Dreams and Realities in the Shah's Iran
SALPETER, ELIAHU
BLUEPRINTING THE FUTURE Dreams and Realities in the Shah's Iran BY ELIAHU SALPETER Teheran Of all the petrobillion-aires, Iran-an old oil producer but a newcomer to the superrich-seems the...
...The inflation rate, over 20 per cent last year, is another source of possible trouble...
...12-15 per cent among the bourgeoisie...
...Clogged with ships waiting days to unload, they have a total capacity of 7 million tons...
...3. Accelerated development is necessary to speed the spread of the oil-born bonanza among the local population-especially those potentially explosive sectors with an awareness of the gap between the nation's wealth and their own poverty...
...Economists estimate that $3-4 billion of Iranian money may actually be disbursed by the end of this year, depending on the absorptive capacity of the beneficiary countries...
...Housing...
...With the accelerated pace of development initiated by land reform and other modernization efforts, Iran's class stratification began to change...
...One of Iran's top oil experts, on the other hand, has proposed a most ingenious method for promoting the reinvestment of petrodollars while linking their value to the general price of petroleum...
...Mainly government-owned, these businesses control large numbers of workers...
...And the eight-year free educational scheme alone has created an estimated shortage of 20,000 instructors...
...underscoring laws and Imperial decrees such as those providing eight years of free education, free school lunches, a national health service, etc...
...Iran, for instance, would unquestionably wish to stress investment goods in any oil-price basket...
...The "half-class," a thin layer of bourgeoisie, had grown slowly from among the small merchants, middle-level officials and few university graduates not related to one of the Big Families...
...But while there is Leftist disquiet on the campuses, ostensibly aimed at the uneven pace of industrialization and the lopsided distribution of the oil-wealth, much of the current unrest (seemingly less intense than in the past) is connected with the poor quality of higher education...
...Before the end of 1978, it hopes to have two such devices raised by United States rockets, and in the next Five Year Plan two more are expected to be added...
...At the other end of the spectrum were millions of farmers living, for all practical purposes, in serfdom...
...Motor vehicles...
...Communist power was crushed earlier, with the suppression of the Leftist Mossadegh regime in 1953...
...The Shah apparently believes that modernization is the key to domestic tranquillity, and in fact, despite their inborn skepticism, most Iranians tend to feel their country is advancing and they are part of the advancement...
...Nevertheless, U.S...
...All of these are features that Iran-with a temporary surplus of petrodollars but with oil reserves expected to be depleted much sooner than those of Saudi Arabia and the oil shiekdoms-could find extremely useful as it endeavors to plot its future...
...Neighboring Afghanistan has been promised up to $2 billion, and India, Pakistan and Egypt $1 billion apiece (give or take a hundred million...
...Some want more weight for food, others for certain prime materials...
...Yet even these elaborate plans-not to mention the huge sums for medical services, schools and social welfare-cannot absorb Iran's oil riches...
...It is estimated that of 20,000 Iranians who recently graduated from medical schools outside the country, 10,000 have not returned home...
...They include stressing the strides Iran has made toward modernization...
...This strategy was, in principle, agreed to by the Organization of Petroleum Exporting Countries (opec) at its Algiers meeting in late January...
...From 90,000 units to 500,000...
...The basic modernization blueprint is the Five Year Plan, originally budgeted at $34 billion for the period 1973-78...
...Yet some occupations cannot be bought abroad: Foreign firms can, for example, merely build classrooms, they cannot supply Iranian-speaking teachers...
...Instead of "centers of power" that can contest the strength of the central authority, it is more accurate to speak of "sources of influence" that either lack major political ambitions or balance each other out...
...As for protecting the value of accumulated oil wealth against Western inflation, an issue closely related to the problem of "recycling," the Arabs are looking for schemes that would enable them to have their cake and eat it: to make profits without taking risks...
...and allocating a growing portion of the oil revenues for subsidies to hold back the prices of food staples and other popular consumer items...
...This single undertaking is expected to cost $15-20 billion...
...One of the worst bottlenecks in the attempt to achieve these objectives is the communications and transportation system...
...From 85,000 apartments to 300,000...
...Potentially most significant is the shift in the position of some 80 per cent of the rural population, the people who had ceased being serfs and become independent farmers...
...still others are interested in a preponderance of manufactured goods...
...The day, therefore, when the country ceases to accumulate dollars and starts to live off its reserves (due, say some Iranians, within two years) is hardly imminent...
...This feeling has not yet translated itself into political awareness in the Western sense, but the government has begun taking precautions...
