Int. J. Entrepreneurship and Small Business, Vol. 18, No. 2, 2013 125

Copyright © 2013 Inderscience Enterprises Ltd.

Ethnic minority entrepreneurs in the international carpet trade: an empirical study

Ivan Light Department of Sociology, University of California, 264 Haines Hall, Los Angeles, CA 90095-1551, USA E-mail: ihlight@yahoo.com

Shahamak Rezaei* Department of Society and Globalisation, Roskilde University, Building 25.3, P.O. Box 260, DK-4000 Roskilde, Denmark E-mail: shre@ruc.dk *Corresponding author

Léo-Paul Dana Groupe Sup de Co Montpellier Business School, Montpellier Research in Management, 2300 avenue des Moulins, Montpellier, France E-mail: lp.dana@supco-montpellier.fr

Abstract: Persian carpets have long been an important commodity in the world market, largely controlled by the Tehran Carpet Bazaar and the Hamburg Free Harbour. Interviews were conducted amongst Persian carpet traders in European centres, providing a historical overview and allowing us to identify trends. The paper discusses the pre-modern bazaar and the authors observe changes in the sector as Persian carpets can now be sourced from new entrants competing with traditional manufacturers. We identify two important issues: 1) the existence of a time-lag from the date of arrival of new migrant groups before the group is able to establish some weak business ties and transform those to strong ones; 2) the key to the success of new immigrant groups in business can be found in their multicultural and multi-linguistic competencies that lead to a higher level of mutual understanding and mutual trust relations which in turn lead to a strengthening of what were initially weak ties.

Keywords: Azari traders; bazaar; carpets; ethnic solidarity; ethnicity; guilds; Hamburg; Jews; trust; weak ties.

Reference to this paper should be made as follows: Light, I., Rezaei, S. and Dana, L-P. (2013) ‘Ethnic minority entrepreneurs in the international carpet trade: an empirical study’, Int. J. Entrepreneurship and Small Business, Vol. 18, No. 2, pp.125–153.

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Biographical notes: Ivan Light is a Professor (Emeritus) of Sociology at University of California, Los Angeles. He is the author of numerous articles and six books on immigration, entrepreneurs, and urban sociology. His earliest book is Ethnic Enterprise in America (1972). The next book, Cities in World Perspective (1983) is a comparative and historical treatment of urban societies around the world. His next two co-authored books were Immigrant Entrepreneurs: Koreans in Los Angeles (1988), and Immigration and Entrepreneurship (1993). There followed another co-authored book Race, Ethnicity and Entrepreneurship in Urban America (1995). One of the co-edited volumes is Immigrant Entrepreneurs and Immigrant Absorption in the United States and Israel (1997) brings together articles that compare Israel and the USA as immigrant reception societies. Ethnic Economies (2000) is among other co-authored books, which integrates the voluminous international literature on that topic. His latest book is Deflecting Immigration: Networks, Markets, and Regulation in Los Angeles (2006).

Shahamak Rezaei is Head of Studies at the Department of Society and Globalisation, Roskilde University. He completed his Doctorate in Business Administration at the University of Southern Denmark in 2001. He has worked at different universities in Denmark and was a Visiting Professor at several universities in Canada and recently at the University of Canterbury, College of Business and Economics, Department of Management in Christchurch, New Zealand. His research has focused on global entrepreneurship and globally born SMEs, ethnic and transnational entrepreneurship, entrepreneurship and informal economic activities, economic consequences of migration, comparative welfare state analysis and labour market analysis. Recently, he has focused on transnational entrepreneurship dealing with a comparative research project analysing entrepreneurship policies in China and Denmark, return migration and returnees.

Leo-Paul Dana earned BA and MBA degrees at McGill University, and a PhD from HEC-Montreal. He has served on the faculties of McGill University and the University of Canterbury, and as Visiting Professor of Entrepreneurship at INSEAD and Deputy Director of the International Business MBA Programme at Nanyang Business School, in Singapore. He has published in a variety of leading journals including the British Food Journal, Cornell Quarterly, Entrepreneurship: Theory & Practice, Journal of Small Business Management, Journal of World Business, and Small Business Economics.

1 Introduction

Today, about 200 entrepreneurs – mainly Iranian in origin – export Persian carpets from the Hamburg Free Harbour area to about 10,000 carpet traders throughout the world.1 The Iran-Germany axis remains the core of this trade – with Iranian entrepreneurs occupying the dominant position on both sides of the transaction line, in spite of:

1 major political turbulence in Iran since the 1979 revolution

2 the spreading of state-controlled trading companies inside and outside of Iran

3 increasing international market pressure due to the increase in production of Persian-style carpets in other countries.

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In particular, Iranian traders of Azerbaijani descent who speak Azari, a language similar to Turkish, who control the carpet trade in both Teheran and Hamburg. While the individuals in this small group compete fiercely amongst each other in daily business, they stick together in order to remain in control of this world-wide billion dollar trade.

According to Hamburger Hafen- und Lagerhaus Aktiengesellschaft (Hamburg Harbour and Warehouse Inc.) known by the acronym HHLA, Hamburg is the largest ‘Free Harbour’ of the world. The HHLA has its offices inside the Free Harbour in an area called Speicherstadt – literally meaning ‘Warehouse City’. It is in this area where carpet traders have their trading houses. The hand-knotted carpet trade occupies 11% of business activities in the HHLAs buildings.

In this article, the historical process of the Persian carpet trade will be illustrated. The persistence of the Tehran-Hamburg axis, in spite of political and market turbulence, as well as ethnic segregation as the dominant organisation characteristic of the Hamburg Free Harbour, stand out as milestones in the presented scenario. Historical evidence and statistical data is presented that supports these points.

