By (seemingly) popular demand, I'm bringing this back!
While his actions might considered revolutionary, the milieu in
which His Imperial Majesty operated was anything but.Kenneth Sackey, Rebirth of the Persian Empire: Iran's Path to Development under the Pahlavis (Princeton University Press, New York, 2011) [1]
"I am the only real socialist in Iran... I am more socialist and revolutionary than anyone"
---Mohammed Reza Pahlavi [2]
IT is perhaps for the best this quote of Mohammed Reza Pahlavi’s remains little-known, for it would most likely be the object of derision and incredulity. The idea of a man preoccupied with the trappings of imperial rule and the constant projection of regal splendor throughout not only his reign but in his visions of a society over which he would be the beloved pedar– father– is undoubtedly rather jarring. But from his approach to economic policy, one might begin to understand whence his conviction derived.
The White Revolution was undoubtedly a progressive event in political terms, with the wholesale redistribution of land from rural landlords to tenant peasants, the nationalization of forests and eventually water resources, and the imposition of mandatory corporate profit-sharing to the tune of 20% in the form of a bonus. In 1975, indeed, Mohammed Reza proposed another program that would have mandated that all private sector companies allocate 49% of their ownership to their workers and state owned enterprises, 99%. Undoubtedly, such a scheme, intended as a means of preventing the development of excessive inequalities, would have had disastrous effect on investment and, in tandem with proposed foreign ownership caps, have led to a rapid drying-up of the foreign capital and exchange which Iran needed if it was ever to industrialize. It was only with a great deal of inducement and strenuous exhortation from the Plan Organisation that Mohammed Reza was persuaded to drop the idea.
The role of an Iranian economic planner under the reign of Mohammed Reza was an unenviable one, despite the growing economy and high qualifications possessed by its staff. Many were educated at top-flight American schools like Harvard, Chicago, Columbia, and Princeton, the latter of which contributed so many economists to the Iranian government that the entire group of advisors, both within and without of the Plan Organisation, was termed the “Princeton Posse”, a truly unfortunate term patterned after the “Berkeley Mafia” assembled by Indonesia’s Suharto, and would later again be used to concoct the name of the “Chicago Boys” that advised Chilean dictator Augusto Pinochet. In spite of all of this, Iran’s economic planners constantly faced an uphill battle in convincing their government to take heed of their recommendations, often being dismissed as amongst the number of an-tellectuals (an being an impolite Farsi slang word for human defecation) by a court quite often insecure of their respective academic qualifications.
Thus, when Iran achieved its “victory” of quadrupling oil prices in 1973, Mohammed Reza immediately let it be known that his intention was to spend all of the new revenues at once. It was projected this would have allowed for the allocated budget for the Fifth Plan, whose term ran from 1973 to 1978, to nearly double, from US$36.5 billion to US$70 billion. The vastly increased rate of investment, the Shah believed, would facilitated even faster growth and bring upon the era of the “Great Civilisation”, one of an industrialised great power, even sooner.
Iran’s economists, on the other hand, did not see things in the same light. Even after growing at an annualized rate of 11.3% in the preceding decade- a rate of growth even greater than that of China in the few past decades- the Shah wanted the economy to grow even faster, at the simply impossible rate of 25.9% per year throughout the term of the plan. Despite its rapid growth, Iran’s capacity to actualize such accelerated growth (on top of its inherent impossibility) remained woefully inadequate. Out of 60,000 km of roads, only 16,000 km were paved. There would have been a requirement of 800,000 skilled and semi-skilled workers where only 200,000 were available. Imported goods would have stood at a projected 20 million tons where there was only 7 million tons of capacity. The fact that the Shah was said to have suggested the helicopter transport of goods that could not make it through the roads and railways only points to the sheer impossibility of achieving such growth.
