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One implication of this incorporation of the Bazaar through an
individual-based regulatory regime is that over time the commercial
sector has become fully tied to state actors through patronage, a process
that generates rivalry and undercuts allegiance to the Bazaar as a com-
munity and set of institutions. Instead of implementing universal reg-
ulations, tariffs, and equal subsidies that would have ensured equal
treatment across all commercial actors, the state imposed trade controls
via licenses, multilayered hard currency regimes, and tax and duty
shelters that allocated and targeted state rents to speci¬c individuals and
organizations. Predictably, this regulatory regime has led to rampant
and entrenched (i.e. self-perpetuating) personalism and paternalism. In
the process, the commercial arena has become politicized and has been
treated individualistically rather than as a corporate entity that is to be
managed with a blanket set of rules. In response, some well-positioned
bazaaris have turned to interpersonal relations to access these revenue
pools. These networks are not designed for marketing in the Bazaar, but
for accessing rents held by state actors. And as such they have become
divisive rather than integrative; the information and resourses garnered
by individual merchants are not shared with others.

Incorporation via organizational competition Laws not only
regulated the Bazaar™s commercial activities, but also established state
agents that competed with the private mercantile class. These compe-
titors include several ministries, foundations (bonyads), and religious
endowments that have controlled large amounts of assets and have been
given subsidized foreign exchange, import privileges, and tax and duty
shelters. These state organs and af¬liates were established in the months
following the Revolution and were tied to the populist transformative
agenda of the new regime.
Within ¬ve months of the Revolution the provisional government
initiated a sweeping nationalization of industrial and ¬nancial enter-
prises, consolidating large portions of the economy under the auspices of
various ministries and the National Iranian Industrial Organization,
which owned 600 companies. The nationalist drive included interna-
tional trade too. The Ministry of Commerce controlled seventeen of the
country™s largest trading ¬rms, while it and the Ministry of Finance
controlled warehousing ¬rms and trucking companies.120 The Islamic

120
Bakhash, The Reign of the Ayatollahs, p. 184.
Networks in the context of transformative agendas 167

regime took up the nationalization campaign as a safeguard against the
insolvency of industries and ¬nancial organizations whose managers and
owners had ¬‚ed the country and to stem off labor militancy. Wholesale
nationalization was also legitimated by the redistributive and anti-
imperialistic principles of the revolution.
Alongside ministerial organizations and sometimes in competition
with government policies are a group of foundations or charities.121
These bonyads were established shortly after the Revolution to oversee
the assets of the Pahlavi Foundation and other properties associated
with the royal family, and they are now active in all sectors of the
economy “ manufacturing, agriculture, services, banking, commerce,
and religious propagation, having monopolies or near monopolies in
several of these areas. Their founding mission was to engage in ˜˜good
works™™ and to manage these assets for the bene¬t of the deprived, those
disabled in the Iran“Iraq war, and the families of those killed in the
Revolution and the war. Foundations are public in the sense that they
do not pay taxes, are entitled to state-subsidized loans and foreign
currency, tax and duty exemptions, receive contributions from the
Supreme Leader, and are tasked with the state™s mission of redistribu-
tion. Nonetheless, they are private and semiautonomous in that they are
not accountable to or monitored by the government. Even though the
foundations are said to receive 58 percent of the state budget, the
popularly elected executive and legislature do not have any authority to
monitor their performance.122 Since the heads of the foundations are
appointed by the Supreme Leader of the Revolution they have access to
the leader™s budget and the latest information about developments in the
government™s economic and commercial policies.
The Foundation of the Oppressed and Disabled, the principal holder
of assets seized from the royal family, is the largest of these foundations
and is sometimes referred to as the ˜˜government within the govern-
ment.™™ In 1982, the foundation owned 203 manufacturing and indus-
trial factories, 472 large farms, 101 construction ¬rms, and 238 trade


121
The largest foundations are the Foundation for the Oppressed and Disabled, Martyr™s
Foundation, 15th of Khordad Foundation, and the Housing Foundation. Other
religious or revolutionary organs that enjoy a quasi-state status and are active in
economic affairs are the endowment overseeing the Imam Reza Shrine in Mashhad
(Astan-e Qods-e Razavi), the Organization for Islamic Propagation, and the Farabi
Cinema Foundation. See Mehran Kamrava and Houchang Hassan-Yari, ˜˜Suspended
Equilibrium in Iran™s Political System,™™ Muslim World 94 (October 2004), 495“524;
and Ali A. Saeidi, ˜˜The Accountability of Para-governmental Organizations (bonyads):
The Case of Iranian Foundation,™™ Iranian Studies 37(3) (September 2004), 479“98.
122
Buchta, Who Rules Iran?, p. 73. (Taken from Salam daily newspaper.)
168 Bazaar and State in Iran

