The Political Economy of Credit Subsidy in Iran, 1973–1978

During the last decade of the Pahlavi rule in Iran, rising oil income financed a very extensive development program in which both the state and the private sector accumulated huge amounts of wealth in real and financial capital. Having no direct access to the oil riches, the private sector accumulated much of its new wealth by direct and indirect subsidies from the government. Through various mechanisms, the state channeled resources to the private sector in an attempt to foster capitalist development of the country. While the strategy was successful insofar as it resulted in massive investment by the private sector, it was not without its ill side effects. This article is a study of the consequences, both intended and unintended, of one specific conduit for resource transfer—credit subsidy.