...Iran wants to prove that it needs the oil funds for the import of goods and services and, thus, is not simply playing havoc with the Western economies...
...Now the figure has been upped, and by the end of this decade Iran should be manufacturing 12-15 million tons...
...Since barely $20 billion has been spent in the two years that have already passed, this means that in the remaining three years Iran will be buying consumer and investment goods, technical know-how and services of every kind at an annual rate of $20 billion...
...But whereas all the producers accept the idea of pegging oil prices, each would like a different commodity basket, one reflecting its particular import situation...
...Britain has received $1.2 billion in bank loans and France was prepaid $1 billion for industrial orders placed...
...the middle-middle class of businessmen, higher ranking officials, doctors, lawyers, and professionals generally...
...The original Five Year Plan had a 5-million-ton mark...
...In addition, partial self-sufficiency protects farmers from the worst effects of inflation...
...As the country that accounts for 25 per cent of Mideast oil production (10 per cent of the world total), Iran was one of the first oil exporters to propose tying oil rates to the price of a set basket of commodities...
...Teheran is now contracting with builders not only for the construction of hospitals, power stations and factories, but for the provision of personnel-from doctors and engineers to bookkeepers and maintenance men-to run the plants for several years...
...Sudan, Tunisia, Morocco, Jordan, and Syria have received pledges for tens or hundreds of millions each...
...At maturity, the bank would, at the discretion of the depositors, arrange for the return of either an increased amount of energy of a similar type adjusted in accordance with the appropriate money interest rates or its prevailing market value, or just the nominal value of the bond plus interest...
...But Iran's basic contribution to world economic activity, naturally, derives less from the gifts and loans it dispenses to help friends and restrain potential enemies than from the much larger sums it employs for the purchase of goods and services abroad...
...Indeed, Teheran's big, overcrowded hotels are a symbol of the commercial scramble...
...Primary among such "sources of influence" are the heavy industrial enterprises-like the National Iranian Oil Company, the most prestigeous firm in the land...
...data show that commodities and manufactured products have risen by 250 per cent, as compared to a 400 per cent increase in oil rates...
...As for Iran itself, it has all of five graduates in nuclear engineering, but hopes to attract many more from among the estimated 350 Iranian nuclear engineers and physicists who stayed abroad after ending their studies...
...foreign currency receipts amounted to $22 billion...
...The old feudal elite was defeated in the "White Revolution" of 1963, when most of its lands and villages were taken away (although some members continue to wield power within the top echelons of the government bureaucracy or through the large businesses they invested in before the land reform...
...The Shah maintains that only such pegging can protect his nation against the constant rise in international prices and alleviate the necessity of repeated price hikes by the oil producers...
...In the case of the young intelligentsia, the situation is already quite different...
...France alone has signed an agreement to supply five 1,000 megawatt units...
...Modern roads reach only a fraction of the rural areas, and interurban connections are limited...
...Annual per capita income, because of the oil money, technically averages about $1,000...
...Iran also wants to enter the satellite club, for purposes of both civilian and military telecommunications...
...What this means in practical terms-and one should bear in mind that we are speaking about a country of 32 million, of whom at least 60 per cent are illiterate-tan be seen from a brief look at some of the revised goals in key sectors: Steel...
...and the rich upper-bourgeoisie of industrialists, construction entrepreneurs, owners of large trading firms, and top government officials...
...Among urban residents, one can sometimes hear the question, "If we are so rich, why am I so poor...
...Many dissatisfied Iranian students attempt to go to school abroad, preferably in England or the United States, and of those who succeed, a large percentage never come back...
...Civilian and military imports last year came to $10-11 billion...
...But for the time being it does not appear to have any well-defined or clearcut goals, and directs itself primarily at reducing Iran's dependence on foreign experts and machinery...
...In the years ahead, however, Iran faces changes whose scope and speed could have an irreversible impact on the nation...
...While booming business, land speculation and an increasing demand for all types of professionals have shielded members of the middle-middle and upper-middle classes from the constant price rises, many of those in the lower-middle class are finding they cannot keep up...
...On the one hand, the influx of foreign currency has created the huge rate of inflation...
...During the '60s, too, the Shah broke up an unholy alliance between religious extremists opposed to the land reform and parts of the underworld...
...This assistance amounts to a much higher proportion of oil revenues than Saudi Arabia, Kuwait, Abu Dhabi, and other Arab oil sheikdoms have provided for the development of their poor but populous Arab brethren...
...Representatives of companies from the world over nervously gulp their breakfasts in the morning, then rush out, with their attache cases, files and portfolios of plans and blueprints, to meetings in government ministries or private companies...