and service companies.123 In the past two decades it has used these
already large assets to expand its activities into all areas of the economy,
including manufacturing, commerce, banking, tourism, and tele-
communications.124
It is dif¬cult to estimate their total assets because the foundations™
accounts are not public, but whatever the exact extent of these parastatal
organs™ asset base, analysts agree that the scant supervision has
encouraged inef¬ciencies, mismanagement, and embezzlement. For
instance, in 1995, a court found several key ¬gures of the Foundation of
the Oppressed and Disabled guilty of embezzlement, although the head
of the foundation escaped conviction.
Over time the foundations™ economic prominence and prosperity have
continued, if not expanded. They have been able to circumvent the
of¬cial trade system, while their political ties have given them access to
subsidized foreign currency without performance criteria. Therefore, the
foundations can import, export, and sell goods at below market prices
and the production costs of local producers (some of which are owned
by the foundations themselves). The various state agencies allocate
exemptions to state organizations (bonyads, cooperatives, trade units
within the ministries) to bypass trade bans and duties. The issuing of
these ˜˜special licenses™™ (mojavvez-e moredi) has allowed state organs to
gain access to trade exemptions, while countless state of¬cials distribute
them as patronage.125 Moreover, independent capitalists cannot com-
pete with the state-af¬liated establishments that are exempted from
duties and time-consuming bureaucratic hurdles, while receiving
heavily subsidized foreign exchange.126 A bazaari who used to be a tea
importer and has now downscaled his import activities estimated that
his cost of importing is four times that of a foundation™s or a border
cooperative™s that can acquire ˜˜special licenses.™™
123
Farahbakhsh, ˜˜Eqtesad-e Iran dar Shesh Tablo,™™ 47.
124
Analysts have estimated that bonyads own some 20 percent of the asset base of the
Iranian economy and contribute 10 percent to the country™s GDP. If we include them
in the public sector, then 80 percent of the formal Iranian economy is controlled by the
public sector, with the private sector and cooperatives accounting for 17 and 3 percent
respectively (Bijan Khajehpour-Khouei, ˜˜Domestic Political Reform and Private
Sector Activity in Iran,™™ Social Research 67 [summer 2000], 577“598). The
parliamentary representative from Mashhad has claimed that the foundations and
organs, including the wealthy trust administering the Imam Reza Shrine in Mashhad,
control 70 percent of the economy (Hayat-e Naw, 19 Mehr 1379 [October 10, 2001],
14). The Imam Reza Endowment that supervises the shrine of the 8th Shiite Imam in
Mashhad is in charge of agricultural land and numerous industrial enterprises in
Khorasan Province. For a comprehensive list see Hamshahri, 20 Bahman 1379
(February 8, 2001).
125
International Financial Times, June 12, 2002.
126
Saeidi, ˜˜The Accountability of Para-governmental Organizations,™™ 493.
Networks in the context of transformative agendas 169

Despite the intentions of both the pro-private sector Hashemi“
Rafsanjani government (1989“97) and the reformist Khatami govern-
ment (1997“2005), which sought to encourage transparency and
accountability, the foundations have remained resilient and have main-
tained their privileged status in Iran™s economy.127 The initial policies of
the Islamic Republic led to a series of resource and interest effects creating
feedback loops that ˜˜lock in™™ policy decisions through the institutional
congealing of interests of the state agents, the foundations, and their
clients (e.g. subcontractors).128
State organizations were also extensively involved in domestic trade
and distribution. In 1997, the Institute for the Study and Research of
Commerce concluded that as many as seventy-¬ve state agencies and
companies were involved in domestic commercial activities.129 These
stores and agencies have their genesis in the Revolution. During the
extended period of strikes against the monarchy, grassroots consumer
cooperatives were established to provide foodstuffs for families whose
breadwinners were on strike and to replace the commercial system,
which was itself on strike. Once the Islamic Republic was founded, the
central government transformed these local initiatives into an arm of the
state as part of the expansion of the cooperative sectors meant to control
prices and support government employees. During the war, mosque
associations, which doubled as mouthpieces and watchdogs for the
Islamic Republican Party, augmented the cooperatives by distributing
goods such as rice, sugar, and kerosene to coupon holders. More recently,
the Tehran municipality launched over forty municipal-run fruit and
vegetable markets that sell produce directly to consumers,130 adminis-
trative bodies that act as monopolies and monopolists, and chain-store
supermarkets and department stores (e.g. Shahrvand and Refah).131 At
the administrative level the Ministry of Commerce established the
National Economic Mobilization Headquarters in 1981 to review stocks
of commodities, demand level, and distribution methods. All in all, the

