Iran"s Economy Throughout History: An Attempt to Forecast the Future
Throughout history, the Iranian culture required merchants to interact with customers personally and in person.
After the Ghajar dynasty, the mercantilist culture which Iran was a participant of was replaced by the world's most recent sophisticated economic system known.
The efforts of Pahlavi kings gave birth to a new modernized Iranian economy in which capitalism was deeply encrypted to the Iranian cultural roots.
Adaptation to the capitalistic system allowed Iran to experience many economical benefits; however, there also existed many disadvantages to adopting a new system.
Some of such shortcomings were mostly due to the fact that Iranian rulers did not have the ability to fully adapt to capitalism for the purposes in which the system was implemented for.
The purpose of this article is to analyze the westernization of Iran, study the endorsement of a new economic system, and to describe at the subsequent outcomes of the process of accepting a new system.
The major historical changes of the contemporary Iranian economy are thought to be the outcomes of Pahlavi efforts, especially through altering the traditional Iranian approaches towards trade.
Pahlavi modernization attempts gave birth to a new modernized Iranian economy which still stands to date.
As a result of establishing a new economic system, mercantilism that Iran used to have was replaced by an Iranianized capitalism.
This hints that the current system is a diversified system in which a mixture of old cultural approaches is combined with the latest economic knowledge of the world available.
Originally Iran used to follow a mercantilist system, in which it defers from the currently existent economic system practiced in Iran.
Capitalism has many positive distinctions in comparison to mercantilism, nominating it as the better system used for the Iranian nation.
For instance the Iranian economic agents within the old system were mostly consisted of sole proprietorship businesses such as small convenience stores.
Capitalism broadened the number of business types available; thus, the emergence of new production forms was observed.
Dependence on corporate lifestyle is now a major component of the Iranian economy.
This allows the country to practice better economic principals such as constant monitoring of share values and stock prices.
The aforementioned supervision allows economists to figure out business cycle fluctuations and trends for upcoming recessions.
Another example hinting to the fact that capitalism is beneficial for Iran is seen via comparing at the capabilities of both systems.
The old system did not have enough potential towards efficient market analysis and characterization.
As an illustration, introduction of sophisticated capital borrowing means could not have been experimented within the old system.
The new modern borrowing tools such as issuance of bonds and stocks have allowed both corporations and the government to maintain steady growth.
This factor of dealing within the stock markets leads the nation towards forecasting future economic trends, bringing about economic and cultural gains.
The surfacing of Iran's stock market is seen as an accomplishment in which buries many benefits for trend analysis, especially for Iranian economists.
It is believed that economic growth increases relative to the rest of the world after a stock exchange opens.
Thus, this indicates that Iran has faced economic expansion and developmental potentials by taking such valuable steps throughout the history.
In addition to the previously mentioned, the markets have also allowed potential foreign investors to invest into the nation.
The flow of money into the country could bear long term benefits as it increases the chances of Iran being able to increase its capital stock; obtain better GDP scores - GDP is a nation's production counts where the quantities must take place within the borders of the country, at a given point in time - and become a well known trade partner across the globe.
Other evidences indicate that increased growth of productivity is the primary way that a stock exchange increases the growth rate of output, rather than an increase in the growth rate of physical capital.
Either way, in theory, Iran benefits from outsider investments at the end.
However, in contrast to all the aforementioned, Iran has not seen much triumph within the last decades.
Direct investment trends of foreigners and buying Iranian assets across the globe is a relatively a recent accomplishment for Iran; thus, fulfillment's are yet to be maximized.
Let us bear in mind that the Iranian markets allowed financial asset trades to be actively operational since 2003.
Earlier accomplishments of the capitalistic system prior to establishment of the Iranian stock market could be seen through the economical shifts in which the government forced into domestic policies.
Examples of such policy changes could be mentioned as administrative allocation of resource changes, trade and exchange restrictions, and distortions in the pricing system including exchange rates, interest rates and domestic energy prices.
Five-year development plans starting in the year 1990 also caused rapid growth of over 7 percent during the first two years of their operations.
However, the principals upon whom success was built soon led to debt accumulation for Iran.
Unfortunately, the Iranian leaders have never been able to remain on top of their budgeting issues ever since the Pahlavi era.
Thus, during the 1990s, long before the current wave of sanctions, the government of Iran found itself unable to service its debt.
The Iranian leader thought of debt rescheduling.
In the year 1995, lack of access to external markets and excessive compression of imports restrained the development and growth of the private sector, which resulted in weak economic performance for the nation.
In addition to the poor market performances, most Iranian projects were financed by monetary expansions and short-term external debts.