1.1 Methodology

Our methodology involved conducting in-depth interviews with 17 named interviewees and four who wished to remain anonymous, amongst Persian carpet traders and their business network in Hamburg; this sample represents more than 10% of the total population in question. The interviews conducted were partly structured by way of an interview guide and partly open-ended. Questions and answers were presented orally recorded on the spot. As a supplement to this qualitative data, some quantitative statistical data were ordered from Eurostat via Statistics Denmark. To make a comparative investigation and examine the role of the Hamburg Free Harbour Persian carpet traders vis-à-vis Iranian traders in other countries, the same methodology was used in Denmark. Furthermore, additional statistical data was obtained from the Danish Department of Customs and Tax for the Danish Persian carpet trade, both directly from Iran for 1998 and via Germany for 1999. The qualitative part of our article was finally supported by additional in-depth face-to-face interviews conducted in the Netherlands, including one interviewee wishing to remain anonymous, and also telephone interviews with former Hamburg Free Harbour Persian carpet traders now residing in the USA. The name of interviewees who consented to have their names published can be found in Appendix; the other interviewees preferred to remain anonymous.

2 Entrepreneurship in a bazaar

In perfect markets – so classical theory went – factor prices spontaneously brought together the inputs that created novelty and innovation without the agency of indispensable individuals. Entrepreneurs existed, of course, but their role was only to midwife an inexorable market process rather than, by the force of mighty and multi-lateral efforts, to hasten what would sooner or later have happened without them. This scepticism regarding entrepreneurial agency remains to this day in neo-classical economics.

Modern literature on entrepreneurship has rejected systemic thinking in that the modern literature makes room for individual human agency in a world whose real

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markets fall short of the neo-classical ideal. In so doing, the modern literature of entrepreneurship stops short of market fundamentalism, defined here as the doctrine that markets make decisions sooner than, better than, and independent of entrepreneurs. This reservation does not reject the decisive role of markets; it does, however, assert that real markets fall short of the perfection attributed to ideal markets, and that in real markets innovation utilises human, social, and cultural capital in addition to financial capital, the 19th century’s one-stop nostrum for business creation [Aldrich, (2005), p.461]. In short, real markets are not perfect markets, and, without the right people on the supply side, real markets will not optimise innovation.

The modern concept of entrepreneur thus retains an awareness of and emphasis upon human agency. The entrepreneur is an agent (Barth, 1967) whose effort makes a difference. This conception of agency predates market capitalism and classical economics alike. That is, the more systemic one’s outlook, the less important is individual human agency; and market fundamentalism is fully and resolutely systemic in its outlook. Yet, even market fundamentalists would agree that before market capitalism, individual agency mattered. The gradual imposition of and extension of the market system since the early modern period has certainly reduced the importance of individual agency in economic change, but before the market system took over, individuals unambiguously mattered. No one disputes that point. In discussing entrepreneurship in a bazaar, we are precisely discussing entrepreneurship before national and international free markets. There should, therefore, be no barrier to this topic on the grounds that the concept of entrepreneurship imports into the past a modern concept incompatible with the past. If anything, entrepreneurs should have been more important in the pre-modern bazaar than in the global market economy because the market system reduced if it did not eliminate the economic importance of the economic agent. Entrepreneurship is important even in market systems, but it was even more important in pre-market economies.

2.1 Innovations

2.1.1 Improving bazaar centrality

Bazaaris can join together to exert political influence in order to affect the transportation routes that pass through their locality. The more caravans pass through what Sjoberg (1960) called the pre-industrial city, the more traders and customers the city’s bazaar could support. The growth of caravan traffic benefits all the bazaaris of the city. Possibly, however, bandits infest the surrounding mountains and pirates the high seas. These criminals discourage access to a bazaar. If the local bandits and pirates can be suppressed, then a bazaar might become more attractive to external traders, and more caravans would pass through. Suppressing the bandits requires that bazaaris influence political authorities, a project that requires the bazaaris to take collective action.

2.1.2 Establishing trading leagues

By establishing trading relations with distant cities, bazaaris open market access to their products abroad. That is, bazaar access can be offered in our locality to those who offer reciprocal access in theirs. “You may trade here if we can trade there”. Permission is required to trade in the pre-industrial city, especially if one is not a resident. This permission requires political negotiation between the bazaaris of different localities.

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These cities may band together in leagues. Once a league is established, member bazaaris then acquire the right to exclude traders from their city’s bazaar any traders who emanate from non-league cities that do not reciprocate trading rights; alternatively, non-league merchants can be compelled to pay a tax than renders their goods less competitive. Northern Europe’s Hanseatic League expanded in this way in the late Middle Ages.

2.1.3 Rationalisation of law

Laws can interfere with commerce. During the Middle Ages, obsolete laws decreed trial by battle in mercantile disputes, a preposterous, irrational, and commerce-defeating tribunal. Centuries of effort were required to establish a rational commercial code in early modern Europe. Legal issues still obtrude when distant localities trade on the internet. Kobrin (2001, pp.690–699) calls attention to unresolved legal issues that surround territoriality on the internet. Now as in the past, bazaaris can promote and encourage revised legal codes that support rather than defeat commerce. Standardisation of law simplifies international commerce; legal rationalisation eliminates obsolete rules, clarifies responsibilities, and streamlines procedures. Yet, laws are not easily revised. Revising public law requires bazaaris to exert political influence on their state, and to accomplish this influence they require joint action.

2.1.4 Private governance agreements

Cheating merchants drive away business. It is in the interest of the entire bazaar to minimise merchant cheating. By forming a chamber of commerce, bazaaris impose a code of conduct with sanctions upon members. Known cheaters are not admitted to the chamber, and proven cheaters are expelled. Membership in the chamber then becomes an unofficial badge of mercantile probity, attracting custom to members in good standing. Even if the state fails to regulate weights, measures, and consumer rights, the bazaaris do so in their own collective self-interest. Where these official or unofficial measures are successful, and trust and good faith are enforceable, they move the bazaar toward a true market. True markets require much state intervention to accomplish for this reason.

