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of¬cial border. The latter method has been the most common route
during the past ¬ve years. As described in greater detail in Chapter 4,
importers ¬rst arrange for goods to be shipped to Dubai. From there, the
order is sent to one of Iran™s free trade zones in the Persian Gulf (Kish,
Qeshm, and Chabahar) and then gradually to the mainland and large
cities in central Iran. Since smuggled goods are not taxed and do not pay
various duties, they are far cheaper than goods that legally enter the
country or are domestically produced. To demonstrate the price differ-
ential, Eqtesad-e Iran showed that a television set that arrives via the free
trade zone would cost only 970,000 rials (roughly $125), which is 24
percent cheaper than a domestically produced equivalent and 38 percent
less than a television that is legally imported.87 A Wall Street Journal
reporter recounts a conversation with a Pyrex importer in the Bazaar: ˜˜˜If
it costs me a dollar to get a dish to Dubai, it costs $1.50 by the time it gets
here,™ the resilient trader says. He laughs, partly because his competitors
face the same hurdles. ˜I think we just love to make things compli-
cated.™ ™™88 Almost by de¬nition, it is dif¬cult to calculate the volume of
85
Wolfgang Lautenschlager, ˜˜The Effects of an Overvalued Exchange Rate on the Iranian
Economy, 1979“84,™™ International Journal of Middle East Studies 18 (February 1986),
41“2.
86
This was deduced from interviews and participant observation. A journalist for the Wall
Street Journal estimated that two-thirds of all goods sold in the Tehran Bazaar are
imported via smuggling networks. Wall Street Journal, 7 December 1998. On
postrevolutionary policies, smuggling, and ˜˜legal smuggling™™ see the special issue on
˜˜Legal Smuggling™™ in Eqtesad-e Iran 360 (Bahman 1380 [ January 2002]) and
Barresiha-ye Bazargani 135 (Aban 1377 [October“November 1998]). For a sociological
perspective based on participant observation see Fariba Adelkhah, ˜˜Who Is Afraid of
Smuggling? We All Are Smugglers, Unless . . . .,™™ Paper presented at the annual meeting
of the Middle East Studies Association, Washington DC (November 2002).
87
˜˜Reqabat-e Na-barabar,™™ Eqtesad-e Iran 360 (Bahman 1380 [ January“February
2002]), 15. Percentages have been calculated by the author from prices presented in
article.
88
Wall Street Journal, February 8, 2001.
Bazaar transformations 109