...Third, the nation is ruled by a man whose plans may at times appear overambitious, yet who leaves no doubt that he knows where he wants to lead his people and how to get there...
...When the size of the oil-revenue increase became evident last year, the Plan was expanded to absorb $70 billion...
...It is too early to say what, if anything, a large-scale repatriation of educated Iranians with a Western cultural experience would do to the political fabric of the country...
...Cement...
...and, in any case, rural demands are traditionally more limited...
...Feudal lords held almost all of the country's privately owned land, occupied the key positions in government and controlled much of the nation's major businesses...
...Some weeks ago Dr...
...The land reform's satisfying impact continues...
...Should development projects advance more or less as anticipated, though, it is entirely possible that during the next Five Year Plan (1978-83) Iran may once again become an importer of capital...
...The U.S., Japan and Eastern and Western Europe are all competing for this immense market with increasing intensity...
...While imports should be larger this year, Iran will still probably finish 1975 with an unused surplus of about $17 billion...
...Officials are at present engaged in a major effort to lure back young expatriates in every field...
...An agreement has also just been signed with the Philippines for the "import" of 700 nurses, and Pakistan is expected to send an increasing number of technicians...
...Electricity production is plotted to rise dramatically, from 2,100 megawatts in 1973 to 7,500 megawatts by the end of 1978...
...Eliahu Salpeter, our regular Mideast correspondent and a member of the editorial board of Israel's Ha'aretz, is now on a tour of Iran...
...But so far, those who have come back appear to have been absorbed into the existing society without disruption...
...Rents in Teheran doubled in 1974, and food items occasionally disappear from the shelves...
...The telephone network is outmoded...
...This is the first of two articles on Iran today by Eliahu Salpeter...
...Unlike its Persian Gulf neighbors, Iran is more than a sovereign non-nation of sand and drilling rigs with little population: Thirty-two million inhabitants, and an economic and administrative foundation built before the present bonanza, provide the country with a framework for the constructive absorption of its new wealth...
...The target has been raised from 4.5 million tons to 20 million in 1978...
...2. Large unused surpluses of petrodollars, of the kind accumulated by the pseudocountries of the Persian Gulf and even by Saudi Arabia, are dangerous...
...The Shah has often said that oil is too valuable a material just to be burned...
...Railroad expansion is similarly projected, including a northbound line that will join the Transsiberian railway and link Teheran to Vladivostok...
...The rural population, therefore, is probably a long way from acquiring the level of sophistication necessary for it to become an independent political factor...
...Deducting the part of the five years that had already elapsed, this represented a jump of about 150 per cent...
...Iran, financial experts believe, understands this...
...Finally, the tie-in would help prevent extreme fluctuations in the price of petroleum once abundant supplies of substitutes become available...
...Political parties, even the ruling Iran Novin party, have only marginal influence, and the government machinery (including the Cabinet) is merely an executor of the Shah's rulings...
...Hidden inside its still not fully explored 630,000 square miles of territory are vast accumulations of iron, lead, zinc, and chromite, not to mention copper deposits that alone are believed to equal the oil reserves...
...Against the funds deposited, the new bank would issue long term convertible energy bonds, the nominal value of which would be expressed in units of both energy and currency that would correspond with the cash value of the energy on the date of the issue...
...So far, the most important social occurrence has been the rapid expansion of the middle class and its division into three subclasses: the petit-bourgeoisie of artisans, shopkeepers, clerks, policemen and low-level civil servants...
...Under the revised plan, approximately $80 billion will be distributed in this fashion...
...This is the Iranian version of rising expectations-fed, as usual, by their very fulfillment...
...The Armed Forces, a potential danger, are kept happy by a steady stream of ultramodern weapons, and kept in check by the tested method of overlapping tasks and parallel authority...
...Most of the changes stem, in more than one sense, from an embarrassment of riches, intensified by the fourfold increase in the price of oil since October 1973...
...Demonstrations have broken out more than once over scholastic grievances or requests for the postponement of examinations...
...actually, 70-80 per cent of the nation's urban employed are believed to earn less than $100 per month, and two-thirds of the rural workers make under $60 per month...
...There are no authoritative statistics on the distribution of wealth here, but well-informed estimates place about 2 per cent of the population among the very rich...
...Thus, for now, no concentrations of discontents exist to threaten Iran's ruler, who is popular with most of the bourgeoisie and revered by the rural population...
...Iran's influence, moreover, does not depend solely on oil...
