Can Iran’s economy be rebuilt? Have thinkers in economics, humanities, and political science in Iran concluded that the Iranian economy can be made dynamic, advanced, and developed again? Or not?

There are many shared historical experiences and similarities between Iran and China. Both are legacies of the long-lasting empires and civilisations in West and East Asia, respectively. Like other great Asian empires, Iran and China were confronted with the expansion of the European imperial powers in the early-nineteenth century which ultimately led to the dislocation of these ancient empires.1 Both countries had resisted pressures towards peripheralisation in the global economy by the creation of nationalist popular revolutions and by building modern nation states and identities in the first half of the twentieth century. Despite different political systems, cultures, and external relations, both Iran and China have been trying to escape from external pressures and internal socio-economic backwardness by the modernisation of their states, societies, and economies via a state-led catch-up development strategy. These efforts led to the rise of China in the late-20th century and the emergence of postIslamic revolutionary Iran 1978/79 as a “contender state”2 to the hegemony of the United States (US) in West Asia. This article studies the impacts in the 19th century of the European-dominated global system on Imperial China and Iran. The expansion of European imperial powers through trade domination and (semi-)colonisation exposed these two empires to the pressures of marginalisation, peripheralisation, internal strife and loss of territory, ultimately leading to the responses of social revolutions, nation-state buildings and state-driven industrialisation. These efforts led to the rise of China in the late-20th century and the emergence of Iran as a “contender state” against the hegemony of the US in the Middle East and/or West-Asia after the Iranian Islamic Revolution of 1978/79. When the Trump Administration3 pulled out of the Iran nuclear deal, Iran’s long-awaited economic rebound stalled through the continuation of sanctions. Trump’s Administration also announced many new critical sanctions on Iran’s strategic institutions, economic sectors, and the key elements of the ruling elites. After more than 40 years of isolation, embargoes and threats of war, Iran is far from being recognised as a regional power. It has become accustomed to isolation because it aims to challenge US hegemony and efforts to make “a geopolitical order” in the Middle East before a successful catch-up drive. As for China, it generally refrained from offensive external relations, and after a century and a half of struggle against external pressures, in the early-21st century, the People’s Republic of China (PRC) became the world’s second largest economy and a modern industrialised power, while Iran is still seeking regional power status in West Asia. China, having become the second largest economy, has changed strategies to pursue more assertive external relations.This development raises two key questions: why did China succeed in rising as an industrialised regional and global power, and has Iran’s development strategy failed so far? I argue that the main reason of post-revolution Iran’s failure to become the regional hegemon comes from two interconnected issues: (i) the failure of its economic development strategy, which was mainly caused by (ii) the “offensive” external involvement in its own region before a successful catch-up process. Iran’s catch-up development strategy, which is the main material basis for the country’s rise, was hampered after the revolution by its “offensive, revolutionary and military oriented foreign policy”. This strategy blocked Iran from access to capital, information and technology concentrated in the core area of the global economy dominated by the US. Unlike Iran, China’s successful catch-up industrialisation was driven, in part, through rapprochement and consensus between Chinese leaders and the US and its allies in 1970s. This strategy led China to distance itself from Mao’s revolutionary offensive foreign relations and replace it with “defensive” and peaceful foreign relations in the era of its catch-up industrialisation (1980–2000s). The change and reorientation of China’s external relations paved the way for China to access capital, information, and technology necessary for its successful economic development and eventually its rise. Theory and practice of state, market, and development The forms and relations between state, society and the market in both China and Iran differ from liberal, pluralistic countries. This raises several questions: (1) What is the form of political authority and market regulations in China and Iran? (2) How can we conceptualise the configuration of China’s and Iran’s state-society and market forms, compared with the liberal state-society and market model? (3) what are the forces behind China’s and Iran’s socio-economic policies and development?

