The global geopolitics of the 21st century is bound to be shaped by “The Epic Confrontation”, an Iran-USA conflict built up by centuries of history in each nation and their broader regions leading to a showdown.
The Economics of the “Sole Superpower”
In 1944, the Bretton Woods Conference transferred power from the UK to the US. With FDR committed to the US Navy securing the world’s sea-lanes even after the end of the war, the world’s central bankers there seated made a deal.
1. Most nations would back their currency with a dollar peg.
2. The US would back its dollar with a gold standard.
US surpluses in all things kept this arrangement liquid while the US Navy on the sea-lanes kept it safe. With its productive capacity, the US sold surpluses abroad, ensuring good jobs for many US workers. Furthermore, those left behind were often cared for by an expanding US welfare state.
The expanding US welfare state and military commitment in Vietnam made France’s President Charles De Gaulle skeptical of the façade of US wealth. He was already skeptical of US good intentions so he had the French central bank request gold for US dollar deposits. De Gaulle’s suspicions were right as the United States President Richard Nixon “suspended” (actually he effectively abolished) the gold standard. Thus the US dollar inflated dramatically from 1971 to 1979 as the “suspension” made De Gaulle’s skepticism contiguous throughout the world’s central banks.
In 1979, Paul Volcker became head of the US central bank. He cut off money printing, generating bankruptcies and job losses. As unemployed American workers got new jobs for lesser wages and as remaining American corporations cut costs, a limited supply of US dollars circulated through a more profit-oriented US economy, halting inflation. This ruthless pragmatism persuaded the world’s central banks to give the dollar another chance.
Thus by the end of Volcker’s term in 1981, the US dollar’s value remained stable even as money printing resumed. Just as imperial expansion had persuaded Roman elite’s millennia earlier to shift from alliances with the masses to one with provincial elites so the US elites decided. The result was that after its 1971-1979 crisis, US-led globalism only deepened.
While the US elite was only too happy to replace the masses of its own citizenry with foreign elites, it was careful not to let any one nation enjoy too much advantage. Here the success of Japan’s economy as a rival to America’s was especially concerning.
In the Plaza Accord of 1985, the US actually got Japan to prop up the US dollar less to make its wages competitive with those of the US. Japanese corporations shifted towards real estate investments, then used such assets with bidded-up value to attract loans to keep core competencies financed.
Iran
Historically, Iran has been much more affluent but this changed during the Renaissance when the West used sailing ships to redirect trade routes. By the 19th century, the ever-rising advancement of the West became an irresistible pole of attraction to Iran. Iran however was continuously outpaced.
Land law reform from the traditional Muslim model to the Western model secured the aristocracy’s landholdings but this incentivized rentier behavior as opposed to active investment. Iran became a food importer and even the few exceptions had their ability to feed the rest of the nation cut when crises cut railroad links. The world wars were thus times of famine in Iran.
With the peasantry brutally, cruelly impoverished, peasants left the countryside in large numbers for the city. Marginal service sector employment allowed for marginal living standards. To provide a good life for his people, the Shah for the first few postwar decades, Muhammed Reza Pahlavi, sought to end dependence on goods exported by foreign industries with an import substitution policy that subsidized the establishment of domestic industries.
The resulting failure was connected to the foreign cash Iran enjoyed. In the 19th century, the Shahs attracted money by selling concessions of monopolies to European investors. In the 20th century, the most lucrative of all, the oil industry, provoked growing resentment of Iranians to monopoly concessions. The concessions were cancelled and the oil industry was nationalized with Iran getting more foreign cash than ever before.
When this large revenue stream was combined with an industrial policy of import substitution, the result was Dutch Disease, named after the textbook example once provided by the Dutch economy. Basically the government of a nation with one large, lucrative industry attracted an abundance of foreign currency boosting it confidence in its wealth. The confident government would then accelerate the printing of local currency to subsidize worthy projects. Since it was undesirable for money printing to produce inflation, a currency peg was maintained with exchanges of foreign currency used to back the value of the local currency. This made the local currency a strong currency. Workers paid in a strong currency are expensive. Investors prefer that industry be in cheap-labor nations; these will outcompete their counterparts in expensive-labor nations. Even industries that do employ expensive labor can therefore ill afford to employ laborers that have not already been educated and trained.
