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In the carpet bazaar the main concern, in terms of quality, is poor dyes and dyeing
techniques, consistency in quality when buying in bulk, and limiting the use of arti¬cial
treatments designed to make carpets look like old antiques.
12
Since allegations are evaluated without independent investigation, accusations of
wrongdoing are assessed by the social standing and past reputations of the parties
involved. Thus, reputation is a valuable asset in case of disputes too.
Carpets, tea, and teacups 195

on sellers, who also were aware that their highly valuable reputation was
at stake. The reputation system was based on relations that cut across
existing exchange relations. Thus, when traders were faced with a new
prospective trading partner or attempted to branch out into a new line of
carpets, they turned to trusted ¬gures whome they knew through their
existing relations in religious, social, and neighborhood circles.
Moneylenders, prominent exporters, brokers and arbitrators, or simply
˜˜old-timers, who made a point of knowing many of the faces in the
Bazaar, became critical nodes.
Taken together, these informal institutions constituted the basis for a
conglomeration of cooperative hierarchies in which exchange was con-
ducted based on highly multifaceted relations and repeated exchanges.
Furthermore, traders made extensive use of crosscutting relations in order
to protect themselves from what they did not know. In doing so, they were
able to engage in highly elaborate forms of long-distance and long-term
exchange such as consignment of carpets, shipment of goods without
deposits, long-term and multiparty credit relations, and wholesale pur-
chasing. Also, these robust cooperative hierarchies, some of which exist
today, made the carpet bazaar the type of place that approximated the
idealized pristine bazaar a place where a distant relative of a neighbor who
worked in the carpet bazaar was in fact a more suitable guide than a travel
book or a subscription to Hali magazine. It is here that bazaaris sat and
sipped tea while exchanging rumors with neighboring shopkeepers and
made deals worth thousands of dollars with a simple handshake. It has
been here that for generations, families have continued to go to the same
dealers to purchase their goods. It has been in the carpet bazaar in parti-
cular that one should engage in intensive bargaining with one merchant,
rather than engaging in extensive bargaining with a variety of merchants,
for it has been here that information acquisition has been the name of the
game, and cooperative hierarchies have been a way of winning that game.

Situating the carpet sector in Iran™s political economy
From the point of view of level of employment and non-petroleum
exports, for much of the twentieth century, carpet production and
export have been the most important commodity. During the past four
decades there have been roughly a million, possibly even two million-
full-time and seasonal carpet weavers.13 Once we include all the other
13
Hasan Azarpad and Fazlollah Heshmati-Razavi, Farsh-nameh (Tehran: Moasseseh-ye
Motale˜at va Tahqiqat-e Farhangi, 1372 (1993)), p. 20. By seasonal weavers, I am
referring to farmers and laborers who turn to carpet weaving to supplement their
income at various times of the year.
196 Bazaar and State in Iran

industries related to carpet production and export, such as wool pro-
duction, dyeing, design, carpet washing, carpet repair, and shipping, the
employment ¬gures probably exceed two million workers.
In addition, for several decades now hand-woven carpets have con-
sistently been the single largest export commodity after oil. Buoyed by
high demand in western Europe, especially West Germany, during the
1960s and 1970s, prices in foreign markets increased, with export ¬g-
ures climbing steadily from $22 million in 1962 to a peak of $117
million in 1974. During the prerevolutionary era, carpet exports
accounted for over a quarter of the share of non-oil exports in 1968, but
declined slightly to less than one-¬fth in the mid-1970s. Since the
Revolution, carpet exports have ¬‚uctuated greatly, and in dollar
amounts they have ranged from less than $300 million to over $1.5
billion, and similarly carpets™ share of non-oil exports have ¬‚uctuated
from roughly half to less than 20 percent. At its zenith in the late 1960s,
Iran dominated the world market, controlling as much as 50 percent in
terms of sales, and a large share of the important U.S. and West German
markets. Its market share however, has, eroded since the 1990s, and Iran
accounts for only about 20 percent of exports, with China and India,
which controlled less than 10 percent of exports in earlier decades, now
enjoying as large a share as, or even a higher share than, Iran in recent
years.
Changes in the world market have had an important impact on these
trends, the most important of which have been ¬‚uctuations in the
economies of the industrialized countries that were the primary con-
sumers of hand-woven carpets. Customs policies of importing countries
also had an adverse effect; for example, the U.S. government™s decision
to impose sanctions on Iranian carpets from October 1987 to March
2000 of¬cially closed off a market that accounted for some 30 percent of
Iran™s exports.14 Carpet importers I spoke to in Europe and the United
States also argued that Iranian designs have not been able to adjust to
changes in western tastes and lifestyles. For instance, Iranian producers
have only recently begun to imitate Pakistani and Afghani rugs, which in
the early 1990s became popular for their soft and muted colors. Finally,
the Chinese and Indian governments have supported both carpet wea-
vers and exporters during the period as a means to create jobs and earn
export earnings from a high-value-added product. As Iranian exporters
faced external and internal constraints (described below), Indian and
Chinese exporters were able to increase their market share through
improving the quality of their carpets, maintaining prices that were

