The Current Economic

Iran is a land full of wonder and astonishment and it is entering the next century and millennium with this same attribute. During its turbulent history and in the uneven course of three thousand years of evolution of its civilization, Iran has always been the center of turmoil and at the same time, innovation and change. And of course, this same innovation and change has been the factor of survival of Iranian civilization and culture against external and internal invaders who wanted to destroy it. If we were to describe Iran with only one attribute, it is resilience - the same thing that is considered the mechanism of survival and development in the tumultuous, crisis-prone, complicated, competitive and changing environments of today and makes the individual, organization and the society to stand firm in the face of uprooting pressures.

The developments of the Iran’s contemporary history begins with the constitutional revolution which is a national movement to shape the socio- political system of Iran and wishes to liberate the society from the clutches of the governing regime’s totalitarianism, dictatorship and despotism. This revolution took place in 1906. Then, with the movement for the nationalization of oil industry, Iran showed that it does not accept the foreign domination over its resources. And these two historical events are the beginning of the difficult and painful process of democratization and the participation of the people of Iran in their own political, social and economic life. And of course, the Islamic revolution of 1979 was in a sense, also an explosion of public participation to change the political system. And now after two decades since that revolution, the Iranian society has entered into a new stage of its development.

To analyze the recent developments in Iran, it would be better to have a look at the global context of these developments using a systemic approach, since the factor causing these developments are two groups of forces, that call for attention. The first group are forces which come from the society’s development process and have originated from inside it. The second group are forces which have their origin in the development of world civilization and recent global changes.. It is the combination of these two forces which is shaping the developments of the Iranian society today. To cross out one in favor of the other will face the explanation of these developments with a major flaw. It is on the basis of this argument that we will have a brief look at the most important trends of global developments.

If we consider the global system composed of communities which dwell on the planet earth, with a look at the evolution of this system over the last two millenniums we would note that at the end of the second millennium and at the dawn of the third, the global system has entered in a complicated civilizational turning point in which although the developed countries play the leading role, nevertheless its impact and outcomes have crossed the increasing penetrable borders of even the closest of societies, affecting the social life of all peoples. The moving force of this transition, is the pace of scientific - technological developments, the impacts of which have gone far beyond the physical foundations and technical sphere, embracing all domains of man’s life, calling for a total conceptual deconstruction.

Of course, it must be acknowledged that modern phenomena are so complicated and interwoven that it is impossible to single out a factor from among an interacting combination of innumerable factors and call it the cause of developments which have led to many vast and profound effects. But, with a look at the rapid scientific - technological progress since the second half of the 20th century, we would note that achievements made in the fields of genetics, biological sciences, space sciences, information sciences and telecommunications, have each put in motion a chain of developments which in combination with each other have created an enormous force. If we only consider the advances made in information and communications, we will see that the achievements of these two developments have offered new patterns for work, leisure, creation of wealth, making war, thinking, scientific - technical creativity, social relations, trade, entertainment and so on. On the whole, they have changed the ontological situation of mankind and his relationship with the existence.

The digital revolution which is the natural result of these developments has led to the dissemination and acceleration of two important trends each having its own profound positive and negative effects on individual as well as social life. These two trends, namely virtualization and globalization, have crossed national borders and have affected all societies including Iran - of course unwillingly. Many activities which were previously done within national domains with known rules of the game, have now been transferred to the global networks which follow their own particular rules of the game and traditional societies in order to be able to play an active role in these domains for their national interests have to accept these rules and learn them and this makes their behavior and thinking patterns to change.

If we look at the issue from another angle, we would note that a kind of predestination governs over scientific and technological phenomena which can not be resisted. Today, the creation of wealth and cultural, social and political development are not possible without the use of advanced knowledge and technology. In fact, the conditions are such that no country could meet the needs of its society and manage its affairs without making use of the latest scientific and technical achievements. And this same coercion has drawn the societies to global and virtual arenas. Indeed, virtualization and globalization are the predestinations of survival and development in today’s world, with many opportunities and threats of course.

Had Iran not encountered such pressures from the global environment - particularly in the last decade, perhaps its internal profound and real process of development would have not started in such manner. A general review of developments over the last three decades would lead us to the conclusion that Iran has had three different responses in the face of global developments:

· In the 1970s, particularly after the oil shocks of that decade and access to large revenues due to oil exports, it began a rapid modernization with emphasis on economic and technical modernism.

· Late in the 1970s and with Islamic revolution, the process of de-modernization began as a strong reaction against modernism which tried, by negating the western model of development and removing the behavioral manifestations of it, to establish a situation which stressed more on “Islamization”, and in fact, economy was set aside in favor of culture.