2.1.5 Enhancing diasporic/ethnic solidarity

Strengthening ethno-religious ties, bazaaris can obtain a positional advantage for their group relative to other trading groups in the bazaar. For example, the Arab bazaaris can extend more effective help and support to one another than they once did, obtaining thereby economic advantages for their group relative to Armenians, Jews, and Persians who also trade in the bazaar. This policy of ethno-religious nationalism eventuates in the formation of multiple ethnic business networks that relate to one another, as networks, in a state of coopetition rather than pure competition or pure cooperation. Sometimes the ethnic business networks cooperate; sometimes they compete. Such is, indeed, the typical organisational form of a bazaar. Dana and Dana (2008) focus on ethnic clustering in the bazaar.

Ethnic diasporas are organised into a hub and spoke structure in which the ethnic homeland is the hub and the outlying settlements are on the spokes (Light, 2007). The construction of an ethnic diaspora integrates otherwise isolated spoke settlements into a globe-spanning international unit. This globe-spanning unit greatly expands the

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opportunities for international trade that all the co-ethnic merchants enjoy, but none can establish a diaspora all by himself or herself. The construction of an ethnic diaspora is a collective achievement that endows all the individuals with economic advantage. Individuals obtain economic advantage from this collective innovation.

2.1.6 Bridging social capital

Bazaars bring together many different regional, ethnic, religious, and kinship groups. Bazaaris are members of their own ethno-religious and kinship groups within which relationships of solidarity prevail. However, beyond those ethno-religious and kinship borders, inter-group relationships became perilous and subject to opportunistic exploitation. Bridge-building bazaaris establish strong and weak professional relationships outside their own ethno-religious group. By learning a foreign language, and establishing relationships of trust with non-co-ethnic merchants, bazaaris gain individual access to resources that their own group does not control.2 Thus, bridge-building bazaaris open access to new resources without losing control of those their own group routinely controls. A bazaari who bridges into someone else’s diaspora attains many of the advantages of the other group’s diaspora. The outside resources may permit individual bazaaris to expand markets for their goods or to improve the quality of the goods they offer while reducing their price. The advantages of bridging social capital are especially strong if other mercantile groups are organised around an international diaspora but one’s own is not. Dana et al. (2008, pp.110–111) declare that in a bazaar, “Internationalisation is a function of multi-polar networks involving special relationships”.

2.1.7 Building patronage relationships

Effectuating relationships with politically or economically influential clients, bazaaris can obtain valuable privileges that convey economic advantage relative to others. A person becomes another’s client by offering support to the powerful one, and receiving personalised benefits in return. For example, bazaaris who contribute generously to a political candidate’s election funds may receive lucrative government contracts in return. Bazaaris who donate to the banker’s favourite charity may have their loans approved faster than those who did not donate.

2.1.8 Acquiring human capital

Bazaaris who acquire new business skills hope to exploit them later to obtain commercial advantage relative to those who did not acquire the skills. The importance of new business skills depends upon the rate of change in the business environment. In general, bazaars in pre-modern societies existed in stagnant or slowly changing business environments compared to which the contemporary business environment is dynamic. In a dynamic business environment, where yesterday’s methods are inadequate today, acquisition of human capital is of serious importance. Here again, however, the previous caveat applies. Regulations enforced by trade guilds and eth no-religious communities restricted an individual entrepreneur’s ability to introduce exclusive new technology. In many cases, trade guild regulations prescribed the technologies that were acceptable, and outlawed innovations. The regulations thus additionally restricted the ability of individual

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bazaaris to obtain economic advantage over persons in the same trade, normally co ethnics and co religionists, by dint of acquiring superior human capital.

2.2 The concept(s) of competition

While ‘competition’ in the firm-type economy is understood to take place between sellers, ‘competition’ in the bazaar refers to the tension between buyer and seller, rather than between sellers. The lack of information results in a very imperfect market, and with few exceptions, such as basic food staples, retail prices are not indicated but rather these are determined by negotiations (Dana, 1998, 2010).

The term market competition is intended to suggest the vast realm of individual strategies whereby bazaaris improve their economic situation relative to other merchants. Producing a better product at a lower price is the core technique, but doing so brings bazaaris into individual competition with other bazaaris. Recent treatments emphasise the bazaar entrepreneur’s reliance upon bargaining and the creation of multi-price systems of customers (Dana, 2000; Dana et al., 2009). This emphasis correctly identifies the bazaar’s greatest points of similarity to today’s hotel industry, the airline industry, and other sectors where interdependence has become the norm; prices are negotiated, and prices depend on group membership (Etemad et al., 2001). Thus understood, the art of successful bargaining with suppliers and customers, and the creation of a revenue-maximising, multi-tier price system represented the core of entrepreneurship in a pre-modern bazaar. Those who succeeded in these two accomplishments were the most successful bazaaris. This point is well-taken and too well understood to require elaboration here. A cautionary note is, however, in order. Pre-modern bazaars had very structured governance. Where trade guilds existed, as they commonly did in pre-modern cities [Light, (1983), pp.41–43], their regulations discouraged entrepreneurship that threatened the status quo such as cutting prices for foreigners. After all, the guilds set the prices, and compelled member merchants to fall in line [Nashat, (1981), p.68]. Also, ties of kinship, religion, and ethnicity compelled bazaaris to create multi-tier price structures that corresponded to the closeness of the real social tie (Light, 2010). Both policies reinforced the preponderance of collective entrepreneurship relative to individual entrepreneurship. The point is not to ignore individual entrepreneurship in bazaars, but to put the individual entrepreneurship into proper juxtaposition to collective entrepreneurship in a context of governance.