14
Dawran-e Emruz, 21 Azar 1379 (December 11, 2000).
Carpets, tea, and teacups 197

signi¬cantly lower than those for Iranian equivalents, and copying Ira-
nian designs that are not protected by international copyright laws.
A second important factor leading to the decline in Iran™s carpet
industry has been increases in production costs and a decline in the quality
of some raw materials. From the 1960s onwards, as manufacturing wages
rose and as the rate of rural to urban migration increased, the cost of labor
increased. Industrialization and urbanization also caused the quality and
cost of wool to decline. As meat consumption rose, an increasing portion of
Iran™s ¬‚ocks were used for consumption; meanwhile, increased wages in
factories enticed everyone from shepherds to wool spinners and dyers to
leave their rural occupations to look for employment in the manufacturing,
construction, and service sectors in larger cities. Over time the quality and
quantity of domestic wool declined so much that a considerable amount of
the wool used in Iranian carpets began to be imported from Australia and
New Zealand. In¬‚ationary episodes such as those following the sharp rise
in petroleum prices in 1973, immediately after the Revolution, in 1993“4,
and in 2003 have exacerbated the problems of production and increased
the price of exports.
But state policies in the areas of export regulations, foreign exchange,
and production are arguably the main causes of the ¬‚uctuations and
decline of carpet exports, and are de¬nitely the causes most commonly
cited by traders for the abysmal state of the industry. Given the historic
importance of carpets to Iran™s economy, it is not surprising that state
regulation of the carpet industry and exports dates back several decades.
Coterminous with the state™s monopolization and regulation of the tea,
sugar, and tobacco industries, in 1935 Reza Shah™s government also
established the Iranian Carpet Company (Sherkat-e Sahami-ye Farsh-e
Iran). The company was originally authorized to control all carpet exports
from Iran, but owing to the protests of carpet merchants, after a year it
withdrew from commercial activities.15 Instead, it limited its activities to
supporting production by distributing credit to village cooperatives,
purchasing carpets from weavers, and creating an inventory for copy-
righted designs. It also sought to protect workers by supervising conditions
and limiting child labor. Yet the Iranian Carpet Company has had little
impact, as it supervised only an insigni¬cant portion of production; it
controlled 2“3 percent of production in 197716 and it still produces and
exports only less than 1 percent of Iran™s carpets.17


15
Qali-ye Iran, 4 (Bahar 1373 [Spring 1994]), 16“17.
16
Floor, Encyclopdia Iranica, s.v. ˜˜Carpets: Pahlavi Period,™™ p. 885.
17
Nawruz, 9 Ordibehesht 1380 (April 29, 2001).
198 Bazaar and State in Iran

In the late Pahlavi era, the state™s approach to the carpet industry can
be best described as benign negligence. Under Iran™s modernization
plan, which focused on heavy industries and production of industrial
inputs and consumer durables, hand-woven carpet production and
trade were viewed as a minor economic system for job creation and their
export earning potential was less noteworthy, given the rise of oil income
and the expected industrial growth. Instead, the state and the royal court
viewed the carpet sector as a national symbol and historical art form.18
In this regard, state initiatives in the carpet sector were largely cultural
and scholarly ones. Under the auspices of Queen Farah, an active patron
of Iranian arts, the Carpet Museum of Iran was founded in 1976 to
preserve the heritage of the art form. Consistent increases in oil revenue
also made hard currency plentiful, enabling the state to establish a
generally liberal ¬nancial regime. This general indifference toward the
carpet industry as an economic sector, coupled with seemingly unending
western demand for ˜˜Persian carpets™™ allowed traditional production
and marketing systems to persist and prosper. Domestic production
continued to be channeled through the Tehran Bazaar, which acted as
the wholesale site for exporters and visiting importers. This venue and
conglomeration of relations nourished the self-regulated networks that
reproduced economic relations and secured independent earnings.
Export earnings began to decline after 1974, however. The oil boom
hurt Iran™s non-oil exports, and carpets in particular, both by increasing
the value of the Iranian rial and by fueling an economic downturn in
industrialized countries. In the ¬rst place, Iranian products became less
competitive on the world market, and, second, consumption of high-
priced luxury goods declined. In the years immediately prior to the
Revolution, many European carpet importers and Iranian traders abroad
began to turn to other established producers (e.g. Turkey, Pakistan,
Afghanistan, and Morocco) and the still nascent carpet-producing
countries of India, China, and Nepal.19 The Pahlavi regime™s gradual
lifting of foreign exchange controls in this period also undermined the role
of carpet exporters as the lenders of hard currency. Importers and others
in need of foreign exchange could increasingly turn to the banking system
to change and borrow U.S. dollars and German marks.