· Late in the 1980s, under the influence of various domestic and external pressures including increasing population growth, falling oil prices and contact with the developed world, re-modernization is resumed. In this period, Iran attempts again to rapidly absorb the manifestations of modern life in economic and technical areas, putting emphasis on “reconstruction”. However, this modernism is greatly different from modernism of the 1970s and its national and global obligations are something else. It is under the pressure of these same obligations that today, as we shall see in this paper, there are evidences which show that Iran is set in the course of its profound and sustainable development, a course which perhaps unlike the first period of modernism, would no be reversible.

We would follow the discussion with a more precise look at the developments in the three areas of economics, politics and culture. In this part of the discussion, avoiding to present a historical analysis in order to keep it short, the latest situation in Iran will be portrayed based on available statistics and information. The overall assumption of this paper is that from both the global or national points of view, the important area of social developments in Iran is the economic area, and in fact, forces of this domain have made other domains to change.

Indeed, it is the economic obligations and economic forces which move and direct societies such as Iran toward the sort of social, political and cultural developments that prepare the ground for economic progress. It is on the basis of such an assumption that we begin the discussion of developments in Iran with the economic developments.

Experts say that during the 1961-1977 period, Iran has been transformed from a developing country with a per capita income of 180,000 Rials (at 1989 prices) and 45 percent rural population into a semi-industrialized country with 62 percent urban population and a per capita income of about 270,000 Rials (at 1982 prices).

As shown in table 1, during the past three decades (1976-1997), gross domestic product (GDP) in Iran has had an average annual growth rate of 4.2 percent, which given the average annual population rate that has been 2.8 percent, the gross domestic product has had a growth rate of only 1.4 percent which is an undesirable situation.

Table 1- Changes in GDP and the share of key economic sectors over the 1967- 1996 period

	1967	1986	Ave. Annual Growth
GDP	4799.9	16188.3	4.2
Services	27.2	39	5.5
Industries and mines	10.4	21.5	6.9
Agriculture	20	23.5	4.8
Oil	42.3	15.8	0.7

During the above period, the share of oil in the GDP has declined which of course has been due to the fall in oil export revenues, and not due to higher growth of other sectors. But in any way, it indicates that the dependence of Iranian economy on oil is declining, which together with the rising share of gas, water, and electricity as well as increased share of services, industry and mines sectors in the GDP, are clear indications of structural change in Iranian economy. Economic analyses show that over the last three decades, Iranian economy has been suffering from the following ills:

· Lack of stability of macro economic indicators due to dependence on oil revenues: Over the 1970 - 1996 period, economic growth rate in Iran has fluctuated between the minimum -16 to the maximum +16 percent, whereas for Indonesia this figure has been between - 0.3 and 9 percent, in Malaysia 4.4 to 13.3 percent and in the countries of the world as a whole, it has been between 0.3 to 6.1 percent.

· High tendency toward private consumption: Over dependence on oil revenues has limited the tendency toward investment and capital accumulation. Lack of needed economic security for saving and investment, lack of full development of capital markets, inflation rate overtaking the banking interest rates have been among the factors giving rise to this situation.

· Low proportion of investment relative to GDP: During the years 1959 to 1996, this proportion has been less than 20 percent - of course, except for the 1975 -1977 and 1986-1987 periods. Inflation, oil shocks, differences in the rates of free versus official exchange rates, and lack of private sector confidence which stems from unstable economic policies and ambiguities regarding ownership rights as well as unfair competition by government-owned interprises and institutions as well as foundations are among the effective factors which are responsible for the low rate of investment in Iran.

With a look at the latest situation of Iranian economy in 1997, the following features could be enumerated:

· reduction in the growth rate of gross domestic product (5 percent in 1996, compared to 3.5 percent as estimated for 1997),

· Insignificant share of world trade (0.35 to 0.4 percent from a total of 10 thousand billion dollars worth of merchandise trade in the world including exports and imports; if oil is omitted from it, it would amount to 0.06 percent)

Macro economic analysts consider the following factors responsible for the confused situation of the Iranian economy:

· weakness of taxation system in financing the government expenditures and creation of needed equilibrium in the distribution of incomes,

· unsuitable foreign exchange system and rise of parallel exchange market with numerous exchange rates,

And in order to get out of this situation and achieve continued growth and development as well as economic sustainability, they offer the following solutions:

· fixed capital formation by the public, cooperative and private sectors as well as foreign investors,

· leaving the producer free to determine prices according to the law of the market,

With a more careful look at the list of causes and solutions, it could perhaps be claimed that the real roots of difficulties in the Iranian economy are non-economic. Indeed, to be able to provide the wealth and employment required by the Iranian society, the economy of Iran needs a suitable channel which could prepare the ground for stable policy - making, security for investment, modernization and development of systems left behind by former generations and active presence in global arenas. The need for preparing this necessary ground is felt more when we focus attention on the significant trends of developments in the Iranian economy. The most important of these trends are the following:

