Planning and Budgeting

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This paper tries to study the emergence and changes of mechanized industry in Iran within Qajar Dynasty (mid-19th century) and the Islamic Revolution triumph (1978). It focuses on the governments role in delayed industrialization, and accordingly surveys the governments role in building institutions and commercial policy-making for industrialization. Since governments nature and its role in economy has changed during different historical times, this long era has been divided into some periods. In the first period, which starts in mid-19th century and ends in early 20th century, patriarchal and traditional Qajar Dynasty was unable to play a developmental in Iranian economy. This factor along with free trade, which was imposed on Iran at that time, barred the way of emerging domestic industries protectionism. Hence, Irans first experience for industrialization was a failure. During the period between the two world wars, Iranian government was restructured and played a developmental role in the national economy. Irans administrative system reforms, national financial and monetary system reform, internal security level, the approval of the laws that strengthened the property rights, educational system reform, investments in physical infrastructures and protections through customs tariff paved the way for governmental as well as private investments in mechanized industries. It was in this period that Irans mechanized industry was founded. Third period (1941-1953) covers chaotic years. Allied forces occupation of Iran, interruption in the global trade within the war years, chronic political and economic instability due to central governments weakness and reinforcement of insurgent forces and finally Irans oil embargo in the later phase of this period were all against the rapid industrialization growth. In the fourth period (1955-1978), when western influence domain as well as foreign aids and oil revenues in Iran were increased, the dictatorial power fundaments were augmented and again the government took a new role in national economic and industrial development. It was in this period that Planning Organization was established and four developmental plans were executed. The government made great investments in physical infrastructures, human resources development and production capacity building especially in industry sector. It this period, the government deliberately supported the formation and increase of economic power of an emerging industrial investors class. Increase of economic power of an emerging industrial investors class. Protectionism was made in the framework of imports replacement strategy in this period. The government followed its policy by stabilizing foreign exchange rate, granting easy and inexpensive credits, supplying low-cost energy for industries and suppressing labor groupings. The establishment of a now institution called Industry and Mines Development Bank in this period had an important role in domestic private sector development and foreign investment extension with the participation of Irans private sector. Although these policies and measures were followed by rapid growth of domestic industries, full-fledged protectionism lead to semi-monopolistic industry structure in the domestic market and lack of technological movement. The industries that emerged in this way in the country were unable to compete with rival foreign products. Furthermore, Irans mechanized industries badly needed the imports of capital goods, intermediate goods as well as foreign companies technical and counseling services, Hence, one could argue that the other side of industrial development in the framework of imports replacement strategy was too much dependence on oil export revenues. Indeed, Irans dependence on oil and its industries Achilles heel before the Islamic Revolution.

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