2.3 The free rider dilemma

The recitation shows that bazaar entrepreneurs had abundant opportunities to cooperate with others for their mutual benefit and somewhat restricted opportunities to strike out on their own. The predominance of collective over individual initiative in the pre-modern bazaar suggests the partial suppression of the individual’s economic interest to the economic interest of the groups to which that individual belonged. Bazaars were not anarchic. That said, the collective and individual innovations were not mutually exclusive even then, and a person could simultaneously undertake both types of innovation, collective and individual. Coser (1956, p.140) called this relationship antagonistic cooperation, explaining that this “consists in the combination of two persons or groups to satisfy a great common interest while minor antagonisms of interest which exist between

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them are suppressed.... As an example of ‘antagonistic co-operation,’ consider that when competing entrepreneurs realize that they as entrepreneurs have certain common interests in opposition to the interests of other groups, they may band together in order to defend these interests while continuing to compete with each other in other aspects of their separate existence.”

On the other hand, the motivational profiles of individual and collective entrepreneurship differ and did differ in important ways. If entrepreneurs pursue individual innovations, they take the risks, do the work, and reap the rewards, if any. However, if entrepreneurs undertake collective innovations, then they may run afoul of the free rider problem. The free rider problem bedevils voluntary attempts to organise social action on behalf of collective goods, which are states of affairs mutually beneficial to many people (Olson, 1965). The problem arises because and to the extent that those who do the essential work to obtain a good outcome share the reward with those who did no work. For example, if some entrepreneurs press public authorities to rationalise laws that govern the bazaar, then, when the beneficial changes in the law are introduced, the entrepreneurs will benefit as much as merchants who contributed nothing. To the extent that free riders share the reward with entrepreneurs, everyone is tempted to ride free. As a result, as Olson showed, collective action often fails or proceeds slowly because everyone waits for someone else to undertake the necessary work or to make the essential sacrifices.

How and to what extent did bazaaris surmount the free rider problem? To obtain collective goods, bazaar entrepreneurs required a governance structure (Demil and Lecocq, 2006). In turn, a governance structure required all to share the burdens, thus obviating the dilemmas of voluntary action. Governance can be formal or informal. If a governance structure is formal, it consists of an organisation with by-laws, elective leadership, written rules, and membership dues. If informal, a governance structure is a social network that enrols entrepreneur members who typically share a common ethno-religious identity and subscribe to a traditional culture that provides guidance for common problems. A governance structure can be a ruling clique that is connected to an ethno-religious membership base.

Without the force of law to compel membership, an informal, clique-based governance structure is easier to create than a formal structure. When creating a formal governance structure intended to enrol and benefit all the merchants in the bazaar, themselves included, entrepreneurs must first found a trade organisation; then the trade organisation recruits membership while coordinating concrete efforts to solve the business community’s problems. If the governance structure has the force of law, as did the European guilds during the Middle Ages, then the governance structure solves the free rider problem. All must join the guild who practice the trade, and all who join must follow the guild’s rules. All guild members are lawfully taxed in order to pursue collective innovations that benefit all.

However, if a formal governance structure is voluntary, then the problem arises of how to induce every merchant to join. To avoid free riding, a voluntary governance structure must offer benefits that only the association’s contributors receive. From the recital above, the easiest way to offer an exclusive benefit is to impose a code of business conduct upon members. Merchants would join such an association in order to obtain the benefit of ethical certification to the consuming public, and non-members would bear the

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imputation of dishonesty. Rotblat (1975, pp.299–300) showed, in the Iranian bazaar, the public profession of Islam was the main guarantee of one’s business probity as late as 1970.

The prospects for formal governance are not hopeless. All depends on the existence of exclusive benefits, although these are hard to find. When they cannot be offered or are insufficient in attractive power, then merchants cannot create a voluntary governance structure for the whole bazaar. Informal governance solves the problems of free riding that bedevil voluntary trade organisations that depend on voluntary adherence. This advantage explains why informal structures governed the classic bazaar. Based on ascribed relationships of kinship, ethnicity, and religion, informal governments were easy to establish and maintain in the pre-modern bazaar [Faneslow, (1990), p.258]. Only base communities had the means to reward and punish merchants for their conduct at work without requiring voluntary enrolment. After all, everyone was already a birthright member of his or her own ethno-religious community, and derivatively a practitioner of one of that group’s occupations. Merchants who participated in their ethno-religious business community, and obeyed its rules, joining with others in collective entrepreneurship, enjoyed the base community’s esteem and goodwill. Once the government had endorsed a project, co-ethnic merchants who chose free riding, experienced at home and at work the base community’s reprobation.

Another advantage of informal governance was the ease with which they operated once formed. When based on ascribed ethno-religious identities, an informal government does not require a rule book, a bureaucracy or external recognition. Informal governance emerges spontaneously from the members’ authentic sense of ethno-religious identity combined with their common economic interests. In this sense, it is not correct to assert, as do Demil and Lecocq (2006, p.1452) that “any governance structure is grounded in a contractual framework”. Formal governance structures are so grounded, but informal governance structures are grounded in tradition, ethnicity, kinship, and religion. All of these are ascribed, not voluntary connections.

Bazaar governance based on kinship, co ethnicity, and religion was immensely parochial. Yes, within the religious or ethnic community, some law existed; because of this law, chicanery was reduced. Above all, credit relationships were based on trust, and credit relationships were essential to the functioning of the bazaars [Thompson and Huies, (1968), p.223]. However, outside the ethno-religious community, lawlessness prevailed. As explained by Rotblat (1975, p.297), “Since these [ethno-religious] relationships are circumscribed, they do not provide a foundation for mutual trust and the definition of common goals in the merchant community”. [For discussions of the impact of religion on entrepreneurship, see: Dana (2009)]

Indeed, entrepreneurs in the bazaar cheat those outside their own ethnic community. Moral scrupulousness was not rewarded in the bazaars nor was unscrupulousness punished [Faneslow, (1990), p.262]. As a result, bazaars were not safe commercial environments for the unwary to visit. Rotblat (1972, p.304) stressed the “generalized climate of mistrust” that existed in the Iranian bazaar. Similarly, according to Faneslow (1990, p.263) bazaaris lived in constant fear of ‘chicanery’ from others. The fears drove bazaaris to seek the security of trusted trade partners, shunning all others, but that limitation interfered with collective entrepreneurship toward common objectives.