· liberalization of trade (accepting the necessity and importance of joining the World Trade Organization),

· globalization (stressing the export strategy and making efforts to remove the barriers facing it)

Some of these trends, including privatization, have longer records and some others, including the last three, have began recently, but it seems that obstacles which block their way will be gradually removed and in a sense, the inevitable destiny of the Iranian economy is to move toward these developments. Of course, these trends are taking shape mostly under the influence of global forces and borders are becoming more penetrable. Moreover, the government in recent years has accepted that as long as the problems of Iranian economy are not solved, other goals and programs will not be fulfilled. Somehow the attention of the leadership and state authorities has been drawn toward solving the structural problems of Iran’s economy and removing its political and cultural obstacles. Of course the fulfillment of both these objectives are difficult and slow. The most important non-economic barriers of Iran’s economic development seem to be the following:

· Legal obstacles which are mostly due to the incorrect performance of the judiciary. The behavior of the judiciary has been such that it has not created the necessary security for investment.

· social obstacles including high population growth rate, illiteracy and youthfulness of the population.

· cultural obstacles, particularly the dominance of traditional seminary thinking (structural jurisprudence) in policy - making, decision making and running of the economic affairs.

· political obstacles including lack of a shared vision regarding the future of Iran among the leaders of the government and also the weakness of democratic institutions, inability of existing institutions to provide a favorable environment for economic activity at the global standards and to promote the flourishing of capabilities and creativity.

Looking at Iran’s development trends in the social, cultural and political spheres, we shall see that these trends are such that it could be claimed that a positive movement toward the fulfillment of a profound and sustainable development in Iran - although slow and fluctuating - has been launched in these spheres and it is hoped that with the acceleration of these trends, a more favorable ground would be created to resolve the problems of the Iranian economy and also that the Iranian society could be able to achieve a suitable level of development in other spheres as well. Given the abundant resources that the Iranian economy has available for its development, the prospects for the future are bright. The most significant of these resources are the following:

· Iran’s geo-strategic position and the country’s being situated in the important region of the middle east and in the vicinity of a market with three hundred million people.

· access to two important water ways through one of which is carried the greater part of the world’s fuel and the other involves a vast proportion of global gas and oil reserves.

· existence of abundant and varied mineral resources including hydro-carbons and other minerals,

· a rich heritage of civilization and culture and being heir to a significant share of the civilization records of the world.

In discussing the social developments, the most important changes related to population, urbanization and education are introduced and we shall also have a brief and passing look at the issue of women.

Iran has aroused astonishment of the world in the area of controlling the population growth and reducing its growth rate. Table 2 shows changes in the population growth rate over the 1976-1996 period.

Table 2 - Changes in the annual population growth rate over the 1976 -1996 period.

Period	Nationwide	Urban Regions	Rural Regions	Annual growth rate of urban population
1976-1986	3.91	5.41	2.39	5.4
1986-1991	2.46	3.47	1.21	3.5
1991-1996	1.47	2.95	-0.65	2.9

Lowering the population growth rate across the whole country and in urban and rural regions is an important achievement which had not been expected. The improvement in other demographic indicators is an indication that demographic changes in Iran are enjoying a positive trend. The most significant of these indicators is the reduction of the youth coefficient, and in fact, the reduction of the proportion of young population bellow 15 years of age and the increased average age of the population which are clearly shown by table 3.

Year	Proportion of population below 15 years of age	Age average	Potentially active pop. aged 15-64	proportion of the aged over 65
1976	44.52	17.4	51.96	3.59
1986	45.45	17.0	51.46	3.09
1991	44.28	17.6	52.23	3.49
1996	39.51	19.37	56.11	4.38

The growth of active population indicates that labor supply has improved and this of course would put the economic system of Iran under pressure to improve the economic conditions and create jobs. In other words, previously, development plans emphasized provision of basic needs of the country’s children and young people, but from now on, the orientation of these plans should change to meet the need to attract the participation of the young and creating employment for the work force which enters the labor market.

Regarding the aged, in 1996 , 27 percent of the aged have been working in one of the economic activities. Experts believe that population aging would not happen in Iran in the coming two decades. Concerning population the worrying situation is the phenomenon of emigration. Over the past two decades, hundreds of thousands of competent Iranians with high levels of capabilities, skills and abilities and of course money, have left the country and illiterate, barely literate and unskilled immigrants have entered Iran.

Urbanization in Iran has accelerated. The most significant developments in the last 20 years (1976-1996) regarding urbanization in Iran as follows:

· rise in the number of metropolises (cities with over 1 million population) from 2 to 5.

· 79 percent of total population increase has belonged to urban population centers.

· urban population growth rate (4.3 percent) in this period took precedence over rural population growth rate (1.33 percent).

