In this post, Yannick Schwarz explores the entwined nature of economic growth, inequality and poverty in Iran.

The twenty-first century has not exactly been uneventful for Iranians. 2009 saw protest over the surprise re-election of President Ahmadinejad. A ten-year-long painful period of international economic sanctions due to the decision to pursue a nuclear programme only came to an end in 2016 with the Nuclear Deal. Engagement in regional conflicts, with the war in Syria, drained governmental coffers, already precarious due to the drop in oil prices. At the end of 2017, protests over price rises quickly turned political and demanded change in the theocratic leadership. And all this against the unique backdrop of political Shiism; theocratic but with democratic elements and an assertive civil society, which became national doctrine after the Islamic Revolution of 1989. Iran is a thrilling case for social studies.

Inequality and poverty are entwined with the political events listed above, both influencing and being influenced by them at the same time. This blog explores the development of economic inequalities in Iran since the Islamic Revolution in 1989, with a focus on the twenty-first century. The role of social policies, demography and the oil-dependent economy are discussed as main determinants of inequality levels.

Development of Economic Inequalities

While much progress has been made regarding poverty reduction since the Islamic Revolution, economic inequality in Iran seems to have stabilised at a high level after an initial decrease. In the mid-2000s, some movement towards greater equality can be identified in the data set provided by the Central Bank of Iran (Illustration 1). This data set uses a Gini coefficient based on urban household expenditure as measurement of inequality which can theoretically take values between 0 (total equality) and 1 (one person responsible for all spending). For reference, the latest World Bank Gini for the UK from 2014 is 34.1.

Illustration 1: Household expenditure Gini in urban areas; Source: Central Bank of Iran (2017)

An upward trend since 2011/2012 seems to all but nullify these positive developments, casting doubt on whether inequality reductions achieved in the latter half of the 2000s have been sustainable (Salehi-Isfahani, 2016). Other data sets which calculate the Gini from a broader array of sources point to a more substantial decline until 2012 (Milanovic, 2014). Future analyses based on stronger data are necessary to determine whether the twenty-first century has actually seen a decline in inequality or there was a bounce-back to the previous level.

Inequality and Political Shiism

In Iran, emphasis on social development has strong roots in the politics of the Islamic Revolution. As Abrahamian (2008) documents in his History of Modern Iran, the clergy around ayatollah Ruhollah Khomeini had joined forces with the socialist movement to overthrow the common enemy, Shah Reza. The religious revolutionaries eventually asserted dominance over the more secular-minded socialists. However, the progressive constitution of the Islamic Republic explicitly obliges political leaders to provide equal opportunity and work towards poverty reduction (Alaedini & Ashrafzadeh, 2016).

Social Policies

There are three important determinants of economic inequality in the Islamic Republic: social policies, demography and the oil-dependent economy. Social policies such as the influential cash transfer and subsidy programmes are behind the drop in inequality towards the end of the 2000s. Cash transfers have been identified as a particular driver of the more recent reductions in poverty and inequality of consumption, providing 28% of median income in 2011 (Salehi-Isfahani, 2017).

Current President Rouhani has pursued more conservative austerity policies since taking office in 2013. The latest budget drastically cuts welfare spending, partly induced by an increasing deficit. While not explicitly directed at inequality, the unrest of 2018 certainly derives some of its success from the renunciation of equalising social policies (“Is Austerity Really to Blame,” 2018; “Rouhani Cuts Infrastructure,” 2017).

Demography

Among demographic factors, urbanisation is a central ‘disequaliser’. Rapid urbanisation, which accompanied the structural transformation of the Iranian economy towards industry and service, has led to the creation of informal settlements and increasing housing prices. Other developments typical for industrialising countries, such as educational expansion, pull in the other direction but struggle to counteract the disequalising force of urbanisation and economic forces (Farzanegan, Gholipour and Nguyen, 2016).