...on the other, it has allowed for a development program that may ultimately eliminate most weak spots in the country's economic infrastructure, but, at the moment, is accentuating many of them...
...The sorest point is the ports...
...A group that could become a real source of influence in the country, particularly as it assumes key positions in the expanding economic apparatus, is the growing body of technocrats...
...This legal and social transformation, though, has not yet been reflected in the country's economic or political structure...
...After lunch, they come back, hurry to their rooms to wait next to the phone for that hoped-for "yes," or sit around the lobbies until it's time to be driven off to another round of talks...
...Reza Falla, Deputy Director General of the National Iranian Oil Company, suggested placing surplus oil money in a "special energy bank," either wholly independent, or under the auspices of the World Bank...
...Second only to Saudi Arabia in known oil reserves and current production, it has three great strengths...
...During the past few months, public agencies have been receiving a burgeoning number of inquiries from Iranians abroad...
...The updated plan anticipates beginning the construction of several nuclear power stations...
...What makes this idea attractive is that it contains several self-balancing mechanisms...
...The opec states are unanimous in claiming that the increase in the price of oil represents a fair compensation for the rise in the price of industrial goods...
...The oil producers, first of all, would have their past incomes safeguarded in future energy values, thereby weakening the argument that "oil in the ground is worth more than money in the bank" (false, in any case, for countries with huge oil deposits...
...A few groups, of course, have arisen at various times to challenge the Shah...
...This creates a vicious circle: The shortage of high caliber academic staffs at the universities lowers the standard of education, which, in turn, lowers the attraction of local universities, which causes students to leave Iran...
...As for the bourgeoisie, it is too busy making lots of money to think in political terms...
...Teheran's bureaucracy typically creates lots of red tape, but a personal decision by Shah Mohammed Riza Pahlevi on a matter he considers important can quickly cut through most of it...
...and the rest among the rural population and newly emerging urban proletariat...
...It is not hard to foresee difficulties as the low-income urban groups become increasingly aware of the more prosperous strata above them...
...And the system would encourage oil importing nations to push harder for the development of alternative types of energies to keep down fuel prices-and their own indebtedness...
...Special place in Iran's development schemes is reserved for the petrochemical industry...
...Meanwhile, it should be noted, Teheran is using its tremendous wealth not only for its own progress but to help those countries whose welfare and friendship it considers important...
...At the same time, they reflect three sound and realistic assumptions: 1. Oil revenues should be invested in a manner designed to insure that by the time the petroleum has run out, Iran will be a major industrial power thriving on its other natural resources...
...In line with this thinking, the current Five Year Plan calls for the erection of three new refineries, with capacities of 25 million tons each...
...BLUEPRINTING THE FUTURE Dreams and Realities in the Shah's Iran BY ELIAHU SALPETER Teheran Of all the petrobillion-aires, Iran-an old oil producer but a newcomer to the superrich-seems the most fortunate...
...Consequently, any pegging that would be acceptable to the consumers must either start at a much lower oil-price level than the prevailing one, or else be based on a basket "flexible" enough to allow the pegged prices gradually to fall back somewhat (in real terms) vis-a-vis manufactured goods...
...Rural expectations are likely to rise less rapidly than urban ones, too, because of Iran's lack of skilled manpower-the main obstacle to implementing a number of the government's social service and development projects...
...Until the beginning of the '60s, when the Shah's "White Revolution" compelled the "Thousand Big Families" to accept land reform, Iran was a "two-and-a-half-class" society...
...Iran today produces some 1.6 million tons a year...
...Iran's grandiose projects and ideas clearly underscore its new sense of national pride...
...And attractive financial conditions made possible by the oil revenues, plus uncertain labor markets in the recession-stricken West, are beginning to have their effects...
...The rural masses, by contrast, seem to present no political problem at this time...
...All this should keep feeding a modern industrial state long after the petroleum has dried up-something that is expected to occur around the end of the century...
...While foreigners scurry to and fro for contracts, Iran, for its part, is basically concerned about protecting its sudden riches and the value of its investments from the ravages of world inflation...
...They seem to support Western cries that the intolerable oil prices are thoroughly unjustified...
...Furthermore, the Shah has agreed to give $700 million to the Special Oil Facility of the International Monetary Fund, and to buy $350 million more in World Bank debentures...
...This is scheduled to grow fourfold by 1978, but at present many urgently needed imports have to be hauled from Europe overland, via Turkey...
...Drugs, plastics, even fertilizer, provide far more in the way of jobs and earnings than the simple export of crude...
Vol. 58 • March 1975 • No. 5