The important point is that the growth of urbanization in Iran should not be taken as an index of development, because it has not been the result of economic development and dynamism, rather, the rural population’s lack of access to sufficient income and suitable job opportunities, have sent them to the cities.

Literacy rate in the country’s active population (aged 15 to 39) has reached 92.9 percent. Over the period 1976 to 1996, rural people more than city-dwellers and women more than men have enjoyed literacy and training facilities. The number of pupils with a growth rate of 3.7 percent has reached from 13.7 million in 1989-1990 to 18.4 million pupils in 1996-1997. In higher education, the number of students has had a 4.5 percent growth rate in the 1989 -1997 period and the number of students has reached from 431087 students in 1989 to 1,275,630 students in 1997. In the year 1989, 34.6 percent of the students were studying in non-government institutions, this figure has amounted to 53.6 percent in 1997. During the period between 1989 to 1997, the non-government institutions of higher education have grown on the average by 32.3 percent annually (against 5.9 percent growth of government institutions) and in the year 1997, of total number of faculty members, 11.9 percent, and of total physical spaces, 65.4 percent were belonged to non-government institutions. In 1989, 44307 people have graduated from the country’s universities. This figure has increased to 126,813 graduates in 1997.

· In the past 20 years both in elementary and secondary education as well as in higher education, the figures represent quantitative growth and the country’s active and young population have had access to educational facilities.

· But considering the accelerative pace of global developments, rising speed of obsolescence and renewal of technology, skills and know-how as well as rapid changes in the labor market, the educational system has not kept pace with the times and can not meet the challenge of these developments; it needs structural change, rethinking and re-engineering of educational management, meaning:

· renovation of educational methods and making use of the latest achievements of educational technology; changing the contents of text books and educational programs,

· abandoning the emphasis on memorizations and replace it with emphasis on meta skills needed by today’s society (the learning of learning, creative adjustment, creative assimilation, innovation, creativity etc.),

· making use of the outcomes of communications and digital revolutions to improve the effectiveness of educational activities.

Developments related to women, due to their extent and significance calls for an independent analysis. Here, only some of the indices related to this subject are mentioned. Table 5 shows the social changes related to women.

Year	Total women pop.	Active	Employed	Un- employed	Economically Inactive	Literated Aged over 6	Illiterate Aged over 6
1966	12.4	1	0.94	0.09	7.2	1.7	7.7
1976	16.4	1.5	1.2	0.24	10	4.7	8.5
1986	24	1.3	0.97	0.33	15	10	9.0
1991	27	1.6	1.2	0.40	17	15	7.3
1996	29.5	2	1.8	0.27	20	19	6.6

During the last three decades, women have enjoyed a high level of literacy so that in 1996, 19 million women aged over six years have been literate. But a large section of them are as yet economically inactive (20 million women out of a total of 28.8 million people of economically inactive population in the country).Of course, the social status of women has improved compared to the 1980s and an organization called “the Women Participation Office” headed by a Presidential adviser has been established to improve the situation of women. This office has a representative in government ministries and organizations who as ministerial advisor in women’s affairs pursues the mandate of the office, and tries to improve the situation of employed women by removing existing discriminations in payments and privileges and creation of equal opportunities.

In general, women’s share of managerial jobs is very low and despite the rise in the number of women with higher education in recent years, the situation in this respect is not as yet a suitable one. For example, in the ministry of education in which women have a better situation, women in educational management has increased from 36.1 percent in 1989 to 45 percent in 1997. The interesting point is that in 1989-1990 only 3.7 percent of men serving as manager in the education sector have had a B.A. or B.S. or higher degrees. This figure has amounted to 27.8 in 1997. This is while there have been many educated women with managerial competence which could have replaced uneducated male managers . Moreover, the lack of access of women to opportunities which are made available for the training of senior executive managers, has blocked their promotion to managerial positions. In higher courses of management training which are held in the Industrial Management Institute, whether post-graduate courses or specialized courses with no degree, women’s share is quite insignificant and in some courses, it is zero. In the Government Management Training Center, the situation is even worse than this.

Of course, as shown in table No.7 during the 5 year period of 1991-1996 the employment of women has improved and the highest growth rate of employment of women has been in managerial jobs. But despite this growth, the situation is not desirable yet.

Regarding social developments in Iran, it could be concluded that social indices are improving, although at a slow pace, and this improvement is underway at a higher pace in the most important index which is the population growth and following that,

The most important political development which is observable in Iran, is the movement toward democratization of the political system. If the most important feature of democracy be taken to be involving people in the determination of their own destiny, a look at recent developments in Iran show that this process has begun. During the seventh presidential elections (in which Mr. Khatami was elected as President) public participation

Year	Literacy Rate
1976	47.60
1977	61.75
1996	79.50