Such rapid increase in capital investment, combined with the resultant bottlenecks it would have created, would have certainly led to a dramatic rise in inflation and shortages of all kinds. The consequences thereof, at a time of significant social change and transformation, with the mass education of Iran’s youth, and the movement of millions of peasants into Iran’s cities seeking new opportunities, might have been disastrous to Iran’s progress, and the economic and social upheaval could have set back the country many years, even a decade or more. Thus the pressing matter and difficult task of changing Mohammed Reza’s mind once again fell upon Iran’s economists.
The unfortunate person who the task fell naturally upon was Abdol-Madjid Madjidi, the newly appointed director of the Plan Organisation. Known for his dutiful work but consistent but sometimes frank and even critical honest, Madjidi was an exception in a government whose members commonly reached their positions through compliance and often open sycophancy, he was not reluctant to do so. But now, with the Shah’s retreat from the functions of government, however uncertain it was, the task become even more difficult, with [Prime Minister] Hoveyda being a determinant in his own right, rather than a conduit to the Shah’s approval or disapproval. However, Hoveyda, cognizant of the manner in which he reached his position, was often reluctant to contradict the Shah. He was, as Madjidi would later note, “reluctant to spell out the facts."
But it was Hoveyda’s assumption of leadership on the issue that allowed an opening to a resistance by Iran’s planners. From June 1974 on, Madjidi and other skeptics, amongst them Hossein Razavi and Firouz Vakil, frantically worked to build opposition to the proposed expansion of the plan amongst Iran’s planners. That might have not been enough to persuade the Shah, who announced he would order a revision of the plan, to be discussed from August 1 to August 3 in the resort town of Ramsar. However, the Shah’s illness forced the conference to be pushed a month back, from September 9th to the 12th.
This, above all, was most likely the deciding factor in the success (or lack thereof) in the pushback. It allowed the crucial time for the economic planners to become entirely opposed to such rapid expansion, rather than divided, which would have given the Shah and Hoveyda an opening to continue. But more importantly, it was on August 3rd, that the beleaguered Richard Nixon and his economic advisors met with the State Department to confront them over the high oil prices, and their acquiescence to them. [3]
The Treasury officials claimed that the constant rise in oil prices had helped put the United States in an unenviable economic position—the infamous stagflation. Kissinger, on the other hand, said that such rises were necessary to the survival of Iran and other friendly states. Whereas the Saudis were content to store their money abroad, “the Shah,” in Kissinger’s words, “never saved and always spent,” meaning that if oil prices were to fall, as they would in an economic downturn, large spending projects—as the one the Shah intended to embark on—would be left unfundable. The economic threat of the likely drop in oil prices to Iran, for the first time, became clear. The Shah’s “oily legs” would melt away.
But Nixon’s own “oily legs” were melting away. On the 6th, Nixon, in a cabinet meeting, stunned his government by leading on the subject of inflation in the face of impeachment. Eventually, Vice President Ford forced the subject on the issue of Watergate. But the issue of oil, Iran, and its role in inflation had made an impression on Treasury Secretary Bill Simon. Later that day, Simon would call his Iranian counterpart, Jamshid Amouzegar, to inform him of the U.S. stance. The takeaway was clear- not only would the US no longer tolerate further oil price rises, they would likely fall. Any Iranian budget predicated on constant rise would undoubtedly turn into deficit.
This information was the key Iran planners needed in convincing Mohmmed Reza that such plans would simply be impossible. Despite Nixon’s resignation two days after that phone call, when the planners met in Ramsar, Hoveyda was presented with an unceasing barrage of criticism over the plan. The economy would inflate wildly, they said. The oil revenues would fall and massive debts incurred. All sorts of things would experience shortages, there would be a lack of food, of medicine, even oil. There would be riots in the streets and even a revolution, Henry Kissinger said so himself. The thoroughly trampled Prime Minister went and complained to the Court Minister, [Asadollah] Alam, on his plight, whom in turn told the Shah that the Prime Minister “had been given an economic beating” by the planners. Surprised his sagacious plan had met with such a reaction, he met with them for the next three days, and was subjected to a barrage of respectfully catastrophic forecasts, by the end of which he simply had no will—perhaps it was due to his illness, some critics would later hypothesize—to object to.