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3 The historical process of Persian carpet trade3

To trace the history of the Persian carpet is to follow a path of cultural growth of one of the most ancient civilisations the world has ever known. From being simply articles of need, as pure and simple floor entrance coverings to protect the nomadic tribesmen from the cold and damp, the increasing beauty of the carpets attracted new owners – kings and noblemen, and those who looked for signs of wealth or adornment for their fine buildings.

Many people in Iran have invested their entire wealth in Persian carpets – often referred to as an Iranian stocks and shares – and there are underground storage areas in Tehran’s Carpet Bazaar that are full of fine specimens, kept as investments by shrewd businessmen. For many centuries, the Persian carpet has received international acknowledgement for its artistic splendour. In palaces, famous buildings, homes of the rich, and museums throughout the world, a Persian carpet is amongst the most treasured possessions. Thus, today, Iran produces more carpets than all the other carpet making centres of the world put together. The element of luxury with which the Persian carpet is associated today is in marked contrast to its humble beginning among the nomadic tribes that at one time wandered the great expanse of Persia in search of a livelihood. Then, it was an article of necessity to protect the tribes from the bitterly cold winters of the country. But out of necessity was born art. Through their bright colours and magical designs, the floor and entrance coverings that protected the tribesmen from the ravages of the weather also brought much relief to their dour and hard lives. In those early days the size of the carpet was often small, being dependent upon the size of the tents or room in which the people lived. Besides being an article of furnishing, the carpet was also a form of writing for the illiterate tribesmen, who wove into their carpets, illustrations of their fortunes and setbacks, their aspirations and joys. It also came to be used as a prayer mat by thousands of Muslim believers.

Thus, began a process of people handing down their skills to their children, who built on those skills and in turn handed down the closely guarded family secrets to their offspring. To make a carpet in those days required tremendous perseverance. Even when carpet making developed to the stage of workshops, with several employees working on the same carpet, it was a question of months and often years of painstaking work. A key feature in making the carpets was the bright colours used to form the intricate designs. The manufacture of dyes used involved well kept secrets handed down through the generations. Insects, plants, roots, barks and other substances found outside the tents and in the course of their wanderings were all used by the ingenious tribesmen.

Historical records show that the court of Cyrus the Great was bedecked with magnificent carpets. Classical tales recount how Alexander the Great found carpet of a very fine fabric in a Cyrus tomb. The next great period in the history of Persian carpets came during the Sassanian dynasty, from the third to the seventh century AD. By the sixth century Persian carpets had won international prestige and were being exported to distant lands. The climax came with the Safavid dynasty in the 16th century. When Shah Ismail occupied the throne in 1499 he began laying the foundation for what was to become a national industry that was the envy of surrounding countries. The most famous of the kings of this era, Shah Abbas, more than any one else transformed the industry, bringing it from the tents of the wandering nomads into the towns and cities. In Isfahan, which he made his capital, he established a royal carpet factory and hired artisans to

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prepare designs to be made by master craftsmen. He charged officers of the crown to ensure that the integrity of the industry was maintained and during his reign the art of carpet weaving/knotting once again achieved monumental acclaim. The best known carpets of the period, dated 1539, come from the mosque of Ardebil in Azerbaijan province and, in the opinion of many experts, represent the summit of achievement in carpet design. The larger of the two is now kept in London’s Victoria and Albert Museum while the other can be seen at the Los Angles County Museum. Shah Abbas also developed the use of gold and silver thread in carpet weaving, culminating in the great coronation carpet now held Copenhagen’s Rosenborg Slot (the Rosenborg Castle), which has a perfect velvet-like pile and gleaming gold background (see Figure 1).

Figure 1 Rosenborg slot (see online version for colours)

Source: Photograph by Léo-Paul Dana

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These carpets were traditionally made for the court and the great nobles, and were protected as well as any gold treasure. Growing demand from the great royal courts of Europe for these gold and silver threaded carpets led to a great export industry. A large number went to Poland after King Sigmund specially sent merchants to Persia to acquire them. King Louis XIV of France even sent his own craftsmen to Persia to learn the trade. As the 17th century wore on there was an increasing demand for luxury and refinement. A set of silk carpets woven to surround the sarcophagus of Shah Abbas II achieved such a rare quality that many mistook them for velvet, but they were the last example of really high achievement in carpet making from that era in Persian history. Somehow, inspiration steadily began to diminish and, as the court became increasingly impoverished, the quality of the craftsmanship began to fall away. When Shah Abbas’ capital city of Isfahan was sacked in 1722 a magnificent period in the history of not only carpet weaving but also of art itself came dramatically to an end. The great carpet weaving tradition fell back into the hands of wandering nomads who had maintained their centuries-old traditions and skills that are apart from a few centres, principally, Azarbaidjan, Josheghan, Kerman, and Mashad. Even the less prestigious/lower quality school rugs produced by the remaining centres were in danger of being ruined as an art-form by the growing demand of the West in the mid-19th century for quantity at the expense of quality. Since the first decade of the 20th century only a few foreign companies, such as the East London Company, had exclusive rights to trade in Persian carpets.

By the 20th century the last Gajarieh monarch was dethroned and Reza Pahlavi came to the throne. Cheap dyes, low quality wool, chemical washing and even meaningless designs supplied by the European importers almost brought the industry to its knees. After sporadic and largely unsuccessful efforts to stop the rot, the government took drastic action and confiscated the carpets in which cheap dyes and low quality wool had been used. The dye masters soon came to their senses, and there began a new era of revival for the carpet crafts.