smuggled goods, but estimates of smuggled imported goods are around
$3 billion dollars per year.89
Smuggling networks have particular qualities and consequences for
the form of governance within the Bazaar.90 To begin with, smuggling
networks are typically not expected to last for extended periods of time
since actors may be arrested, commodities may not reach their desti-
nation, and laws may change. The instability of smuggling networks
prevents the two sides from making credible commitments. The provi-
ders of goods are in a precarious position since they cannot guarantee
future shipments. Meanwhile, purchasers, knowing the precarious
supply situation, are increasingly attempting to address this uncertainty
by considering switching to importers and brands with more certain
importing channels or even products. In the process, strict specialization
has waned, with experience and experts being replaced by political
contacts and the politically connected.
Second, in the context of a closed economy, the norm of face-to-face
transactions of the embedded market has given way to the secrecy, if
not anonymity, of the black market. Smuggling networks operate
clandestinely, and thus hinder the development of crosscutting ties
among large groups of people that is critical for the exchange of infor-
mation and mutual monitoring. By its very de¬nition, smuggling fosters
opaque relations that are invisible to those who are not directly involved
in the exchanges, whether they are customs of¬cials or other buyers and
sellers in the Bazaar. While those participating in illegal activities may be
avoiding authorities, they are inadvertently marring transparency among
bazaaris since they refrain from exchanging information about trading
89
Mehdi Karbasian, the head of Iran™s Customs, claimed that only $1.5 to $2 billion
worth of goods were smuggled into the country. Akhbar-e Eqtesadi, 7 Bahman 1378
( January 27, 2000). Hosayn Nasiri, the Secretary of the Supreme Council of Free
Trade Zones, set the ¬gure at $3 billion. ˜˜Subsidies and Tariffs Encourage ˜Black
Economy,™ ™™ Radio Free Europe/Radio Liberty 3 (September 18, 2000). Bonyan estimated
contraband imports at $3.5 billion. Bonyan, 25 Bahman 1380 (February 14, 2002).
Iran Daily citing government sources set the ¬gure at between $3 and $5 billion. Iran
Daily, 28 Febuary 2001. Eqtesad-e Iran (Iran™s version of The Economist) claims that $4
billion worth of goods are smuggled or ˜˜legally smuggled™™ into Iran. ˜˜Khosh Khat va
Khal,™™ Eqtesad-e Iran 360 (Bahman 1380 [ January“February 2002]), 11. Finally, the
magazine published by the Institute for the Study and Analysis of Commerce, a
research center af¬liated with the Ministry of Commerce, set the total volume of
smuggling at between $2 and $4 million a year. ˜˜Sokhan-e Nakhost,™™ Barresiha-ye
Bazargani 135 (Aban 1377 [October“November 1998]), 2.
90
Much of the information and analysis in this paragraph comes from my daily
observations, eavesdropping, and conversations in the Bazaar. Smuggling has
important, often deleterious, consequences for local economies in the border regions
of Iran. For a glimpse into this issue see a travelogue of Iran™s border region by
Mehrangiz Kar, Nakhlha-ye Sukhteh (Tehran: Rawshangaran va Motale˜at-e Zanan,
1379 [2000]).
110 Bazaar and State in Iran

partners. Smuggling or illegal networks foster ˜˜strong™™ hierarchical ties
among actors directly involved in the transactions, but they do little to
foster ˜˜weak™™ and diffuse connections since colleagues no longer share
information with others. These exclusivist commercial channels frag-
ment the Tehran Bazaar and impede the development of horizontal and
more expansive networks. In many cases, the head of a smuggling net-
work (i.e. the importer) may be unknown to buyers. When I discussed
smuggling with a tea wholesaler in the Tehran Bazaar he repeatedly
expressed uneasiness that these quasi-legal transactions are conducted
over the phone. He said he is never sure who the importers are and
where they are. He rhetorically asked, ˜˜How can you have any kind of a
relationship with someone you haven™t seen?™™91
Finally, smuggling relations tend to be top-down and highly unequal.
The few state af¬liates who enjoy state protection or the off-shore
monopolists who dominate the imports are buffered from direct contact
with wholesalers and retailers by various levels of middlemen. The
coercive nature of smuggling networks is also evident in the form of
threats of violence and physical coercion that exist at various levels of the
contraband process.
In addition to transnational smuggling, the restrictions on the ¬‚ow of
goods, development of parallel markets, and price distortions generated
by subsidies and unequal access to foreign exchange and import licenses
generate huge space for arbitrage and speculation (i.e. middleman
operations).92 With heavy-handed use of policies such as exchange rate
overvaluation, direct and indirect subsidies, and quotas, market dis-
tortions have been endemic, thus making long-term investment and
rational decision making close to impossible. The President of the Metal
Household Merchandise Trade Association of Tehran said, ˜˜Real
merchants who abide by the laws cannot work like in the past, and now
goods go unsold. Meanwhile, middlemen and unprofessional people sell
low-quality goods at special prices and nobody takes responsibility for
low-quality or multipriced goods.™™93 In such an unstable market
structure, wholesalers, brokers, and some retailers view commercial
activities with trepidation; while windfalls are available, so are heavy
losses. Thus, exchanges are made with little intention or commitment to
long-term collaboration. Furthermore, middlemen and brokers have
niches in operations connecting Iran™s periphery to Tehran. Also, one