There would be a modest increase to $40.1 billion, with the remaining $30 billion funneled into a stabilization fund for foreign investment, which, the planners noted, should probably not be invested abroad until the predicted downturn occurred, which the Shah noted with “all the glee of a trader with inside knowledge,” one would later note. The Shah’s dreams of military investment would have to be put off, an implicit fact not quite directly addressed. The investment, rather on a focus on increasing industrial capability, would heavily focus on infrastructure, on improving roads, ports, housing, railways, as well as the skills of the labor force. Once those were addressed, the planners said, such industrialization could begin in earnest under the Sixth Plan, which would run from 1978 to 1983.
Disaster may have very well been adverted in those September days. Iran’s growing economy still experienced shortages, and growth did slow to around 7.1% during the Fifth Plan’s period. Some believe, if not at the nearly 26% projected, Iran’s economy could have grown faster sooner had the initial rate been kept up, perhaps pushing the economy a decade ahead than it was in actuality. But most economists agree with the planners of the day, that such increases would have been, perhaps as not as catastrophic as the planners predicted, but would have set back development due to inflation and shortages. Regardless, one of the greatest periods of infrastructural investment in world history commenced following the Ramsar conference…
____________________________________________
1. Some of you might recognise this name from Novarea's The New Order series. It is a fictionalised version of myself, from whose "book" you'll see extracts from when I want to talk economics, and that's something I want to do without trying to write it under the guise of another, because I quite like my economics.
2. An actual quote, although I have the "I am the only real socialist in Iran" half coming from memory and so I might have actually made it up.
3. The meeting was on this date in OTL.
Longish, but, well, this is important. Very important, then again, I always think economics is very important.
While his actions might considered revolutionary, the milieu in
which His Imperial Majesty operated was anything but.
"I am the only real socialist in Iran... I am more socialist and revolutionary than anyone"
---Mohammed Reza Pahlavi [2]
IT is perhaps for the best this quote of Mohammed Reza Pahlavi’s remains little-known, for it would most likely be the object of derision and incredulity. The idea of a man preoccupied with the trappings of imperial rule and the constant projection of regal splendor throughout not only his reign but in his visions of a society over which he would be the beloved pedar– father– is undoubtedly rather jarring. But from his approach to economic policy, one might begin to understand whence his conviction derived.
The White Revolution was undoubtedly a progressive event in political terms, with the wholesale redistribution of land from rural landlords to tenant peasants, the nationalization of forests and eventually water resources, and the imposition of mandatory corporate profit-sharing to the tune of 20% in the form of a bonus. In 1975, indeed, Mohammed Reza proposed another program that would have mandated that all private sector companies allocate 49% of their ownership to their workers and state owned enterprises, 99%. Undoubtedly, such a scheme, intended as a means of preventing the development of excessive inequalities, would have had disastrous effect on investment and, in tandem with proposed foreign ownership caps, have led to a rapid drying-up of the foreign capital and exchange which Iran needed if it was ever to industrialize. It was only with a great deal of inducement and strenuous exhortation from the Plan Organisation that Mohammed Reza was persuaded to drop the idea.
The role of an Iranian economic planner under the reign of Mohammed Reza was an unenviable one, despite the growing economy and high qualifications possessed by its staff. Many were educated at top-flight American schools like Harvard, Chicago, Columbia, and Princeton, the latter of which contributed so many economists to the Iranian government that the entire group of advisors, both within and without of the Plan Organisation, was termed the “Princeton Posse”, a truly unfortunate term patterned after the “Berkeley Mafia” assembled by Indonesia’s Suharto, and would later again be used to concoct the name of the “Chicago Boys” that advised Chilean dictator Augusto Pinochet. In spite of all of this, Iran’s economic planners constantly faced an uphill battle in convincing their government to take heed of their recommendations, often being dismissed as amongst the number of an-tellectuals (an being an impolite Farsi slang word for human defecation) by a court quite often insecure of their respective academic qualifications.