The effect of this was that Iranian industry was so unprofitable that even the small sectors initially established required continual large subsidies to be maintained, never mind expanded. Accordingly the Shah of that time adjusted to this in two ways. The first was the White Revolution in 1963, a revolution form above. This was basically supposed to be a land reform in favor of the peasants. The Shah bought estates at market value and then resold them at a discount. This helped only a minority of the peasants and in some cases, the aristocracy retained its landed assets.
The second adjustment was zoning laws. The Shah understood that mobs of the poor and desperate become the armed forces of revolutions. While Iranians of the city cores were loyal and employed by industry and government, the marginal suburbs were constantly subject to demolition by urban renewal projects.
By the end of 1977, simmering tensions provoked by misdevelopment came to a boil. At first, the largest opposition tendency was the Left. The Left however were disorganized and the theocratic opposition was tightly organized around Grand Ayatollah Ruhollah Khomeini. The Left therefore fought the Revolution under his leadership. By the beginning of 1979, the Islamic Republic had replaced the Imperial State.
Almost immediately on acquiring power, Khomeini’s men protested against his populism. This had provoked an acceleration of the flight of the Iranian peasantry to the suburbs as lethal violence against Shah-era officials responsible for urban renewal and heavy social subsidies promised a bright future for Iranian suburbia.
The Grand Ayatollah instead insisted on justice for the oppressed, using his indulgence towards the suburbs to attract loyalists to fill the gaps caused by the purge of the Left and the monarchists. Once, however, he was satisfied with the government in power, he renewed urban renewal and initiated a still-ongoing decline of social subsidies.
To patch the gap in educated personnel caused by purged in Shah-era officials, he restored the education system after a few years of suspension under the slogan of Cultural Revolution. This restoration also caused a restoration of secularization and Westernization.
His government’s cooperation with foreign aid workers promoting population control was motivated by ongoing concerns with providing too large a workforce with stable, well-paid employment. The result was that the average Iranian woman shifted from being a mother of 7-8 to one of 1-2.
This freed her to join the workforce which also meant that she pursued higher levels of education. Thus Iranian women joined Iranian men in being secularized and Westernized in the Islamic Republic.
The 1980’s witnessed a crisis in Iranian agriculture as landlords and peasants argued over whether the Revolution meant land redistribution. In the 1990’s the Islamic Republic ruled in favor of the peasantry and thereafter farm production doubled. However the population grew by a factor of 2.5 leaving Iran even more dependent on imported food.
One way that Iran was different, truly different, as an Islamic Republic, as opposed to an Imperial State was that industry stagnated for the opposite reason than previously. Before a strong currency cursed Iranian industry with Dutch Disease; under the Ayatollahs, a weak currency cursed Iranian industry with hyperinflation.
While reformist leaders as much as hardliner leaders were the public face for the same Supreme Leader, the Islamic Republic did consider collaboration with the USA briefly. They had almost gone to war with the Taliban and assisted in their overthrow by the USA. Bush’s 2003 “Axis of Evil” Speech renewed their commitment to a revolutionary conquest of the Mideast as inseparable from the defeat of USA hegemony. Even the JCPOA deal with the US in 2015 only covered nuclear weaponry not missiles, proxy warfare or hostage-taking. Trump cancelled the JCPOA; Biden wants to rejoin as part of a grand strategy requiring that Iran be balanced against its Mideast opponents. There is however no real balance and once restoration of the JCPOA fixes the worst of Iran’s financial problems, it will be able to expel the USA from the region one way or another. This sets the stage for Iran’s confrontation with its Saudi archrivals.