The unpopular policies of Muhammad Reza Pahlavi Shah resulted in the Islamic Revolution. The Shah had been primarily concerned with increasing his own power, and economic modernization. However, it was the second defining characteristic of his regime, economic expansion and modernization that led to the uproar that shook him from power. This is because his economic restructuring threatened not only the economy, but the Iranian value system as well.

The Shah’s economic restructuring turned Iran into a dependent consumer nation and led to widespread discontent with the government. The White Revolution and land reform policy had only increased the Shah’s power, and failed to meet the needs of the peasant class. The lower class migrated to the cities, which increased tensions there and in the countryside. This happened as the migration to the cities caused the breakup of the family, which was a cultural stronghold in Iran. The growing professional middle class was also discontent with the monarch's government. In 1974, the Shah made promises of tax cuts and welfare, which he failed to deliver. Instead, in 1976, the Shah asked the people to work harder, increase production, and pay higher taxes. The Shah’s hollow claims and shortcomings led the people to expect more from the Shah and eventual estrangement from him. The middle class had no traditional investment in the government and the Shah’s constant talk of “revolution,” while he preserved the old patterns, contributed to their alienation from him. To maintain power, the Shah resorted to physical coercion and his infamous secret police (SAVAK), which further alienated the society from him. The clergy also opposed the Shah because of his pro western policies.

The economic disparity between the classes had been sharply increasing due to the Shah’s modernization efforts. In 1973-74, world oil prices quadrupled and Iran's oil revenue increased from 5 to 20 billion dollars a year. The Shah used these funds for his modernization efforts. The oil boom brought inflation, huge migration to cities, housing shortages, and discontent among the lower classes at the widening gap in income.

The presence of western businesses and culture became increasingly prominent in Iran with the Shah’s economic modernization. One must recall that during Iran's modern political history xenophobia had been prominent. The Shah’s modernization policies had brought many aspects of western culture to Iran— seemingly at the expense of the Iranian people. The Iranian people were unhappy with the Shah’s economic changes; they viewed his Westernization as the error in his ways. Ever since the Shah regained power in 1953, the United States government had been heavily involved Iran. In respect to that involvement in Iran, some say, “the traditional economic structure, industry (local bazaars), and value structure were losing ground to an imported and suspect socioeconomic system—that of the United States . . . [and that] Iran's Islamic revolutionary action indicated the desire to produce its own mode of progress commensurate with its cultural values and norms”.²

In 1978, the Shah’s unpopular policies and the nation’s discontent culminated in several massive riots. In February, there was a vast demonstration in Tabriz, and the demonstrations spread to other urban areas from there. In August, the first wave of industrial strikes began, and by November, telecommunication, oil, National Television and bank workers were also on strike. The general strike in December finally brought the economy to a halt. Reza Behnam states that the four main elements of discontent leading to the strikes and demonstrations were:

(1) dissolution of Iranian religious and cultural values—cultural dislocation; (2) perceived loss of independence and resources due to the prodigious influence and capital of visible foreign powers linked closely with the regime; (3) economic dislocation and hardship; (4) political and social repression by a centralized tyranny.³

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