127
Hamshahri, November 27, 2000.
128
Paul Pierson, ˜˜When Effect Becomes Cause: Policy Feedback and Political Change,™™
World Politics 45 ( July 1993), 595“628.
129
Islamic Republic of Iran, Ministry of Commerce, Institute for the Study and Research
of Commerce, Davud Cheraghi, ˜˜Arzyabi-ye ˜Amalkard-e Bazargani-ye Dakheli dar
Barnameh-ye Dovvom-e Tawse˜eh-ye Eqtesadi, Ejtema˜i va Farhangi (Ba Takid bar
Tawzi˜-e Kala va Khadamat),™™ Mordad 1379 ( July“August 2000).
130
Dawran-e Emruz, 6 Azar 1379 (November 26, 2000). These marketplaces have been
particularly popular and the closure of a few of them has led to protests by customers.
Nawruz, 26 Ordibehesht 1380 (May 16, 2001); and Hamshahri, 1 Aban 1379
(October 22, 2000).
131
Kawsar chain store is owned by the Martyr™s Foundation. Dawran-e Emruz, 25
Bahman 1379 (February 13, 2001).
170 Bazaar and State in Iran

retail trade in Tehran has become increasingly more independent of the
value chain based in the Tehran Bazaar.
Thus, throughout these past two decades, this process of incorpora-
tion via state patronage has led to a twofold political subordination and
cooptation of the Bazaar. The most obvious means by which state
patronage leads to domination of the Bazaar is the state™s control of
resources and distribution channels dictate the terms of trade. But
patronage has a secondary structural impact too. State patronage that
was highly atomistic and ideologically skewed (as opposed to patronage
based on class, ethnicity, or sector) restructures the internal organiza-
tion of the Bazaar in a way that has eviscerated its cooperative hier-
archies, the source of its collective identity. During the past twenty
years, patronage (via subsidized loans, hard currency, and import
licenses) has fragmented the Bazaar by making ties in the value chain
more unstable and escalating competition between members. Instability
is endemic to the system since value chains are contingent upon indi-
vidual patrons, middlemen, and policy conditions, all of which have
been transient. The Bazaar™s experience with patronage echoes the
Senegalese postcolonial politics described by Boone: ˜˜Clientelistic
hierarchies, factions, and clans form both within the state apparatus and
on the local level, revealing divisions, competition, and power struggles
that exist within the categories of ˜rulers™ and ˜ruled™ as well as patterns
of alliance and con¬‚ict between them.™™132 Thus, the Islamic Republic™s
clientelistic incorporation of the Bazaar functions as a mode of
brokerage between the state and collective clients as it does under cor-
poratist systems of interest representation, but in doing so it has wea-
kened the Bazaar™s corporate unity.

The Bazaar™s response: eluding the institutional setting
Those bazaaris who did not have the necessary political contacts among
state agents and were excluded from the patronage system, however, did
not passively accept the state™s highly regulatory institutional frame-
work. In Chapter 3, I showed that the vast majority of goods sold in the
Bazaar arrive illegally or quasi-illegally and that smuggling has particular
characteristics that limit the development of multifaceted, crosscutting,
and in some cases long-term relations. Why has this smuggling
¬‚ourished? Bazaaris have participated in networks that undermine and
132
Catherine Boone, ˜˜States and Ruling Class in Postcolonial Africa: the Enduring
Contradictions of Power,™™ in Social Power and Social Forces: Domination and
Transformation in the Third World, ed. Joel Migdal, Atul Kohli, and Vivienne Shue
(Cambridge: Cambridge University Press, 1994), p. 110.
Networks in the context of transformative agendas 171

elude the state™s institutional setting by engaging in various hues of
smuggling. These networks are subversive in that they work with state
institutions only to divert resources away from the state™s intended ends.
Other networks are designed explicitly to bypass all formal supervision
entirely. Yet in both these cases these ˜˜informal™™ practices and methods
of commerce are a direct product of the institutional setting established
by the Islamic Republic, an institutional setting that has inadvertently
opened the space for new modes of individual private capital accumu-
lation.
How do commodities escape customs controls as they enter and exit
Iran? The process ranges from large-scale, highly organized smuggling
operations under the auspices of state af¬liates, to the most piecemeal
and underground forms. Large-scale import operations exist
when politically powerful ¬gures and organizations (e.g. economic
foundations, the military, trade units in ministries, and religious trusts)
provide political protection. The state-af¬liated actors use their political
in¬‚uence and instructional privileges to bypass the trade regime that
encumbers the private sector. All these organizations work closely with
the fragmented and paternalistic loci of power that embody the Iranian
state. And, as such, their activities have been unsupervised by the
institutions of the Islamic Republic (the executive and legislature).
Critics of these groups often label them as the ˜˜commercial ma¬a.™™133
One example of the lack of accountability of the state organs occurred in
February 2002, when the Speaker of the Parliament, Mehdi Karrubi,
alleged that there were several unlicensed jetties that were not under the
supervision of the customs of¬ce. The head of the reformist-controlled
parliament publicly wondered, ˜˜What are these unlicensed jetties for?
What do they import? What do they export?™™134 In the same session, a
member of parliament argued that these jetties were used by founda-
tions and state institutions to skirt economic policies and, consequently,
had resulted in smuggling. He commented that such huge amounts of
illegal imports ˜˜cannot [just] ¬t into pockets. At any rate an institution
(nahad) or an organ (organ) is behind the building of these ports and the

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