Iranian Economic Development: the Failures of Qajar Reform

Naser Al-Din Shah Qajar (1831-96)
Naser Al-Din Shah Qajar (1831-96)

Until the 1978-9 Revolution, 20th Century Iranian history was dominated by economic and political abuse by international forces: from oil concessions, to forced abdications, to assassinations. However, as much as the violence and turmoil of the period can be blamed on the British, the Russians, and then the Americans, there is an underlying theme of the inability of the Iranian merchant class, the Bazaari, to take control of Iran’s economic potential, and thus facilitate a political rejuvenation (that did in fact take place during the 1978-9 Revolution). This subjugation of the Bazaari class was, however, not the fault of the Pahlavi house, who under Reza Shah and then his son Mohammad Reza ruled between 1925 and 1978. In fact, the ‘reform movement’ of the late 19th Century in Qajar Iran served the Bazaari so badly that they were disadvantaged beyond repair.

The Qajar government made several mistakes that suppressed the activities of the merchant class: (a) foreign direct investment was encouraged in Iranian markets, granting monopolies to international powers, thus removing the influence of the Bazaari; and (b) chances were missed to effectively reform domestic sectors that would have benefitted the merchants, namely: finance, education and infrastructure.

Baron De Reuter
Baron De Reuter (1816-99)

Foreign Direct Investment (FDI)

While economic imperialism took hold of much of the developing world, the Qajar government in Iran was a rare example of a power that deliberately attempted to attract foreign capital into its economy rather than resist it. This policy was pursued in order to spur development that could not be (debatably) afforded otherwise, and to increase the capacity of the cash flow moving through the Iranian economy. Two concessions, granted in the late 19th Century, epitomise such attempts to attract FDI. The first, the 1872 De Reuter Concession, granted the British a monopoly on investment into infrastructure and civil engineering in Iran – a sector so undeveloped that it promised great returns. As the concession took effect, the British imported materials and labour to begin work on their investment, hitting the Iranian merchants so hard that mass protests broke out across the country. This was the beginning of a sour relationship between the Bazaari and the Qajar government (Baron Julius De Reuter to whom the concession was granted was in fact the same man who founded the company that has become Reuters news agency).

Another contract was sold to the British in 1890, this time in the tobacco market, revealing once again the Qajar desire for short term capital and ignorance of longer term socioeconomic issues. The concession included the granting of a monopoly to the British on the production and sale of tobacco in Iran, entirely removing the presence of the Bazaari class from the market. The Tobacco Concession, along with the De Reuter, are examples of poorly estimated development attempts by the Qajar government – on both occasions, Iranian control of their own markets was sold off for a pittance, further suppressing the influence of the Bazaari class.

Failed Domestic Reform

Despite sourcing small amounts of short-term cash from international powers, the Qajar government failed to effectively reform particular sectors of the economy and society, thus inflicting further detriment on the Bazaari class:

Finance – Perhaps the most important Qajar failure was the lack of reform in the banking system. There was no such centralised system until as late as 1888 (and in fact there was no Iranian national bank until the rule of Reza Shah in the 1920s). Therefore, there was little liquid capital for neither the state nor the Bazaari to make use of.

Education – Secondly, the government failed to reclaim influence in the education sector, dominated instead by the religious power of the Ulema. What with schooling being rare and for the privileged, and with a traditional and theological approach, the recruitment arm of the Bazaari class had very few newly trained citizens to snap up and hence expand its power base.

Infrastructure – Finally, due to failures in securing international capital, the lack of communications and systematic developments in Iran had further negative impact on the merchants. They were unable to break into new markets, conduct efficient or effective trade on a nationwide scale, or build firm economic bases from which to grow. For example, no such development such as the Trans-Iranian Railway began until Reza Shah took control of the country.


Ironically, had the Bazaari and other Iranian classes allowed the concessions to be fulfilled, the Qajar government may have had the capital available to fund the failed reforms discussed in the second half of this article. Perhaps the merchants moved against the concessions too early, and too much on principle. However, there is no doubt that the monopolies themselves, combined with the poorly executed reform sweep, suppressed the Bazaari class almost to the point of extinction. This, despite the constitutional revolution of 1905, provided the perfect platform for corporations such as the Anglo-Persian Oil Company (now British Petroleum) to move in and snap up considerable amounts of resources in the early and mid-20th Century. Had the Bazaari class been able to grow and flourish in the late 19th Century, Iran may have seen a far more prosperous time. Even now, the economic future of the country is in doubt. How different could the situation have been if the Qajar government had gotten their policies straight?


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