Failure to pay off the debts has caused the nation to undergo a rather extraordinary fall.
One approach that the government took towards reducing debt was to reduce the role of public sector in the economy through liberalizing the trade regime.
The goal was to reduce the unemployment rate to 11.
5 percent from 20 by 2004.
Another way to finance the large deficits of the Iranian government had always been usage of monetary expansions.
As history suggests, increasing the supply of money by printing bills increases the inflation rate of a nation over the long run.
This theory is proved to be accurate one more time as inflation rose rapidly in the Islamic Republic of Iran.
Bear in mind that inflation rates have historically been moderately high after the revolution.
Dr.
M.
Bahmani-Oskooee explicitly explains why Iran has been experiencing a severe rate of inflation since the advent of the Iranian revolution in one of his published papers that I have read.
However, on another note, other historian economists date the rise in inflation back to 1978, before the revolution.
The rise in prices hit a record when the twelve-month inflation in terms of the consumer price index (CPI) was in the double digits throughout the 1990s, registering an average of 25 percent from 1990 to 1999.
This would suggest that the cause behind Iran's high rising rates is occasional increases of the nation's money supply.
Upon having a discussion with Dr.
Kieran Furlong, we both agreed that significant increases in the Iranian money growth rate over the past decades have been very problematic for the country.
In a search to fund the nation's borrowings, the central bank of Iran has issued money occasionally; such that in 1992, new 20'000, 50'000 and 100'000 Rial bills were introduced.
Nowadays 500'000, 1'000'000, 2'000'000 and 5'000'000 cash cheques are circulating freely and are treated as cash by the Iranian citizens.
This pattern in money growth has overridden the stability of the currency.
As some may state, Iranian Rial is currently the world's least valued currency unit.
Recently, Rial has lost more than eighty percent of its exchange value within the first ten months of 2012.
Prices have been raised as the result of devaluation of money; thus, inflation has occurred.
The relationship between prices and hyperinflation in Iran works as the followings: over the years, increases in commodity prices has left citizens unsatisfied and frustrated as they are at times no longer able to purchase their daily necessities.
As a result, wages must have been increased by a certain percentage annually in order to compensate the working class.
Such annual salary boosts would usually present firms with future profit maximizing opportunities.
Thus, they force inflated prices on the consumers once more.
Price increases once again affect the inflation rates.
In such scenarios, government budgets would once again end up lacking.
Deficits are due to the fact that resource gathering by the government is insolvent; thus, the government needs to borrow money or increase the money supply.
As this loop continues to repeat itself, the nation heads towards an economic break down or any other possible severe recessionary outcomes.
These economic loss assumptions have been mostly seen during the recent past two presidency elections of Iran.
However, the readers must account for possibility of error towards economic analysis as well; for example, despite sustained high growth of money supply within the post revolutionary era, the period 2000 - 2001 witnessed a significant decline in inflation, to an average of about 12 percent which was mostly due to various implementations of market-oriented reforms.
In early 2000s, the Iranian government began instituting a number of market-oriented reforms, including exchange rate unification, trade reforms, ratification of the law on foreign investment, tax reforms, and the licensing on three private banks.
In the most recent years, Iran has also applied for membership in the World Trade Organization (WTO).
This step was aimed at rectifying distortion and structural imbalances which had prevailed since the Islamic revolution of 1979.
It marked the first concerted effort by Tehran to shift from autarkic and isolationist economic policies of the post-revolution period to growth-oriented approaches.
However, these policies are still under surveillance; mostly due to the fact that Iran is not able to join WTO unless the nation counters its own laws against high tariffs, allowing free trade deals to happen.
In conclusion, Iran's economic reforms such as approval and adaptation of capitalism have allowed the nation to overcome some of its economical obstacles faced in the past.
However, many limitations to capitalism are enforced and caused by cultural barriers, such that Iranians prefer to own their personal businesses and workplaces for themselves, and are not accepting to consider any other means of investments.
Other blockages such as not accounting for the consequences of government actions is also letting the nation face huge problems.
Recent sanctions put on Iran has once more increased inflation as the central bank is printing more money in order to break-even the government deficits.
On the other hand, some economists believe that sanctions may have unintended consequences of helping Iran, by restricting Rial.
This is due to the fact that all hyperinflations will come to an end if authorities are not capable of printing money fast enough to outpace the currency's falling value.
In such a case, the economic system collapses and the country must use a new currency.
This process will balance out the inflation as the cycle of high prices will end.
Wrapping up all possibilities, Iran should either practice capitalism at its pure form, in order to enrich the outcomes, or should get prepared for the liabilities ought to be faced.
