In Defiance of Rentier-State Theory: The Welfare System in the Islamic Republic of Iran

Kevan Harris, University of California-Los Angeles


Inspired by Joseph Schumpeter and Werner Sombart, sociologists in the United States have embraced the study of fiscal policy with gusto over the last two decades. These scholars have produced sophisticated monographs on North American and European state formation and political economy (Martin et al. 2009; Prasad 2012). These authors hold that, “in the modern world, taxation is the social contract” (Martin et al. 2009, 1, emphasis in original), and given the reams of qualitative and quantitative data on taxation at hand, the field continues to produce innovative work (Prasad 2018).

Yet if taxation has fully moved from explanandum to explanans—so that “different forms of the tax state explain many of the political and social differences between countries” (Martin et al. 2009, 14)— then much of our modern world may remain terra incognita. A sociology of taxation which largely focuses on social contracts in wealthier countries implicitly has a less prestigious flip side: a sociology of non-taxation which purports to explain social and political processes in poorer and middle-income countries.

This sociology already exists, largely created to account for Middle Eastern authoritarian exceptionalism, and it does not explain much of anything. This is the theory of the rentier state, which is summarised as follows: States that accrue sufficient revenue through non-tax sources do not need to elicit consent or engage in bargaining with subject-citizens for the purpose of resource extraction. Instead of taxpayers giving up material resources from below in exchange for collective public goods including social welfare policy, rentier states allocate material resources from above in exchange for patrimonial allegiance. The absence of taxation results in the absence of a social compact, and a perverse and stabilising “authoritarian bargain” is installed, whereby social policy acts as a bribe for political complacency.

Below I examine this theory’s problems for the study of social policy and politics in the case of Iran. Most Iranians do not regularly pay income taxes. State oil revenues have funded the bulk of the country’s welfare programs since the 1960s. Yet Iranian reality stubbornly does not pay heed to rentier state theory. The two decades in which unprecedented allocation of oil revenues towards social welfare programs took place in Iran—the 1970s and the 2000s—ended with two remarkable and contentious social upsurges in the country’s modern history: the 1979 revolution and the 2009 post-election “Green” movement. In both cases, those Iranians on the streets were not entirely excluded from the state’s oil-funded social policies. On the contrary, their own upward social mobility had usually been bound up with these policies. Through the lens of the new fiscal sociology, Iran’s lack of taxation politics would lead us to view welfare policies as abstract authoritarian bargains or stabilising techniques of governmental control.

Through the lens of a different sort of sociology we could instead view Iran’s welfare system as an institutional mapping of conflict and compromise between different social strata, status groups and elite actors inside and outside the state. In this manner, we can identify mechanisms outside of the taxation nexus by which expansions in welfare provision can enlarge and empower particular social classes and status groups, who in turn may make new demands on the state (Harris 2017).

Few scholars have systematically traced the formation of social policy across the postcolonial Middle East. The rentier paradigm generally sufficed as an explanation. Unexpected waves of unrest in 2011 from Tunisia and Jordan to Bahrain and Saudi Arabia should have undermined the notion that social policy functioned as a “bribe” which lulled these countries’ populations into political complacency (see Gause 2015 on Saudi Arabia). Yet we still read accounts of the bribe in media and scholarship. The spectre of the rentier paradigm haunts our ability to make sense of the region even as large segments of these countries’ populations revolt against the “authoritarian bargain” that rentier theory insists is stable and operational. The rentier-state argument would make sense if all states formed in similar ways and proceeded along similar paths of development. It would also make sense if the origins of European welfare states were as uniform as the rentier paradigm portrays them.

There is an enormous literature on European and US welfare state formation, through which comparative-historical sociology partly became a recognisably distinct intellectual field (Amenta 2003). Welfare institutions can foster or inhibit particular social coalitions that influence individuals’ actions towards the state, but to reduce this to “the interests of the moment” elides the historical pathways whereby state welfare expansion intertwines with contentious politics and social bargaining, even in the absence of taxation. Studying the welfare state involves much more than looking at the sources of state income. As Robert Merton pointed out for welfare benefits distributed by large political machines in US cities, “it is important to note not only that aid is provided but the manner in which it is provided” (1949, 49). For the case of Iran, examining the state’s pathways in enacting new social policies allows us to complement the politics of production, usually connected to natural resource extraction, by analysing the politics of distribution. This can illustrate patterns of political organisation and conflict that earlier analyses have overlooked by focusing solely on the country’s supposedly rentier qualities.

Legacies of a Late Developer

The Islamic Republic of Iran did not come into existence with a tabula rasa but instead was built upon the organisational foundations of the Pahlavi monarchy. The Pahlavi monarchy was, as Alex Gerschenkron might describe it, a developmental dictatorship. The Shah of Iran, like his father, aspired to “catch up” with Western countries through the transformational power of the state; indeed, he boasted about it. The real model of kingship was not the ancient Persia of Cyrus, but the imperial Prussia of Bismarck.

