History of Industrial Production

Modern factories did not emerge into an industrial vacuum. Before mechanization, Iranian production depended heavily on crafts, while machinery-based establishments remained uncommon. Hassan Hakimian’s historical account identifies weak transport connections, limited technical skills, and competition from lightly taxed imports among the obstacles to factory development. Industrialization therefore required more than purchasing machinery: it also depended on connecting markets and creating institutions capable of supporting production. s1

Under Reza Shah, who ruled from 1925 to 1941, the government moved from encouraging private investment toward more direct industrial intervention. Factories producing textiles, sugar, matches, and glass addressed existing consumer demand; cement and chemicals expanded the range of domestic production. Import substitution meant making goods at home that had previously been purchased abroad. s1

The new plants were not uniformly secure businesses. The Watan textile factory in Isfahan, for example, relied on government assistance and purchasing support. Wartime occupation and difficulties importing machinery subsequently disrupted industrial development during the 1940s. Establishing a factory and sustaining competitive production were different achievements. s1

After the early postwar expansion and the foreign-exchange crisis around 1960, industrial policy became more explicitly interventionist. Protection of the domestic market, access to finance, and public investment helped support manufacturing expansion. Import substitution changed the composition of imports rather than simply eliminating dependence on them: machinery and intermediate inputs became increasingly important. s2

During the later Pahlavi period, government investment concentrated on activities such as basic metals, mechanical engineering, chemicals, and petrochemicals. These required resources beyond the capacity of many private investors. Public infrastructure and heavy industry also supplied services, materials, and technical experience that could benefit private manufacturers. s2

Oil revenues helped finance this investment system. Their importance complicates any division between an oil economy and a manufacturing economy: petroleum income could support industrial diversification while making investment dependent on external earnings. The historical question is consequently not just whether factories multiplied, but how their financing, inputs, and markets fitted together. s2

The 1979 revolution transformed industrial ownership. Nationalization and transfers to foundations accompanied disruption caused by managerial departures, indebted enterprises, labor conflict, and uncertainty over control. Foundations, commonly called bonyads, became significant holders of productive assets alongside the state. These changes combined political redistribution with attempts to keep enterprises operating. s3

During the Iran–Iraq War, production faced competing claims on resources, restricted access to foreign exchange, and difficulties obtaining imported inputs. Parvin Alizadeh’s historical assessment also emphasizes domestic policy choices, including administered prices and preferential exchange rates. Her explanation treats wartime industrial difficulties as the interaction of external pressures and internal institutions. s3

Postwar development planning sought reconstruction and greater production of intermediate and capital goods. Announced investment priorities, however, were not proof of completed industrial transformation. Alizadeh notes limitations in the disaggregated evidence available for assessing outcomes. This history is best read through separate questions about capacity, actual output, ownership, and dependence on imported technology; one measure cannot establish all four. s3

Successive industrial policy settings

The arrows indicate chronological transitions in policy settings. They do not measure production growth or imply that one policy alone caused the next phase.