18
Personal interviews with member of Queen Farah™s of¬ce.
19
While most Iranian exporters and government of¬cials tend to see competition from
other countries as beginning in the postrevolutionary era, importers outside of Iran are
clear in placing the start of this shift in the mid-1970s and relating it to the increase in
price of Iranian carpets. The noticeable and persistent decline in export ¬gures and
shares after 1974 suggests that the latter perspective is more correct.
Carpets, tea, and teacups 199

During the revolutionary years of 1978“80, the carpet bazaar was an
economic bene¬ciary of the political turmoil. Both in terms of value (over
$400 million per year) and as a share of all non-oil exports (over 50
percent), carpet exports skyrocketed during the revolutionary years of
1979 and 1980. Wealthy Iranians, members of the Pahlavi order, and
businessmen who were either ¬‚eeing the country or concerned about its
political and economic future were eager to circumvent currency
restrictions and transfer their money abroad. Carpets became a means to
export capital abroad, and some (mistakenly as it turned out) speculated
that converting their assets into carpets would be a means to invest and
preserve the value of their assets.20 Customs ¬gures show that exports
were predominantly of rare and extremely expensive antique and silk
carpets.21 Meanwhile, investment in production declined during these
tumultuous years.22
By early 1981, the situation had radically changed. The recently
empowered Islamic Republic turned its attention to economic matters
to address the contingencies of the war. The state adopted a ¬xed
exchange rate regime and strict export controls to prevent capital ¬‚ight.
This resulted in a sharp downturn in carpet exports in the early 1980s
and also led to a rise in corruption and the smuggling of carpets.23
Iranians living in Dubai at that time, for instance, remember vessels
unloading bales of carpets at the docks.
The draconian regulatory system imposed on carpet exports remained
for much of the postrevolutionary era as state enterprises in the ¬eld of
carpet production and marketing mushroomed during the 1980s. The
desire to control hard currency and the policy of supporting weavers, as
part of the agenda to support the economically marginal strata, combined
to establish the cornerstone of the Islamic Republic™s approach toward the
carpet industry. The situation of the carpet exporters re¬‚ected the overall
institutional setting of commerce “ overlapping and privileged government
organizations, adoption of a restrictive export policy, and lack of stability in
policies.24 All of these developments restructured the carpet bazaar.
The number of government organizations participating in producing,
exporting, and marketing carpets, or making decisions that impact the

20
The Associated Press, June 13, 1979; New York Times, July 1, 1979.
21
Islamic Republic of Iran, Central Bank, Of¬ce of Economic Analysis (Edareh-
ye Barresiha-ye Eqtesadi), ˜˜Barresi-ye San˜at-e Farsh-e Dastbaft,™™ Mehr 1363
(September“October 1984), pp. 22“5.
22
Ferdi Besim, ˜˜The Carpet Market in Iran,™™ Hali 6 (1984), 228“9.
23
For examples of corruption involving bank and customs of¬cials see Donya-ye Farsh, 4
(Day 1379 [December 2000]), 14.
24
Salam, 8 Shahrivar 1376 (August 30, 1997), 1 and 3.
200 Bazaar and State in Iran

industry, is very large.25 A preliminary list includes the Central Bank of
Iran, the Ministry of the Construction Crusade,26 the Ministry of
Industry and Mines, the Ministry of Commerce, the Organization of
Iranian Handicrafts, the Imam Khomeini Relief Committee, and var-
ious carpet-weaving cooperatives. Moreover, each of these government
bureaucracies has a number of departments dealing with matters con-
cerning carpets; for instance, under the jurisdiction of the Ministry of
Commerce alone there is the Iranian Carpet Company, the Center for
the Development of Exports, and the Institute for the Study and
Research of Commerce. The Ministry of the Construction Crusade,
which was established after the Revolution to oversee rural development,
has been extremely active in establishing and organizing carpet produc-
tion cooperatives as well purchasing and exporting carpets.27 The min-
istry claimed that in 1994 the value of the carpets produced by workers
under its supervision was 10 percent of all ˜˜¬rst-rate™™ carpets and 80
percent of ˜˜second-rate™™ carpets.28 Meanwhile, another source con-
cluded that as a whole, carpet-weaving cooperatives hire about 10 percent
of all weavers and account for roughly 11.5 percent of all carpets pro-
duced.29 The Imam Khomeini Relief Committee, another revolutionary
organization mandated to help the most economically disenfranchised
strata of society, supports weavers by providing them with subsidized raw
materials and marketing their wares in carpet exhibitions and stores. Other
organizations active in carpet-affairs include the Foundation for the
Affairs of Immigrants of the War and the trust administering the Imam
Reza Shrine in Mashhad (Astan-e Qods-e Razavi). With so many orga-
nizations and with their activities being largely uncoordinated and
sometimes contradicting one another, performance has not met produc-
tion and export objectives.30 The creation of vested and institutionalized

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