The developmental state of the Pahlavi monarchy was crafted both by technocratic fashions from above as well as social demands from below. Iran’s Constitutional revolution of 1906–1911 laid out the étatist reforms which were then implemented by an Ataturk-inspired Reza Shah in the 1930s. Labour unrest of the 1940s and the oil nationalisation movement under Mossadeq during the 1950s created the policy template for the Shah’s modernisation drive of the 1960s –1970s. Social welfare policy reflected prevailing modernisation theories, and targeted military cadres, civil servants and key workers in the industrial and oil sectors (Schayegh 2006). Landed elites were forced to break up estates to make way for capital-intensive agriculture, peasants were expected to turn into wage-workers, and trade merchants were shunned in favour of a new industrial elite. Crafting the future society dreamed of by the Shah and his technocratic agencies required the use of welfare policy as a tool of social engineering. The Pahlavi state planned for a Meiji-styled revolution from above. In its stead came thundering a revolution from below.

From Mobilisation to Social Policy and Back Again

As social theories of revolution predicted, the 1979 rupture in Iran enlarged the state. This was accomplished not only by adding on to the public sector but also by creating a series of parallel institutions alongside the old Pahlavi bureaucracies. These revolutionary organisations, including crucial ones purposed for welfare, allowed loyalists to Ayatollah Khomeini to both absorb social mobilisations from below and outflank revolutionary rivals on the secular and Islamic left. When Ba’athist Iraq invaded in late 1980, Khomeinist cadres still in the midst of revolutionary competition were forced to lock in these parallel structures of governance as tools of war mobilisation. In subsequent interviews, key members of the new government point out that the Islamic Republic hardly relied on existing notions of “Islamic economics” to run the state. Instead, the social policy system that emerged took the shape it did because of war exigencies, social demands and intra-elite bargaining (Ahmadi-Amui 2003).

As the war dragged on, Iran’s government increased material incentives for popular support, by creating both a basic consumption safety net for the poorest strata and new pathways for upward social mobility in educational institutions and a burgeoning public sector. In the 1982 nationwide test for entry into the country’s re-opened university system, slots were allocated to “martyr” categories—families of war causalities and military participants were key targets. Yet this “revolutionary quota” also included people not fighting in the war at all, but rather serving the “cause of the revolution” in other parallel organizations. As the war continued, the revolutionary quota rose from 15% to 35% of public university slots (Habibi 1989; Sakurai 2004). The category of “martyr” became secularised, as it turned into a political distinction for those who supported the state and their families, resembling the “Stakhanovite workers” and “everyday heroes” in Russia during the 1930s that Sheila Fitzpatrick (1999) analysed.

Just after the war’s end, this revolutionary quota was further codified into the Law to Facilitate Handicapped and Volunteer Veterans to Enter Universities and Higher Educational Institutions. The law stated that, if possible, 40% of public university slots would be reserved for veterans and their families. It was akin to the G.I. Bill in the United States for the Islamic Republic of Iran. This was not just due to charismatic diktat by Khomeini, but rather because the mobilisational push that came out of the 1979 revolution was channeled into war institutions on and off the front lines. As a result, the Islamic Republic survived its first decade but hardly resembled the blueprint its revolutionary leaders had in mind.

Dual and Overlapping Social Policy System

While the 1979 revolution may have upended Iran’s status order to value “commitment” and revolutionary zeal over technical expertise, the “expert” and his technocratic discourse soon returned with force as questions of development were debated among the elite. One after another, the Islamic Republic’s political factions began to vie for recognition that they alone possessed the expert knowledge to transform Iran into a developmental success story on par with East Asia. Seemingly apolitical economic debates masked political conflict as different elite groups staked out positions in opposition to their factional adversaries.

In 1989, after a debate over religious protocols for contraception, the state began to openly encourage family planning measures as part of a post-war developmental push. Welfare policy in rural “health houses” (Figure 1) provided contraception and shifted incentives for family decisions on when and how many children to have. Rising primary education levels contributed to changing social norms. Data from Iranian demographers show that women began to delay the decision to marry, wait to bear their first child, and then eventually stop after having two children (Abbasi-Shavazi, McDonald and Hosseini-Chavoshi 2009). The reasons for this demographic shift are complex, but a large body of evidence points to the expansion of health houses as a major factor, given that most of the birth rate reduction occurred in rural households (Loeffler and Friedl 2009; Salehi-Isfahani et al. 2010).

Rural social change ran through multiple linked pathways. Before the revolution, only 8,000 kilometres of roads existed in rural areas. Between 1979 and 1999, this expanded eightfold to more than 67,000 kilometres of gravel and asphalt roads. Coupled with expansions in access to education and healthcare, this was not welfare that could be conceptualised as decommodification (since many peasants were not fully proletarianised) so much as defamilialisation: the commodification of labour by providing market-remunerated skills and credentials, improving infrastructure that expanded markets, and reducing time needed to spend on the unpaid labour of household reproduction (Esping-Andersen 2009).

