Political Economy of Industrial Policy in Iran

The importance of industrial development in discussions of economic growth is emphasized due to the fact that productive activities are the main drivers of economic growth and national development. Industrial development refers to the structural transformation of the economy, accompanied by increased levels of production and technological advancements. However, countries pursue different paths to achieve industrial development, and analyzing this phenomenon is not solely limited to economic considerations; it requires a political economy perspective. Analyzing the underdevelopment of industry in Iran from a political economy perspective can reveal various dimensions and, to some extent, help identify the sequence of events through political analysis, contributing to the transformation of the country’s industrial structure. This article aims to examine the influential factors contributing to the underdevelopment of industry from a political economy standpoint. Despite the emphasis on development plans for industrialization, an examination of the industrial sector over the past decade suggests an inherent incompatibility in the country’s industrial structure. The availability of cheap resources concentrated on resource extraction and the limited capacity of the industry to withstand external shocks due to its dependence on these resources, limited competitiveness and low diversity of the export basket, inappropriate investment environment (high risk), and reduced capital formation in this sector all indicate the inefficiency of the country’s industrial structure. Over the past decade, the country’s industry has not only failed to utilize existing capacities effectively but has also suffered from the incapacity to enhance its potential in this sector. This trend will continue to weaken the industry and mining sector and reduce production capacity. From a political economy perspective, this underdevelopment can be analyzed through inappropriate institutional structures, the influence of political and social powers in shaping industrial policies, low technological capacity of supported enterprises, low capacity of economic organizations (competitiveness), mismanagement of rent distribution, political influence in lobbying and rent-seeking, and the expansion of state and quasi-state ownership.