The new monarch took some steps toward nationalisation of certain industries. One of the steps was establishing the Iran Carpet Company in 1935, firstly diminishing and then later abolishing, the role of foreign companies in the carpet trade, especially the East London Company. At this point, nationalisation began. Reza Pahlavi’s ideas led to the creation of a state monopoly on the Persian carpet trade and gave sole trading rights to the Iran Carpet Company. However, following an initiative by an entrepreneur from Tabriz, a meeting was set up in Tehran and Reza Pahlavi agreed to let private traders operate on equal terms with the Iran Carpet Company [Persian Carpet, (1995), No. 7, p.28]. The Iran Carpet Company is, today, the biggest producer of Persian carpets employing approximately 20,000 weavers and knot-makers located in 580 villages and 96 larger centres across Iran. The activities of the Iran Carpet Company are divided into two divisions:

1 production and trade

2 support and advisory services.

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Before WW I, Iranian Persian carpet traders (the pioneers) were based in Istanbul and they exported from there to Europe. Evidence indicates that it was in 1874 when the first known case was recorded of a first private Persian carpet trader, namely Hadj Yousef Ghalichi (ghali in Farsi means ‘carpet’), who came from Tabriz, the capital of Iran’s Azerbaijani region (see Box 1). Evidence also indicates that by increasing foreign demand for the Persian carpets, pioneers from Tabriz area could not meet the demand by only supplying Persian carpets from the Azarbaidjan area, mainly from Tabriz Carpet Bazaar. Pioneers tried to recruit purchasing agents in different parts of Iran. The purchasing agent’s task at the beginning was to purchase, collect and gather carpets together and send them to Tabriz Carpet Bazaar. Soon after, however, they began to locate their agents in different parts of Iran and establish a few more centres across the country. The main gathering centre was, for geographical and political reasons, placed in the middle of the country, i.e., the capital, thus making Tehran the biggest new centre of trade. This was the beginning of the gradually increasing concentration of ethnic Azari traders of Persian carpets in the Tehran Carpet Bazaar (see Box 1). Establishing international customer contacts and the setting up of a trade centre in the capital city of Iran made the traders less dependent on Istanbul. Due to defeat of the Ottoman Empire which created insecurity in the country, the pioneers decided to move to London, by then the world’s biggest trading centre including the carpet trade, while others moved to Tehran [Farsh Iran, (1994b), p.16, No. 5]. The Tabriz-Istanbul axis 1874 to 1930s was now replaced by a Tehran-Istanbul-London axis and later, in 1940, changed again to the Tehran-London axis. This lasted until 1945, when the Tehran-Hamburg axis replaced all former organisational arrangements and still is in force. Box 1 The pioneers of international Persian carpet trade: the case of the Ghalichi family

Evidence is based on the life story of Majid Ghalichi, who was born in 1926 and who became one of the Persian carpet traders in Hamburg Free Harbour. His story is also published in Persian Carpet (1995, No. 7, pp.25–36) and is also documented in the Iranian Encyclopaedia by G. Mosaheb. Majid Ghalichi’s maternal grandfather, Yousef Ghalichi, is officially recognised as the first known, documented case of a Persian carpet exporter to Istanbul. In 1874, Yousef Ghalichi began his journey from Tabriz to Istanbul carrying four carpets on the back of a camel. Yousef Ghalichi returned home from the journey six months later and prepared another trip – this time with his cousin, Hadj Abdollah Ghalichi, and his paternal grandfather, Majid Ghalichis. The journey took place in 1876 to 1877 and Abollah’s oldest son, Ali Akbar Ghalichi, (Majid Ghalichi’s oldest uncle) also accompanied them on the second trip. The duration of the trip was about three and half months. Abdollah returned to Tabriz and this time Yousef travelled to Istanbul with Abollah’s second son, Mirza Ali Asghar Ghalighi, who was 18 years old. Mirza Ali Asghar Ghalichi was the father of Majid Ghalichi. Yousef Ghalichi returned to Tabriz and supplied the two brothers with carpet from Tabriz to Istanbul. The two brothers and, later, a third one, changed their bases between Istanbul and Tabriz every second year. After two years stay in Istanbul, Mirza Ali Asghar Ghalichi (Majid Ghalichis father) returned to Tabriz and married Yousef Ghalichi’s daughter (Majid Ghalichi’s mother). Later on when they expanded the business, the Tabriz carpet production was insufficient to meet demand. Therefore, they expanded their business concept to collect carpets from different regions of Iran, gathering the carpets together in Tabriz Carpet Bazaar and then sending the carpets on to Istanbul.

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Box 1 The pioneers of international Persian carpet trade: the case of the Ghalichi family (continued)

From Istanbul the carpets were despatched to different European destinations. Ghalichi’s family business expanded and became well known and European traders travelled led to visit the family’s ‘Trade House’. On one occasion, one of the European customers invited the family to participate in the First International Fair of Vienna in 1892. The Ghalichi family, as the only Persian carpet traders, participated in the fair with huge success. This led to the beginning of collecting a huge number of carpets from different parts of Iran, resulting in a sizeable carpet demand in Iran. Soon after, some other Persian traders, mainly from Azarbaidjan province, started the same business in Istanbul. They were all gathered in the same area in Istanbul, namely Valedeh Khan Saray. The most well-known pioneer families in Istanbul were: 1. Karbasi, 2. Dilmaghani, 3. Ahranjani, 4. Aerabi, 5. Sadaghiani, 6. Shalchi and 7. Reza Shahla. During WW I, the Valedeh Khan Saray, was known as the Iranian ‘Saray’, (Saray in Turkish refers to a kind of Bazaar). In the ‘Saray’ all Iranian traders were situated in two-storey buildings, and had office and warehouse space on the ground floor, while living on the first floor. Majid Ghalichi quoted his father, Mirza Ali Asgar, as saying, “the funny thing was that our (the traders in the “Saray”) kitchen chefs were all coming from Khoi, the first one of them came to Istanbul then suddenly they brought their family and friends to Istanbul and worked for us”, [Persian Carpet, (1995), p.29, No. 7], (Khoi is a small town in Azarbaidjan approximately 80 kilometres north west of Tabriz and very close to the Turkish border). After WW I some traders went back to Iran, and worked in Tabriz, mainly due to the insecurity in Istanbul. Some other traders from Azarbaidjan, mainly Tabriz, were active in Tehran Carpet Bazaar, due to the geographical position of Tehran, it being located almost in the middle of the country. Another group of traders tried to make their base in other countries. That resulted in some of the traders settling down in London and making new bases. Majid Ghalichi’s father and many others, however, decided to stay in Istanbul until 1939 when WWII began.