91
Emphasis was in interviewee™s speech.
92
ˆ
Bernard Hourcade and Farhad Khosrokhavar, ˜˜La Bourgeoisie iranienne ou le controle
de l™apparaeil de speculation,™™ Revue Tiers Monde 124 (October“December, 1990),
877“98.
93
Asnaf no. 91 (Azar and Day 1379 [November 2000“January 2001]), 32.
Bazaar transformations 111

major wholesaler explained his marketing strategy, which diversi¬ed his
use of middlemen to sell his goods. In place of using a few reliable
brokers as he did prior to the Revolution, his trading house works with a
larger number of brokers and distributors-cum-middlemen in order not
to ˜˜put all his eggs in one basket.™™
The Tehran Bazaar™s credit system, which was the backbone of co-
operative hierarchies, was radically changed after the Revolution. The
wholesale nationalization of the banking system in 1979 and the passing
of the Interest-Free Banking Law in 1983 drove the Bazaar™s money-
lenders underground and sent cash-strapped bazaaris to the bureau-
cratically mired public banks or more often to the illegal, but accepted,
black economy for credit.94 The newly nationalized banking system,
however, channeled most funds to the public sector.95 Moreover, credit
in the Bazaar was restricted on a number of fronts. Immediately after the
Revolution, importers faced a dramatic turnaround in the international
market. During the prosperous 1960s and 1970s, many of the larger
importers had good accounts and enjoyed credit lines with foreign
suppliers that extended six-month open letters of credit or kept open
accounts. This ¬‚oat was an important factor in ensuring pro¬tability and
freed up capital for other business ventures, including their own
moneylending. During the economic uncertainties of the early 1980s,
foreign suppliers began to ask for con¬rmed letters of credit,
which effectively meant cash.96 Accordingly, bazaari and non-bazaari
importers demanded cash from their customers. The tight foreign
currency market, high rate of in¬‚ation, decline in consumer income,
and prevalence of fraud (see below) has resulted in a replacement
of credit-based transactions with cash and very-short-term credit
exchanges.
Moreover, credit exchanges are now conducted almost exclusively
using checks. Bazaaris and legal experts alike claim that the businessmen
have switched from promissory notes to checks in order to gain extra
legal protection. In Iran, writing a bad check comes with a penal pun-
ishment (kayfari) of from six months to two years plus a cash penalty.
Nonpayment of a promissory note, on the other hand, is merely subject
to civil penalty (hoquqi). The threat of a heavy legal sanction is thought to
deter potential noncompliance. However, with the use of checks the
safteh system of referrals and recommendations has been eliminated.

94
Dawran-e Emruz, 16 Azar 1379 (December 6, 2000).
95
World Bank, Iran: Economy in Transition (Washington DC: World Bank, 1991).
96
Daneshjuyan-e Mosalman-e Payraw-e Khat-e Emam, ed., Asnad-e Laneh-ye Jasusi vol.
63 (Tehran: Markaz-e Nashr-e Asnad-e Laneh-ye Jasusi, 1366 [1987]), p. 131.
112 Bazaar and State in Iran