Thus, when Iran achieved its “victory” of quadrupling oil prices in 1973, Mohammed Reza immediately let it be known that his intention was to spend all of the new revenues at once. It was projected this would have allowed for the allocated budget for the Fifth Plan, whose term ran from 1973 to 1978, to nearly double, from US$36.5 billion to US$70 billion. The vastly increased rate of investment, the Shah believed, would facilitated even faster growth and bring upon the era of the “Great Civilisation”, one of an industrialised great power, even sooner.
Iran’s economists, on the other hand, did not see things in the same light. Even after growing at an annualized rate of 11.3% in the preceding decade- a rate of growth even greater than that of China in the few past decades- the Shah wanted the economy to grow even faster, at the simply impossible rate of 25.9% per year throughout the term of the plan. Despite its rapid growth, Iran’s capacity to actualize such accelerated growth (on top of its inherent impossibility) remained woefully inadequate. Out of 60,000 km of roads, only 16,000 km were paved. There would have been a requirement of 800,000 skilled and semi-skilled workers where only 200,000 were available. Imported goods would have stood at a projected 20 million tons where there was only 7 million tons of capacity. The fact that the Shah was said to have suggested the helicopter transport of goods that could not make it through the roads and railways only points to the sheer impossibility of achieving such growth.
Such rapid increase in capital investment, combined with the resultant bottlenecks it would have created, would have certainly led to a dramatic rise in inflation and shortages of all kinds. The consequences thereof, at a time of significant social change and transformation, with the mass education of Iran’s youth, and the movement of millions of peasants into Iran’s cities seeking new opportunities, might have been disastrous to Iran’s progress, and the economic and social upheaval could have set back the country many years, even a decade or more. Thus the pressing matter and difficult task of changing Mohammed Reza’s mind once again fell upon Iran’s economists.
The unfortunate person who the task fell naturally upon was Abdol-Madjid Madjidi, the newly appointed director of the Plan Organisation. Known for his dutiful work but consistent but sometimes frank and even critical honest, Madjidi was an exception in a government whose members commonly reached their positions through compliance and often open sycophancy, he was not reluctant to do so. But now, with the Shah’s retreat from the functions of government, however uncertain it was, the task become even more difficult, with [Prime Minister] Hoveyda being a determinant in his own right, rather than a conduit to the Shah’s approval or disapproval. However, Hoveyda, cognizant of the manner in which he reached his position, was often reluctant to contradict the Shah. He was, as Madjidi would later note, “reluctant to spell out the facts."
But it was Hoveyda’s assumption of leadership on the issue that allowed an opening to a resistance by Iran’s planners. From June 1974 on, Madjidi and other skeptics, amongst them Hossein Razavi and Firouz Vakil, frantically worked to build opposition to the proposed expansion of the plan amongst Iran’s planners. That might have not been enough to persuade the Shah, who announced he would order a revision of the plan, to be discussed from August 1 to August 3 in the resort town of Ramsar. However, the Shah’s illness forced the conference to be pushed a month back, from September 9th to the 12th.
This, above all, was most likely the deciding factor in the success (or lack thereof) in the pushback. It allowed the crucial time for the economic planners to become entirely opposed to such rapid expansion, rather than divided, which would have given the Shah and Hoveyda an opening to continue. But more importantly, it was on August 3rd, that the beleaguered Richard Nixon and his economic advisors met with the State Department to confront them over the high oil prices, and their acquiescence to them. [3]
The Treasury officials claimed that the constant rise in oil prices had helped put the United States in an unenviable economic position—the infamous stagflation. Kissinger, on the other hand, said that such rises were necessary to the survival of Iran and other friendly states. Whereas the Saudis were content to store their money abroad, “the Shah,” in Kissinger’s words, “never saved and always spent,” meaning that if oil prices were to fall, as they would in an economic downturn, large spending projects—as the one the Shah intended to embark on—would be left unfundable. The economic threat of the likely drop in oil prices to Iran, for the first time, became clear. The Shah’s “oily legs” would melt away.
