The closure of Tehran’s Grand Bazaar yesterday, and the closure of the consumer electronics bazaar the day before, seemed to be part of the regular and widespread protests that have roiled Iran over the last few months, spurred by economic volatility. Many saw the bazaar’s closure and subsequent protests as a meaningful escalation, a sign that perhaps popular discontent was spreading to key institutions and that coalitions were forming that could challenge the government more directly. After all, the bazaar has historically been seen as the heart of Iranian civil society, an institution where people of all walks of life could cross paths. As a physical institution, it was long a rare incubator for solidarity: “the rooted nature of the market… establish[es] the necessary foundation for communal allegiance, with its confined nature fostering long-term and face-to-face interactions among bazaaris.”

But this conception of the bazaar is an artifact of an earlier time. The bazaar in Iran today can no longer claim to be what historian Roy Mottahedeh eloquently described as “the assessor that sets the valuations politicians must use when they trade.” Over the last few decades, the bazaar has been cleaved from Iran’s civil society, no longer standing at its heart, but rather in isolation, losing its former role as a cite for broad civil society politics, and acting instead in its economic self-interest as the recent protests so transparently expose. Understanding this transformation is fundamental to an assessment of the recent protests.

The networks of the bazaar that linked the merchants to civil society were deliberately disrupted and broken following the 1979 Islamic revolution. As detailed by Arang Keshavarzian in his seminal Bazaar and State in Iran, the new revolutionary government, concerned about the continued role of the bazaar as a site of contentious politics, sought to constrain the role of the bazaar in civil society via two processes.

First, those bazaar merchants loyal to the revolution and the new Islamic Republic were co-opted into the state, offered positions as the heads of ministries and bonyads. The regime rewarded namely the members of the group of the Islamic Coalition Association (ICA), a small segment of bazaar merchants, who had “financed and organized many political rallies and events… became part of the new ruling elite.” Incorporating these bazaaris into the regime gave them new incentives and power, changing their relations with the bazaar—indeed, they are no longer referred to as bazaaris by other merchants but instead called dawlati, meaning “of the government.” Personal gain motivated the separation from the bazaar. With the economy under state control, officials were in the position to take advantage of power for personal gain, with, “direct access to rents via exclusive importing licenses, tax exemptions, subsidized hard currency, and control over procurement boards and industrial establishments. The bazaaris who have established patronage channels have used them for personal and exclusive ends, and not as a tool for the benefit of the entire bazaar.”

Second, a new kind of profiteering was introduced to the bazaar. During the Iran-Iraq war, the government of the Islamic Republic saw its coffers emptying rapidly. Iran’s economy was increasingly cut-off from global markets for goods and services as a result of economic sanctions. Some goods were unavailable, others became more expensive. Turning a crisis into an opportunity, elements in the bazaar began to engage in smuggling both in order to gain access to goods that would be sold for high prices in the market, but also to engage in profiteering and to secure rents that could be funneled to quasi-state institutions. Dawlatis in the bazaar enjoyed state-sanctioned access to black market goods that they could sell at market for large profits. They could also benefit from preferential access to foreign currency.

To be clear, these changes did not make the bazaar apolitical. On the contrary, the merchants continued to mobilize in a coordinated fashion, but with a new and more self-serving outlook. Bazaar closures like those seen this week are relatively rare, but did occur numerous times during the the Ahmadinejad years, with notable closures in 2008, 2010, and 2012. It would be easy to assume that these closures were due to the general economic malaise and popular dissatisfaction that marked Ahmadinejad’s tenure, but the fact that the bazaar did not engage in any significant mobilization in 2009, when sustained mass-protests emerged in response to Ahmadinejad's disputed reelection, demonstrates that civil society solidarity was not the motivating factor. The merchants of the contemporary bazaar do not mobilize for the people. They only mobilize for their own interests.

These is a clear line that can be drawn from the bazaar mobilizations of a decade ago to those of today. The Ahmadinejad years saw the rise of a new kind of rentierism in the Iranian economy, where quasi-state entities extended their role in Iranian enterprise. Iran’s Islamic Revolutionary Guard Corps (IRGC) ambitiously expanded their industrial operations, taking advantage of free-flowing contracts and financing made available by the Ahmadinejad government. A new kind of corporatist rentierism was emerging. Rather than rely on smuggling and arbitrage, quasi-state groups leveraged political connections to provide more valuable products and services to the economy than mere market commerce, sensing an opportunity as the Iranian private sector was squeezed by international sanctions and international companies reduced their presence in the market.

The nascent rivalry between the bazaari class and the IRGC would have been unthinkable in at the outset of the bazaar’s post-revolution transformation, but as IRGC generals saw opportunities develop in the boardroom, new fault lines have emerged, particularly in light of Rouhani’s pursuit of economic reform.

