alarmingly high. For men and women aged 25-29, unemployment rates are 34.6 percent and 45.7 percent, respectively, according to the 2016-17 census….
The largest obstacle to job creation is the stifling of the private sector under the combined weight of an interventionist government bureaucracy and omnipresent foundations and state enterprises. The state domination of the commanding heights of the economy—the oil and gas sectors, large industries, and the banking system—discourage the rise of the private sector. Added to these structural impediments is the fact that the flow of oil income encourages corruption as well as anti-growth populist economic policies.
Iran’s theocratic governments central planning policy choices show a harvest of economic dysfunction similarly seen in Western planned economies in the 20th century. Austrian economists show free market economies are not perfect, but have fewer economic anomalies. When it comes to transparency, “Transparency International ranks Iran 149th out of 180 countries on its Corruption Perception Index, underscoring the extent to which state resources are misallocated.” This is a 2023 rank and, in 2024, it fell to 151 out of 180 countries, because, “Smuggling and mismanagement have also severely impacted critical sectors . . .” Corruption and authoritarianism are a magnetic pair.
Iran has faced many nations economic and trade sanctions since 1980. Sanctions alone do not hinder the Iranian economy. Its main economic problems are IRGC business ownership and control, central planning, economic inefficiencies, high young people unemployment, rampant corruption, price controls, government subsidies, supply quotas, price inflation, etc.
Central planning in Iran’s economy thrives. Many Iranian government officials today place the cause of their nation’s economic demise on Western countries sanctions and not their policy choices. Its theocratic government values its power and control over the thriving of its people and economy.