But Nixon’s own “oily legs” were melting away. On the 6th, Nixon, in a cabinet meeting, stunned his government by leading on the subject of inflation in the face of impeachment. Eventually, Vice President Ford forced the subject on the issue of Watergate. But the issue of oil, Iran, and its role in inflation had made an impression on Treasury Secretary Bill Simon. Later that day, Simon would call his Iranian counterpart, Jamshid Amouzegar, to inform him of the U.S. stance. The takeaway was clear- not only would the US no longer tolerate further oil price rises, they would likely fall. Any Iranian budget predicated on constant rise would undoubtedly turn into deficit.
This information was the key Iran planners needed in convincing Mohmmed Reza that such plans would simply be impossible. Despite Nixon’s resignation two days after that phone call, when the planners met in Ramsar, Hoveyda was presented with an unceasing barrage of criticism over the plan. The economy would inflate wildly, they said. The oil revenues would fall and massive debts incurred. All sorts of things would experience shortages, there would be a lack of food, of medicine, even oil. There would be riots in the streets and even a revolution, Henry Kissinger said so himself. The thoroughly trampled Prime Minister went and complained to the Court Minister, [Asadollah] Alam, on his plight, whom in turn told the Shah that the Prime Minister “had been given an economic beating” by the planners. Surprised his sagacious plan had met with such a reaction, he met with them for the next three days, and was subjected to a barrage of respectfully catastrophic forecasts, by the end of which he simply had no will—perhaps it was due to his illness, some critics would later hypothesize—to object to.
There would be a modest increase to $40.1 billion, with the remaining $30 billion funneled into a stabilization fund for foreign investment, which, the planners noted, should probably not be invested abroad until the predicted downturn occurred, which the Shah noted with “all the glee of a trader with inside knowledge,” one would later note. The Shah’s dreams of military investment would have to be put off, an implicit fact not quite directly addressed. The investment, rather on a focus on increasing industrial capability, would heavily focus on infrastructure, on improving roads, ports, housing, railways, as well as the skills of the labor force. Once those were addressed, the planners said, such industrialization could begin in earnest under the Sixth Plan, which would run from 1978 to 1983.
Disaster may have very well been adverted in those September days. Iran’s growing economy still experienced shortages, and growth did slow to around 7.1% during the Fifth Plan’s period. Some believe, if not at the nearly 26% projected, Iran’s economy could have grown faster sooner had the initial rate been kept up, perhaps pushing the economy a decade ahead than it was in actuality. But most economists agree with the planners of the day, that such increases would have been, perhaps as not as catastrophic as the planners predicted, but would have set back development due to inflation and shortages. Regardless, one of the greatest periods of infrastructural investment in world history commenced following the Ramsar conference…
____________________________________________
1. Some of you might recognise this name from Novarea's The New Order series. It is a fictionalised version of myself, from whose "book" you'll see extracts from when I want to talk economics, and that's something I want to do without trying to write it under the guise of another, because I quite like my economics.
2. An actual quote, although I have the "I am the only real socialist in Iran" half coming from memory and so I might have actually made it up.
3. The meeting was on this date in OTL.
Longish, but, well, this is important. Very important, then again, I always think economics is very important.
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However the thread on this will be useful for deciding, as there are clearly people who are far more informed about military hardware than I. How the planners would be able to prevent the Shah from spending the money anyway is, if I do it the way I'm thinking, would be quite an interesting story in itself...
