American University
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Islamization of the economy: The post-revolutionary Iranian experience

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posted on 2023-09-06, 03:03 authored by Mehrdad Valibeigi

The ideological and theoretical underpinning of post-revolutionary economic policies in Iran under the banner of "Economic Islamization" was based on the principles of Islamic economic thought. Islamic economic theory is not, however, a unified body of thought. This thesis identifies two conflicting approaches to private property rights and the economic role of the state, a "Liberal" and a "Radical." The liberal approach does not consider limits to legitimately acquired private property and advocates a limited economic role for the state. The radical approach emphasizes distributive equity through public ownership and advocates limited ownership of private land and capital. It considers a bigger economic role for the state. The extent of these differences undermines their consensus on relatively less important issues of usury prohibition and Islamic taxation. Theoretical and ideological conflicts between the two "Radical" and "Liberal" factions of the ruling Islamic fundamentalists resulted in the incoherent policy implementation of economic Islamization. The most incoherent results were in the areas of land reform and the nationalization of foreign trade programs. Among the few consistent ones was the early nationalization of a large number of industries and mines, the banking system and all insurance companies. The nationalization drive resulted in the expansion of public ownership and control in the industrial and financial sectors of the economy. As a result, the state sector now completely dominates the banking and insurance industries, produces up to seventy percent of the value-added in the industrial sector, employs three times more employees than in the pre-revolutionary period, and, despite the reduced defence budget, absorbs a significant portion of the GDP. Given this uncertain and unstable economic environment, the private sector has only grown in the commercial sector. There has been a significant reduction in large scale and long term investment in the industrial and manufacturing sectors. In retrospect, the most salient characteristic of the economic Islamization program has been its lack of theoretical consistency and its incoherent policies. Its most important legacy and long lasting impact has been the expansion of the realm of public ownership and control in the industrial and financial sectors of the economy.







Ph.D. American University 1991.


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