Unlike the (neo-)realist perspective on the fixed state and state function, there is no fixed form of the state, but, rather, a structure through which social forces and interest groups operate. At the global level, the state-society and market complex constitute the basic entity of international relations.4 Forms of political authority vary through differences in the degree of autonomy in relation to both internal and external environments, including the inter-state system and the global political economy. 5 In advanced liberal societies, the state builds consensus between capital and labour in the development of socio-economic policy. In authoritarian and/or centralised societies, a framework of collaboration and domination between state and society, and capital and labour, is imposed in an authoritarian manner, reflecting the relative autonomy of the state from society.6 Generally, we can make a distinction between two ideal types of statesociety, and market complexes in international relations: the “liberal state-society, market complex” (LSMC) and an “authoritarian” or “centralised state-society, market complex” (CSMC).7 The liberal statesociety complex which is characterised by a relative distinction between a governing or political class and the ruling class – the latter being mainly the capitalist class whose interests are predominantly represented by the governing class. One of the conditions for the creation of a LSMC is the existence of a strong civil-society and market with relative autonomy of classes and interest groups – such as capitalist, middle, and working classes. The emergence of a class-divided civil-society and civil-society organisations is the product of capitalist industrial development. In the LSMC, civil-society is relatively “self-regulating” because state intervention is less important in ensuring civil-society’s proper functioning.8 On the other hand, in the CSMC (e.g. China and Iran), a distinction between ruling and governing classes is negligible. The “state class” derives its power from control of the state apparatus and intervenes in society and market.9 In this configuration, autonomous social forces, mainly a strong capitalist class, are either underdeveloped or dependent on the state. Neither could assert their interests independent of state power. Thus, in the CSMC, a framework of collaboration between capital and labour is imposed in an authoritarian manner, reflecting both the state’s autonomy from society and the market, and control over domestic and external relations. Together with the centralisation of state power, the promotion of a state-led development strategy (i.e. long-term socio-economic, political, and cultural modernisation) is one of the driving forces of the state-class.China’s successful capitalist industrial development, accompanied by the ambitions of its leaders, created the propensity to gain a larger share of the world’s economy and resources,10 and are embodied in the Going Out Strategy and the BRI.11 Despite the geopolitical challenges of realising this, China’s industrial development – including military industrialisation and the formation of multilateral institutions like the Asian Infrastructure and Investment Bank, Shanghai Cooperation Organization (SCO), and BRICS (Brazil, Russia, India, China, and South Africa) – has facilitated its rise in the global wealth-power hierarchy. Whilst China left the global economy’s periphery, its success and integration into the global political economy’s core comes at the cost of domestic control. The Iranian experience of state-led industrialisation (mainly in 1960s and 1970s) was a success story amongst Asian developmental states. However, Iran’s successful development strategy was discontinued by the post-revolutionary “offensive, revolutionary, and military-oriented regional-external relations”, which, as stated, blocked access to capital,information and technology concentrated mainly in the US-dominated global economy. In contrast, China’s successful catch-up industrialisation was driven, in part, by rapprochement and consensus between Chinese leaders and the US (and its allies) in the 1970s when China reoriented Chairman Mao’s offensive and revolutionary external relations towards defensive and peaceful relations, thereby facilitating access to capital, information and technology for its successful economic development and eventual rise.The global wave of state-led industrialisation The post-imperial Chinese and Iranian political economy of state-led industrialisation is neither unique nor exceptional. Considering the rise and expansion of industrial capitalism from Europe over 250 years, the CSMC has emerged in different times and spaces as a response to two external pressures towards colonisation and domestic backwardness in political and socio-economic structures. The dialectic of these two factors led a limited number of the leaders of peripheral states to resist peripheralisation in the emerging global political economy by forming a centralised state and achieving self-reliant catch-up development from above.12 After WWII, some Asian states such as China, the Asian Tigers (i.e. Hong Kong, Singapore, South Korea, and Taiwan), Turkey, Iran, and India tried to resist economic backwardness and their peripheral position in the Westerndominated global political economy via autonomous, state-led catch-up industrialisation strategies. None industrialised under a liberal regime.13 European expansion, peripheralisation and resistance in China and Iran China’s imperial disintegration and peripheralisation in the Europeancentred world economy began when Europeans appropriated shipping and merchant activities from indigenous traders in the early-19th century.14 From the late-19th century until 1949, the heavy price that China paid for resisting such an existential threat to its survival included millions of victims, the systematic appropriation of large areas of its territory, the swamp of a brutal civil war between nationalist and communist fronts, and the formal loss of Taiwan. Nevertheless, in 1949, the Chinese Communist Party (CCP) Chairman, Mao Zedong, grandly announced that his people had finally brought a decisive end to the “century of humiliation” at the hands of internal and external enemies. Hence, with the establishment of the PRC, the CCP proclaimed itself the vanguard and supreme saviour of the Chinese nation. As a result, for more than three decades, nationalist calls were completely eclipsed by the strength of the new official political system and ideology. Equally, from the mid-19th century onwards, Persia was confronted with the expansion of European imperial powers (in particular Britain and Russia) who began to have a significant military, political and economic impact on the country’s political economy.15 The competition between Russia and Britain invited the Persian court to engage in balancing acts between its two enemies. European expansion eventually led to the Persian Empire’s peripheralisation and the incorporation of its economic system into the global capitalist system,16 which marked the beginning of the local economy’s disintegration and subordination to the capitalist world economy, the growth of foreign trade, and specialisation in the production of raw materials.