Taking the new situation into consideration and the condition of the buildings in the ‘Saray’ the remaining Iranian traders were reconsidering their situation. All buildings in the ‘Saray’ were built of wood and many places in Istanbul were subject to fire attacks and burned down. The possibility of Turkey’s participation in the war worried traders. Majid Ghalichi’s father, Mirza Ali Asgher Ghalichi, and all the other remaining Iranian traders started to ship out their assets from Turkey to different destinations. Majid Ghalichi said that his father, Mirza Ali Asgher Ghalichi, and all the other remaining traders, left Istanbul the same day as Hitler’s troops entered Paris, namely, June 14th 1940 [Persian Carpet, (1995), p.29, No. 7]. This was the end of the Iranian Carpet traders’ history in Istanbul at the ‘Saray’ where, according to Majid Ghalichi, the ruins of the ‘Saray’ can still be seen in Istanbul. The Ghalichi family returned back to Iran, while other traders started a new Persian carpet trade centre in London. According to Majid Ghalichi, after WWII, due to particular economic opportunities, Iranian Persian carpet traders moved from London and tried to build up a new centre in Hamburg. Majid Ghalichi decided to stay in Iran until 1962 and then moved to Hamburg and settled down in Hamburg Free Harbour [Persian Carpet, 1995, p.25, No. 7]. Majid Ghalichi mentioned that his father, Mirza Ali Asghar Ghalichi, appointed one of their relatives, Mr. Javad Lavari, in around 1904, to work as the Ghalichi family’s purchasing agent in Arak province, being located in central Iran approximately 150 miles south of Tehran and approximately 1,000 miles south-east of Tabriz, to purchase Sarough carpets; Sarough carpets are knotted in Arak province and are known to be of the finest quality. He would then send the carpets to Tabriz. Finally, due to the long transportation time of round four to five months, the family decided to gather the carpets in Arak and ship them from the Persian Gulf to the USA. [Persian Carpet, (1995), p.32, No. 7]. This was the beginning of the new strategy, where traders not only sent their purchasing agents around Iran to collect different kinds of carpets with the aim of sending them back to Tabriz Carpet Bazaar, but they also decided to set up other trading centres across Iran. The consequence was the establishment of a concentration of carpet traders, mainly from Azarbaidjan, in the heart of the capital city’s Tehran Carpets Bazaar.

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Figure 2 summarises the developments in the international Persian carpet trade as well as illustrating the Ghalichi family’s affinity relationships based on the patrilineal system that forms alliances of kinship, based on Box 1.

Figure 2 The pioneers of the international Persian carpet trade

4 The contemporary trade pattern for Persian carpets

Figure 3 illustrates the existing trade chain of Persian carpets. The existing trade chain model is still, to a high degree, inspired by the model used by the ‘Pioneers’ in the late 1800s and early 1900s. The model below shows a vast number of individuals and/or associations of producers (IAP) located at the starting point in the trade chain, with each one producing different kinds of hand-knotted carpets in more than 30,000 different villages across Iran, according to interviewees.

Producers start their production either on receipt of an order that is issued by purchasing agents and/or wholesalers located in the provinces, and/or on the basis of orders received directly from Tehran Carpet Bazaar. Depending on whether the finished product is ordered for the domestic or export markets the product will usually be sold on to a number of different ‘wholesalers’ in Iran. Individuals and/or associations of exporters (referred to as IAE in Figure 3) who, due to historical and infrastructure factors operate mainly from Tehran, and specifically from Tehran Carpet Bazaar4, order the carpets for the export market which are then transported to their counterpart overseas’ contacts.

Individuals and/or associations of exporters can have several different counterparts located abroad and, depending on the level of trust and historical trading records, they will be treated in different ways: for instance, concerning cash payments or the conditions attached to credit facilities and after sales service. The most common arrangement for foreign trade is for individuals and/or associations of exporters of Tehran Carpet Bazaar to draw up a cooperation agreement with individuals and/or associations of importers in the Hamburg Free Harbour (IAIFH). This kind of cooperation between the traders in Tehran and Hamburg is either based on kinship ties, which is the most common type, or

140 I. Light et al.

through setting up joint-venture cooperation’s. Either way, two core elements common to both kinds of cooperation’s are trust and historical trading records.

The exported carpets are usually purchased by individuals and/or associations of wholesalers in Hamburg Free Harbour. Here again, due to method of payment and/or credit and after sales service conditions, a key factor is mutual trust, coupled with historical trading records. From here, individuals and/or associations of world-wide wholesalers (IAWW) transfer the purchased carpets to their respective destination countries and forward the carpets to individual customers and/or retailers (ICR). Here once again, due to the relatively high sales value and the expectation that hand-knotted carpets have a very long life, requiring long-standing after sales service agreements, mutual trust and historical trading records are key factors in the transaction.

The broken lines in Figure 3 marked ‘Direct Trade’ indicate Persian carpet trade carried out untraditionally, mainly by newcomers; the newcomers of importance have, since the Iranian revolution in 1979, been drawn from different groups consisting of both private and/or governmental bodies. The traditional trade channels have, as described later, survived many turbulent events and the traditional traders have been able to limit the development and expansion of ‘direct trade’ channels. But the huge influx of new Iranian immigrant groups across the world, especially into Europe since the early 1980s, has created a new challenge to the traditional Persian carpet traders, mainly those in Hamburg Free Harbour, in such a way that formerly weak direct trade lines are becoming greatly strengthened, representing a serious business threat to traditional traders.