President Rouhani was elected in 2013 on a mandate to liberalize the economy through two interrelated processes: improve monetary policy and overall transparency in the economy and boost foreign trade and investment. He has been a vocal critic of the IRGC and its role in the economy. But it should be noted that corporatist rentierism is not entirely incompatible with liberalization. Rouhani has always positioned himself as giving the IRGC leaders a choice—they can either engage in business or serve proudly in the military, but they cannot do both. Faced with this choice in a liberalizing environment, an entity with links to the IRGC that is a beneficial owner of a company can either profit by offloading its shares in that company to a non-IRGC linked firm (phenomenon which has been observed in several cases) or it can clean itself of its IRGC links in order to position itself to benefit from expected foreign trade and investment. The availability of these options also help explain why liberalization has received a relatively robust endorsement from the supreme leader, Ayatollah Ali Khamenei, including a recent statement that parliament must “must independently make legislation on issues such as terrorism or combating money laundering.” Khamenei’s concern is mostly about the pace of liberalization and the provisioning of its fruits, not its intended structural effects.

Importantly these structural effects threaten the bazaar as it operates today. The fundamental source of rents in the bazaar is arbitrage. Access to goods is secured at a low price, either through smuggling or manipulation of the foreign exchange markets, and then goods are sold at a high price. The disproportionate economic muscle of the bazaar network, stems from rents generated by high-value items such as gold and jewelry and electronics.

As the consumer electronics bazaar shut in protest over the currency fluctuations, Mohammad-Javad Azari Jahromi, the Iran’s Minister of Information and Communication Technology, sought to expose the predatory arbitrage. He disclosed that while consumer electronics sellers in the bazaar were sold a total of EUR 220 million of foreign currency at the official exchange rate in order to purchase stock, only approximately EUR 75 million of mobile phones were imported. So two-thirds of the foreign currency provided cannot be accounted for.

The implication is that approximately EUR 145 million in foreign currency was siphoned-off to be sold at the black market rate, likely allowing the traders to nearly double their investment in the foreign exchange. As demonstrated by Jahromi’s resolve to expose such fraud, these types of activities would become impossible if the Rouhani administration can successfully implement the liberalization measures currently being pursued. Whether it is improving tax collection mechanisms, bettering customs controls, raising accounting standards, introducing stronger financial crime laws, or instituting tighter controls on foreign exchange, including a unified rate, such reforms would spell the end of the bazaar’s cash generation, now seen as a drag on the economy at large.

Meanwhile, IRGC-linked development companies are among those building a plethora of malls across Iran, slowly eroding the bazaar’s long-standing role as the a pillar of Iran’s consumer-driven economy. Ironically, in undermining the bazaar in this way, the Islamic Republic is achieving something the Shah had always sought to accomplish. In 1979, the bazaar mobilized against the Shah largely due to his declared dislike for their “worm-ridden shops” and his attempt to curtail their economic influence. In his own words, the Shah “could not stop building supermarkets. [He] wanted a modern country.” But he never got the chance to render the bazaar obsolete.

Four decades later, economic liberalization and modernization is finally chipping away at the bazaar’s customer base as consumers habits see hours spent in malls and supermarkets rather than in the labyrinthine bazaar. The benefactors of this shift in consumer habits are both Rouhani and his private sector supporters and the opportunistic elements of the IRGC. The losers are the elite traders of the bazaar.

To be clear, not all merchants are part of the predatory elite. There remain plenty of humble grocers and shoe-sellers and spice merchants who can count themselves among those under relentless economic pressure. For these merchants, participating in a closure is not always a matter of choice. Journalist Reihaneh Yasini, in her reporting from the bazaar on Monday, spoke to merchants who described being ordered to shut their shops unwillingly. One young bazaari said, “It was about 11 o’clock when some people came by and said everyone must close their shops. We got scared and also closed.” Another added, “They were angry. They said they would use bricks to smash the windows. They appeared to me to be people complaining about rising costs. It was right for us to close the shop after this happened, though in reality closing the shop has little cost for us. Our sales are so low that closing the bazaar for one day will make little difference to us.”

It is unlikely that the closures were spontaneous. This has not been the historical norm for mobilizations at the bazaar and accounting for historical trajectories and the intense competition of Iran’s present-day economy, the bazaar’s mobilization is best understood as a manifestation of elite competition. Bazaar elites sought to co-opt the voices and slogans of a frustrated and economically insecure population in order to undermine their political opponents and put the brakes on threatening reform processes.

In this sense, the bazaar closures may follow the same playbook as some of the initial mobilizations in Mashhad at the end of last year. These tactics must be called out. There is a very real risk that genuine civil society frustrations are becoming instrumentalized by elites in an effort to preserve the kind of predatory economic activity that has led to so much economic suffering among the Iranian people. Outside observers must remember than the success of civil society protests in Iran depends principally on the independent collective action and claims-making of those mobilizations, not merely on the spectacle of the protests themselves.

Photo Credit: Thomas Cristofoletti