At this period in time the collapse of Iranian economical regime is within sight.
After the Ghajar dynasty, the mercantilist culture which Iran was a participant of was replaced by the world's most recent sophisticated economic system known.
The efforts of Pahlavi kings gave birth to a new modernized Iranian economy in which capitalism was deeply encrypted to the Iranian cultural roots.
Adaptation to the capitalistic system allowed Iran to experience many economical benefits; however, there also existed many disadvantages to adopting a new system.
Some of such shortcomings were mostly due to the fact that Iranian rulers did not have the ability to fully adapt to capitalism for the purposes in which the system was implemented for.
The purpose of this article is to analyze the westernization of Iran, study the endorsement of a new economic system, and to describe at the subsequent outcomes of the process of accepting a new system.
The major historical changes of the contemporary Iranian economy are thought to be the outcomes of Pahlavi efforts, especially through altering the traditional Iranian approaches towards trade.
Pahlavi modernization attempts gave birth to a new modernized Iranian economy which still stands to date.
As a result of establishing a new economic system, mercantilism that Iran used to have was replaced by an Iranianized capitalism.
This hints that the current system is a diversified system in which a mixture of old cultural approaches is combined with the latest economic knowledge of the world available.
Originally Iran used to follow a mercantilist system, in which it defers from the currently existent economic system practiced in Iran.
Capitalism has many positive distinctions in comparison to mercantilism, nominating it as the better system used for the Iranian nation.
For instance the Iranian economic agents within the old system were mostly consisted of sole proprietorship businesses such as small convenience stores.
Capitalism broadened the number of business types available; thus, the emergence of new production forms was observed.
Dependence on corporate lifestyle is now a major component of the Iranian economy.
This allows the country to practice better economic principals such as constant monitoring of share values and stock prices.
The aforementioned supervision allows economists to figure out business cycle fluctuations and trends for upcoming recessions.
Another example hinting to the fact that capitalism is beneficial for Iran is seen via comparing at the capabilities of both systems.
The old system did not have enough potential towards efficient market analysis and characterization.
As an illustration, introduction of sophisticated capital borrowing means could not have been experimented within the old system.
The new modern borrowing tools such as issuance of bonds and stocks have allowed both corporations and the government to maintain steady growth.
This factor of dealing within the stock markets leads the nation towards forecasting future economic trends, bringing about economic and cultural gains.
The surfacing of Iran's stock market is seen as an accomplishment in which buries many benefits for trend analysis, especially for Iranian economists.
It is believed that economic growth increases relative to the rest of the world after a stock exchange opens.
Thus, this indicates that Iran has faced economic expansion and developmental potentials by taking such valuable steps throughout the history.
In addition to the previously mentioned, the markets have also allowed potential foreign investors to invest into the nation.
The flow of money into the country could bear long term benefits as it increases the chances of Iran being able to increase its capital stock; obtain better GDP scores - GDP is a nation's production counts where the quantities must take place within the borders of the country, at a given point in time - and become a well known trade partner across the globe.
Other evidences indicate that increased growth of productivity is the primary way that a stock exchange increases the growth rate of output, rather than an increase in the growth rate of physical capital.
Either way, in theory, Iran benefits from outsider investments at the end.
However, in contrast to all the aforementioned, Iran has not seen much triumph within the last decades.
Direct investment trends of foreigners and buying Iranian assets across the globe is a relatively a recent accomplishment for Iran; thus, fulfillment's are yet to be maximized.
Let us bear in mind that the Iranian markets allowed financial asset trades to be actively operational since 2003.
Earlier accomplishments of the capitalistic system prior to establishment of the Iranian stock market could be seen through the economical shifts in which the government forced into domestic policies.
Examples of such policy changes could be mentioned as administrative allocation of resource changes, trade and exchange restrictions, and distortions in the pricing system including exchange rates, interest rates and domestic energy prices.
Five-year development plans starting in the year 1990 also caused rapid growth of over 7 percent during the first two years of their operations.
However, the principals upon whom success was built soon led to debt accumulation for Iran.
Unfortunately, the Iranian leaders have never been able to remain on top of their budgeting issues ever since the Pahlavi era.
Thus, during the 1990s, long before the current wave of sanctions, the government of Iran found itself unable to service its debt.
The Iranian leader thought of debt rescheduling.
In the year 1995, lack of access to external markets and excessive compression of imports restrained the development and growth of the private sector, which resulted in weak economic performance for the nation.
In addition to the poor market performances, most Iranian projects were financed by monetary expansions and short-term external debts.
Failure to pay off the debts has caused the nation to undergo a rather extraordinary fall.