The informal credit system, narrowly de¬ned here as money markets
that are not subject to Central Bank supervision, comprises a major
portion of the thriving ˜˜free sector™™ that includes but goes well beyond
the Bazaar networks and space. In particular, two new money markets
were established after the Revolution.97 The ¬rst was a limited part-
nership contract, known as mozarebeh, wherein a ¬nancier contributes
capital to an agent who invests in trading activities. To be legally
binding, pro¬t-and-loss-sharing arrangements must be ¬xed at the time
of the contract. These contracts were initially encouraged by the Islamic
Republic to spur investment and economic activity within an Islamic-
sanctioned framework. These arrangements quickly mushroomed and
became a popular way to put one™s capital to use; in the 1980s mozarebeh
advertisements covered newspaper pages. Within a decade it soon
emerged that these schemes were often used as a means to disguise
exorbitant interest rates (as high as 50 percent) in an Islamic regime that
´
had outlawed interest. Newspapers began to run exposes uncovering
how the limited partnership schemes were being started by everyone
from the corner grocer to ministries, were fueling the speculative
˜˜middleman economy,™™ and were diverting resources from production
to commercial activities.98 It was argued that mozarebeh was used for
commerce, especially high-pro¬t smuggling operations, because the
receiver of the capital must pay a pro¬t share on a monthly basis. After
the media attack and several high-pro¬le cases of fraud, limited part-
nerships were outlawed.
Interest-free loans, or qarz al-hasaneh, are the second credit system in
the postrevolutionary era. Unlike limited partnerships, the interest-free
loan funds date back to the late Pahlavi rule and have their roots in the
Bazaar. In 1961, a group of bazaaris in Tehran Bazaar established the
Javid Fund and distributed interest-free loans along with a series of
charity operations.99 Prior to the Revolution these funds were located in
mosques and had a close connection to clerics and businessmen from
the Bazaar. Adelkhah reports that by the time of the Revolution there
were roughly 200 such funds, but by 1988 the number reached 3,000,
and four years later 4,350 were legally registered and many more were
unregistered.100 Interest-free funds expanded in part because after the
97
Adelkhah, Being Modern in Iran, pp. 56“67.
98
Kayhan, 1“7 Aban 1368 October 23“29, 1989.
99
Jabbari, Hamisheh Bazar, pp. 150“3. An obituary of one of the founding members of
the Javid Fund, a devoted carpet merchant who opened a branch in one of the
caravanserai in the carpet bazaar, states that Javid began in 1966. ˜˜Dar Rasa-ye hajji
Karim Ansarian,™™ Qali-ye Iran 3 (Zemestan 1372 [Winter 1993]), 28.
100
Adelkhah, Being Modern in Iran, 59 and Entekhab, 3 Tir 1381 ( June 24, 2002). At
present, funds that administer interest-free loans may receive licenses from a number
Bazaar transformations 113

implementation of the interest-free banking system, many Iranians
transferred their savings to qarz al-hasaneh accounts that gave bene-
¬ciaries prizes such as household appliances or travel expenses for pil-
grimages to holy sites. Commercial banks quickly copied these
marketing strategies and now bonuses and prizes have replaced interest
on deposits. The distribution of loans follows the same informal referral
system associated with the old bazaar credit system; that is, it is based on
reputation and supporting references that can connect applicants to one
of the fund™s founding members or administrators. Qarz al-hasaneh
funds are now independent of the Bazaar and the mosques and are
spread out across the city and organized and administered by numerous
small groups, especially circles of women. Adelkhah writes, ˜˜But, in
contrast to what had happened before the revolution, this increase [in
the number of funds] occurred independently of the mosques, at the
heart of the bazaar and the urban neighborhoods.™™101
Thus, these limited partnerships helped ¬nance the expanding ˜˜free
economy™™ that has emerged to compete with Tehran™s bazaar. The
proliferation of informal credit may be a diffusion of the practices of
the bazaaris, but it has undermined the Bazaar™s preeminent role in
private distribution of short-term credit in the economy.
In sum, the Tehran Bazaar™s economic relationships have been made
less long term and integrated owing to the increased prominence of state
commercial conglomerates, smuggling networks, and the expansion of
the informal economy and parallel money markets. The forces that
helped create dependencies and alliances between bazaaris over time
and across guilds have been replaced by mechanisms that not only do
not link bazaaris together, but discourage cooperation.

Heterogeneous social networks
If prior to the Revolution social ties solidi¬ed economic relations by
making them more multifaceted and expansive, since then social relations
have become more fragmented and disconnected from the Bazaar™s eco-
nomic life. Rather than interpersonal ties creating a sembalance of
homogeneity out of heterogeneity, now interpersonal relations are divisive.
The Bazaar remains ethnically diverse. Many wealthy religious

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