While some parts of the state remained internally divided or lacked regulatory capacity, Iran’s Ministry of Health and Medical Education developed and wielded effective bureaucratic power – always difficult to create and sustain in the Third World. Policies and budgets did not shift based on the whims of elite conflict, but were planned in response to consideration of domestic needs, available resources, and international models. Political elites agreed on rural incorporation as a revolutionary imperative. As communicable disease rates declined, attention shifted to non-communicable diseases and health education campaigns. If we are looking for characteristics of ever-elusive developmental capacity, this is a notable example of bureaucratic success. Alongside its expansion, the post-revolutionary transformation of the countryside arguably integrated large segments of the population into the nation-state more deeply than under the Pahlavi monarchy. Analogous to what Eugen Weber documented for nineteenth-century France, the decades after 1979 turned peasants into Iranians.

Health House Construction and Rural Population Coverage in Iran. Kevan Harris_Dossier du CERI

Figure 1: Health House Construction and Rural Population Coverage in Iran, 1983-2010.
Source: author

Accompanying this process from the 1990s onwards was the creation of new pathways for upward mobility in Iranian society. In 1976 –1977, after a half-century of Pahlavi modernisation, 4.5% of university-age Iranians were enrolled in higher education. By 2016, 65% of university-age Iranians were enrolled in higher education (UNESCO 2018). This growth, which mostly took place after the Iran-Iraq war, was no natural process or policy inertia from the prior regime. The Islamic Republic actively expanded higher education in both public and private forms. In nearly every middle-sized town by the late 2000s, for example, branches of semi-private university systems with tuition prices set by the state provided easy access to college. Millions of individuals ventured into higher education in order to obtain the necessary credentials for entry into an expanding professional and technical class. The Islamic Republic spent substantial resources on producing the new cadres of the longed-for developmental state: doctors, engineers and mid-level managers for the public and private sectors. University systems expanded throughout the provinces to an extent that sons and daughters in villages could move to the closest mid-sized town and attend college. In fact, the increasing commodification of everyday life and breakdown of kinship ties, celebrated by technocratic elites and economists in a burgeoning media, pressured individuals to utilise status distinction via cultural capital as the main mechanism of garnering income and livelihood.

As a corollary to this process, formal pensions and health insurance were offered through the country’s state welfare bodies, the largest of which was the Social Security Organization (SSO). On the eve of the 1979 revolution, the SSO’s coverage levels resembled the corporatist bargains of Latin American welfare systems – generous benefits with low levels of labour force inclusion hovering around 20 percent. After the war years, the SSO broadened coverage into the formal labour force at around 35 percent during the 1990s, and then into segments of the casualised labour force reaching over 50 percent in the 2010s (Nikopour 2012). SSO expansion correlated not with rising oil revenues, but with high moments of elite competition. The social contract was expanded by government officials in the early 1990s (by liberals) and late 2000s (by conservatives) to win over new urban workers who had entered the labour force in both blue- and white-collar professions.

Contradictions of the post-1979 social contract

This newly credentialed middle class became a catalyst for political contention in the Islamic Republic, as symbolised by unpredictable elections and disruptive civil society protests. Underneath this sat what Randall Collins (2013) would describe as the overproduction of social credentials. By the mid-2000s, the labour market was saturated with medical specialists, engineers, designers and even architects. A still-fragmented welfare system meant that individuals could collect benefits from multiple organisations while also consuming subsidised health care as a luxury item for the purposes of distinction, as exemplified by the rise of rhinoplasty as a class marker. The Islamic Republic’s self-conscious push to modernise helped bring about both exit and voice: brain drain migration and social protest.

Such transformations in status could be observed even within the political elite: by 2008 non-clerics vastly outnumbered clerics in the parliament and nearly every MP claimed a university degree or higher. The Islamic Republic had outgrown its own clerical status credentials. Even though the street protestors in the 2009 Green movement were often classified in the middle- and upper-income strata, they were hardly the elitist bourgeois crust that detractors portrayed. Instead, these were mostly men and women who had moved upward through the Islamic Republic’s own institutionalised pathways but, as a sort of “lumpen intelligentsia,” felt blocked from the expected livelihoods that had seemed promised to them (Wickham 2002).

As a result of these historical lineages rather than a coordinated state plan of rentier patronage, the social policy system in Iran is comprised of basic goods subsidies, near-universal cash transfers, anti-poverty organisations covering a segment of the poorer strata using means-testing, and large social insurance organisations which cover the country’s middle- and upper-income strata (Figure 2). Under US-driven sanctions and internal economic stagnation, this system has frayed but not collapsed. More recent protest waves in Iran from 2017 to the present are arguably not driven by individuals completely excluded from the post-1979 social contract. Instead, these protests are partly an expression of frustration with its erosion coupled with the state’s inability to upgrade this fragmented social contract to tackle with the developmental challenges of the present.

Social Linkages to State Welfare Policies by Income Cohort, 2016 Iran. Kevan Harris_Dossier du CERI

Figure 2: Social Linkages to State Welfare Policies by Income Cohort (2016)
Source: author



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Cover image: Isfahan, Iran - November 2019. Photo by Serhii Ivashchuk for Shutterstock

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