One approach that the government took towards reducing debt was to reduce the role of public sector in the economy through liberalizing the trade regime.
The goal was to reduce the unemployment rate to 11.
5 percent from 20 by 2004.
Another way to finance the large deficits of the Iranian government had always been usage of monetary expansions.
As history suggests, increasing the supply of money by printing bills increases the inflation rate of a nation over the long run.
This theory is proved to be accurate one more time as inflation rose rapidly in the Islamic Republic of Iran.
Bear in mind that inflation rates have historically been moderately high after the revolution.
Dr.
M.
Bahmani-Oskooee explicitly explains why Iran has been experiencing a severe rate of inflation since the advent of the Iranian revolution in one of his published papers that I have read.
However, on another note, other historian economists date the rise in inflation back to 1978, before the revolution.
The rise in prices hit a record when the twelve-month inflation in terms of the consumer price index (CPI) was in the double digits throughout the 1990s, registering an average of 25 percent from 1990 to 1999.
This would suggest that the cause behind Iran's high rising rates is occasional increases of the nation's money supply.
Upon having a discussion with Dr.
Kieran Furlong, we both agreed that significant increases in the Iranian money growth rate over the past decades have been very problematic for the country.
In a search to fund the nation's borrowings, the central bank of Iran has issued money occasionally; such that in 1992, new 20'000, 50'000 and 100'000 Rial bills were introduced.
Nowadays 500'000, 1'000'000, 2'000'000 and 5'000'000 cash cheques are circulating freely and are treated as cash by the Iranian citizens.
This pattern in money growth has overridden the stability of the currency.
As some may state, Iranian Rial is currently the world's least valued currency unit.
Recently, Rial has lost more than eighty percent of its exchange value within the first ten months of 2012.
Prices have been raised as the result of devaluation of money; thus, inflation has occurred.
The relationship between prices and hyperinflation in Iran works as the followings: over the years, increases in commodity prices has left citizens unsatisfied and frustrated as they are at times no longer able to purchase their daily necessities.
As a result, wages must have been increased by a certain percentage annually in order to compensate the working class.
Such annual salary boosts would usually present firms with future profit maximizing opportunities.
Thus, they force inflated prices on the consumers once more.
Price increases once again affect the inflation rates.
In such scenarios, government budgets would once again end up lacking.
Deficits are due to the fact that resource gathering by the government is insolvent; thus, the government needs to borrow money or increase the money supply.
As this loop continues to repeat itself, the nation heads towards an economic break down or any other possible severe recessionary outcomes.
These economic loss assumptions have been mostly seen during the recent past two presidency elections of Iran.
However, the readers must account for possibility of error towards economic analysis as well; for example, despite sustained high growth of money supply within the post revolutionary era, the period 2000 - 2001 witnessed a significant decline in inflation, to an average of about 12 percent which was mostly due to various implementations of market-oriented reforms.
In early 2000s, the Iranian government began instituting a number of market-oriented reforms, including exchange rate unification, trade reforms, ratification of the law on foreign investment, tax reforms, and the licensing on three private banks.
In the most recent years, Iran has also applied for membership in the World Trade Organization (WTO).
This step was aimed at rectifying distortion and structural imbalances which had prevailed since the Islamic revolution of 1979.
It marked the first concerted effort by Tehran to shift from autarkic and isolationist economic policies of the post-revolution period to growth-oriented approaches.
However, these policies are still under surveillance; mostly due to the fact that Iran is not able to join WTO unless the nation counters its own laws against high tariffs, allowing free trade deals to happen.
In conclusion, Iran's economic reforms such as approval and adaptation of capitalism have allowed the nation to overcome some of its economical obstacles faced in the past.
However, many limitations to capitalism are enforced and caused by cultural barriers, such that Iranians prefer to own their personal businesses and workplaces for themselves, and are not accepting to consider any other means of investments.
Other blockages such as not accounting for the consequences of government actions is also letting the nation face huge problems.
Recent sanctions put on Iran has once more increased inflation as the central bank is printing more money in order to break-even the government deficits.
On the other hand, some economists believe that sanctions may have unintended consequences of helping Iran, by restricting Rial.
This is due to the fact that all hyperinflations will come to an end if authorities are not capable of printing money fast enough to outpace the currency's falling value.
In such a case, the economic system collapses and the country must use a new currency.
This process will balance out the inflation as the cycle of high prices will end.
Wrapping up all possibilities, Iran should either practice capitalism at its pure form, in order to enrich the outcomes, or should get prepared for the liabilities ought to be faced.
At this period in time the collapse of Iranian economical regime is within sight.
Source...