Oil and the Economy

Salehi-Isfahani (2017) argues that oil rents and the ensuing growth are largely responsible for poverty reduction and simultaneous rises in income inequality in Iran. Their influence is however difficult to precisely assess because they also contribute to public revenue which is in turn used to finance the costly social programmes mentioned above. For instance, during the 2000s, the unequalising nature of the economic boom was compensated by government spending on welfare and expansion of education while poverty was in dramatic decline (Esfahani & Karimi, 2014). The political management of economic developments is therefore central in determining their consequences for economic inequality.

The economic upswing of 2017, a result of the relaxation of international sanctions, has not born fruit for many Iranians yet. Despite a doubling of national oil production, which was by far the main contributor to the spectacular growth rates, unemployment did not decline significantly as the oil production is not very labour-intensive (Kottasová, 2018).

Conclusion and Outlook

Government policy has been instrumental in reducing poverty and economic inequality throughout the times of the Islamic Republic. As the Iranian economy is however strongly dependent on oil exports, it is vulnerable to external influences such as international sanctions and fluctuations in oil prices. Similarly, internal demographic and economic structures create upward pressure on inequality. The government has been successful to some extent in mediating the impact of such factors on the Iranian economy. Economic growth during the 2000s was relatively inclusive and the effect of economic problems caused by international sanctions on both poverty and inequality seems to have been mitigated.

The return of growth, which seems to be of a relatively exclusive nature, is however spelling trouble for economic equality in Iran. Assertions by President Rouhani, that a minimum income scheme is in the making and that his economic policies will finally drive down high unemployment rates, remain to be proven. The ongoing protests are likely one consequence of current austerity politics.

 

References

Abrahamian, E. (2008). A History of Modern Iran. Cambridge University Press.

Alaedini, P., & Ashrafzadeh, H. R. (2016). Iran’s Post-revolutionary Social Justice Agenda and Its Outcomes: Evolution and Determinants of Income Distribution and Middle-Class Size. In Economic Welfare and Inequality in Iran (pp. 15–45). Springer.

Esfahani, H., & Karimi, S. (2014). The Distributional Consequences of Economic Growth and Public Spending Programs in Iran. In Economic Research Forum Working Papers.

Farzanegan, M. R., Gholipour, H. F., & Nguyen, J. (2016). Housing Costs and Inequality in Post-revolutionary Iran. In Economic Welfare and Inequality in Iran (pp. 111-128). Palgrave Macmillan US.

Is austerity really to blame for Iran protests? (2018, January 1). Eurasia Diary. Retrieved from http://eurasiadiary.com/en/news/analytical-wing/230575-is-austerity-really-to-blame-for-iran-protests

Kottasová, I. (2018, January 2) The economic forces driving protests in Iran. CNN Money. Retrieved from http://money.cnn.com/2018/01/01/news/economy/iran-economy-protests/index.html

Pourghadiri, B. E. (2012). Inequality and the rentier state: vertical and horizontal inequality patterns in Iran. SOAS, University of London.

Rouhani Cuts Infrastructure And Other Spending, Stoking Fears of Stagnation. (2017, December 11). Radio Farda. Retrieved from https://en.radiofarda.com/a/iran-rouhani-budget-cuts/28909364.html

Salehi-Isfahani, D. (2016, April 12). Is inequality rising in Rouhani’s Iran? Al-Monitor.

Retrieved from https://www.al-monitor.com/pulse/originals/2016/04/iran-rouhani-economic-inequality-rising.html

Salehi-Isfahani, D. (2017). Poverty and Income Inequality in the Islamic Republic of Iran. Revue Internationale Des Études Du Développement, (1), 113–136.

Data Sources

Central Bank of Iran (2017). Economic Time Series Database. Economic Research and Policy Department. Retrieved from http://tsd.cbi.ir/DisplayEn/Content.aspx. Accessed  8th November 2017.

Milanovic, B. (2014). All the Ginis, 1950-2012 (updated in Autumn 2014). Retrieved from http://go.worldbank.org/9VCQW66LA0. Accessed 8th November 2017.

 

Yannick Schwarz is a masters student in the Department. His research interest lies in the interplay of economic and political inequalities, with a focus on elites.