The political economy and security strategy of postrevolution Iran (1980–2020) After the emergence of the Islamic Republic of Iran (IRI) during 1979/80, its political economy of development and external relations drastically changed. The core of Iran’s post-revolutionary foreign policy centres around the “export of the revolution” and efforts to create a “geopolitical order” in West Asia. These new external relations led to a shift in the hierarchy of the triad between oil surplus, economic development, and security strategy in Iran. While the Shah used oil revenues mainly for economic development, the post-revolutionary ruling class emphasised the militarysecurity apparatus, thereby subordinating the “national development strategy.” The core of external relations was gradually redesigned by the leaders of the IRI as an “offensive” military strategy (predominantly in the Middle East). In this context, the IRI’s ruling class, among others, attempted to mobilise globally anti-American revolutionary Islamic-oriented peoples and organisations for the realisation of its strategic goals. Despite contradictory interests among factions of the ruling class, external relations remained unchanged. This core of external regional relations was aimed at forging a geopolitical order and gaining hegemonic status in its own region. This policy-strategy leads to the consequence of the US and its regional allies blocking and hindering Iran’s ambition and national development strategy. A key force in this strategy is the Islamic Revolutionary Guard Corps (IRGC). Its main purpose has been to protect the revolution from within and beyond Iran’s borders, while expanding Iran’s sphere of influence. 43This key aim of the IRI gradually became more influental in Iran’s economy and politics. The elite Quds Force – responsible for the IRGC’s foreign operations – emerged as one of the most significant Iranian armed forces, maintaining a network of para-military and Islamic revolutionary forces in Lebanon, Iraq, Syria, Yemen, and elsewhere. This strategy was confronted by the US who attempted to trigger a regime change using, among others, strategic and structural sanctions on Iran’s politics, economy, and military. The key sanctions against Iran’s oil and military industry came from the United Nations Security Council, the US and its allies. Although UNSC sanctions were lifted in 2016, sanctions by the US and its allies were reimposed after the US withdrawal from the Joint Comprehensive Plan of Action (JCPOA) as part of President Donald Trump’s “maximum pressure campaign” which has been continued under President Joe Biden. By targeting strategic economic sectors and companies (including oil, military, finance, and automotive), blocking Iran’s ability to earn revenues from oil exports and to import and export weaponry and military technology,44 US sanctions have hit Iran’s economy hard. Through the dollar’s position as a global reserve currency and the designation of the IRGC, among others, as a terrorist organisation, the US has also restricted companies from other countries from doing business with Iranian companies. In turn, this hostile environment reinforces the IRI’s determination to develop its domestic military capabilities and to mobilise social and material forces in the Middle East aimed towards pushing the US out of the region.Thus, the experiment of Iran’s rapid industrialisation after the revolution was hindered. The causes of this problem may be traced back to the external relations mentioned above, which have also influenced the policy of the political economy of development. As the Iranian economy remains heavily based on fossil fuels, GDP growth is largely driven by the export of oil and gas45 and less based on the productivity of a modern (non-oil) sectoral economy. Although many modern economic sectors exist in Iran’s economy, their growth and development occur at a very slow rate as sanctions have prohibited Iran from accessing capital, technology, and information (see also Figure 2). The external relations, based on conflict, and the political economy of development policies, which mainly emphasise the security-military sectors, are a permanent factor in Iran’s development crisis. Below, we present selected economic data which indicate the structural impasse of Iran’s economy after the revolution.Oil production and export remain key to Iran’s economy despite production remaining below pre-revolutionary levels (Figure 1). Shown in Table 2 and Figure 2, we also see that Iran’s manufacturing growth rates were high compared to other developmental states and even outperformed India, Indonesia, and Turkey, but also that the post-revolutionary change in domestic policy priorities that allocated oil revenues to the development of the security apparatus impeded Iran’s success. This left Iran, at US$64bn, behind many of its peers and even the city-state of Singapore (US$65bn). Another major post-revolutionary problem is high inflation and currency depreciation (Figure 3), which, coupled with low oil production, prevented high economic growth and the development of trade relations despite the temporary lifting of sanctions after signing and implementing the JCPOA in the mid-2010s (see Figure 4). These impediments to Iran’s industrialisation are reflected in its GDP which grew by only 52% (1976–2018), since 1991 22% of which has been dependent on oil. For the average Iranian, this means that pre-revolutionary incomes were higher (see Figure 5). To sum up, the Islamic Revolution severely distorted Iran’s industrialisation. The Shah’s use of oil revenues and the security apparatus in service of rapid state-led industrialisation with de-escalation of tensions in external relations was crucial to Iran’s socio-economic development strategy. The pivot towards offensive external relations where oil revenues are used to develop military-security capacities led to sanctions, the subordination of economic development in the triangular strategy and a lack of capital, information, and technology. To create the conditions for the lifting of sanctions and realise its long-awaited catch-up development strategy, this article contends that Iran needs to change its external relations back to “defensive, peaceful” external relations. Unlike Iran, China’s successful catch-up industrialisation was driven, in part, through rapprochement and consensus between Chinese leaders and the US and its allies in 1970s. This strategy led China to distance itself from Mao’s revolutionary offensive foreign relations and replace it with “defensive” and peaceful foreign relations in the era of its catch-up industrialisation (1980–2020). The change and reorientation of China’s external relations paved the way for China to access the capital, information, and technology necessary for its successful state-led development, and eventually, its rise.