Figure 3 The Persian carpet trade chain

Retail

Ind iv idua ls and/or Associations of Producers= IA P

w h oles ale

w holesale

Tehran

IAW W

W orldM arket

wholesale

w h olesale

IAP

IAW W

Direct Tra

de

Direc t Trade

Trad e ch a in

R eta il ch a in A frica, IAW W

E urope,IAW W

IA E

A sia &Oceania, IAW W

IA P

Indiv idua ls and /orA ssocia tions of Im porters in Ham burg Free Ha rbou r = IA IFH

Indiv iduals and/o rA ssociations o f W or ldW holesalers = IAW W

N orth & SouthA m er ica, IAW W

IAP

Indiv idual Custom ersand /o rRe ta ilers = IC R

IC R

Indiv iduals and/o rA ssociations o f E xpo rte rs= IAE

E ngro sH F

Hambu rg

D irect Trade

IC R IC R

The dramatic fluctuations in the Iranian data can be explained by certain historical events. The most remarkable fall in imports from Iran began in 1979 when the revolution resulted in an export ban on many different Iranian valuable products including Persian carpets. The combination of the export ban due to the revolution, and the Iran-Iraq war and logistical obstacles, led to a weakening of Iran as the leading carpet exporting country to Germany. Export bans led to the establishment of a temporary Persian carpet trading centre in Dubai which, as discussed later, was mainly supplied by business men who smuggled carpets across the Persian Gulf. But the Dubai adventure did not last more than a few years and traders in Hamburg, won the position lost in a way that almost all

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carpet trading activities in Dubai were closed down. During the years of restrictions and supply shortages of Persian carpets, the other main carpet producing countries have experienced golden years, especially India. Also, according to our interview data, Indian producers are accused of copying Persian carpet designs and patterns and this is attributed as the most important reason for their success.

The curve ‘Other countries’ represents both hand-knotted carpet producing countries other than those mentioned in the figure, as well as all other countries with hand-knotted carpet exports to Germany. However, it is mainly other European countries which have significant exports of hand-knotted carpets to Germany. The curve shows that during the entire period of 1976 to 1998, there have been exports of hand-knotted carpets from ‘Other countries’ to Germany and this is mainly due to the reason that Hamburg has been known as the centre of the carpet trade, both for carpet producing and non-carpet producing countries.

Another dramatic fall in Iranian exports began in 1994 due to the entrance of new players. A result of barter trade agreements between the Iranian governmental and/or semi-governmental trading companies, foreign exporters to Iran operating from different countries agreed to receive a percentage of payments due to them in the form of Iranian non-oil products. One of these products was Persian carpets. One of the consequences was a drop in the trade with Hamburg. But since the new players had no knowledge about, or working relationships with the retail traders’ network, and they lacked the required competency in the carpet trade, they just tried to get rid of the carpets at any price in order to minimise the losses they encountered. With an end result of failure, different countries exporting to Iran did not repeat this kind of trade.

Many of those interviewed amongst the Persian carpet traders of Hamburg Free Harbour did confirm purchasing Persian carpets from many European companies at reasonable prices, but they also criticised European companies for damaging the market by dumping stock on the Persian carpet market and for offering the carpets at below normal purchasing prices to the retail market, even selling the carpets at discount shopping malls. The oversupply of hand-knotted carpets from ‘Other countries’ finally resulted in the reduction of German imports of hand-knotted carpets from Iran in 1994. But due to falling prices and low demand the operation of these new players came to an end by the mid-1990s. Germany’s volume of imports from Afghanistan, China and Pakistan appear stable throughout this period. German carpet imports from India tend follow the trajectory of Persian carpets because India uses, to an extensive degree, the same patterns and design as those used in Persian carpets.

German imports of hand-knotted carpets from Denmark can be explained by the close ties that exist between the carpet traders of Denmark and Hamburg. A steady, although weak, export trend from Denmark to Germany can be seen throughout the period 1976 to 1998. According to interview data, German imports from Denmark are due to two reasons. One is the concession agreements between the traders of Hamburg and Denmark. These give Danish traders, unable to sell the carpets, the option of re-exporting them to Germany as long as alternative customers exist in Hamburg. The other main reason relates to special carpets, mainly antique carpets or other rare kinds of hand-knotted carpets, where the possibility of achieving better prices is much higher in Hamburg for this special category.

During the next phase, there was a huge influx of new Iranian immigrants to European countries who, after settling down in the recipient country, tried to import hand-knotted carpets from Iran, and secondly, a number of multi and/or bilateral barter

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trade agreements were drawn up between Iran and European countries also including some Iranian governmental and/or semi-governmental trade offices across Europe. As a solution to this situation the hand-knotted carpet traders of Hamburg tried to find alternative markets. This is illustrated by the increase in German hand-knotted carpet exports to ‘Other countries’ from the late 1980s. The fall in exports to North America during the mid-1980s is due to import bans imposed by the USA on Iranian products.

Interviews with three wholesalers in the Netherlands impart the same impression as the result obtained in the qualitative part of the investigation in Denmark. Interviewees in the Netherlands also underlined the importance of historical business records and trust in the Persian carpet trade. The best example that they mention during the interviews is that almost all native Dutch Persian carpet traders across the Netherlands use their own ‘Personal Dutch family name’ as the name of their ‘Trading House’ to establish certain Dutch to Dutch relationships. Conversely, almost all Persian carpet traders of Iranian origin across the Netherlands, aware that their Dutch counterparts’ business strategy was not open to them due to the nature of their names, they invented their own strategy, which was simply to name their ‘Trading Houses’ after the most well known and well trusted Persian carpet districts in Iran, including Isfahan, Shiraz, and Tabriz.

5 The location of Persian carpet traders in Tehran and Hamburg Free Harbour and patterns of ethnic segregation

The Tehran-Hamburg axis like the former ones, (Tabriz-Istanbul, Tabriz-Istanbul-Tehran and Tabriz-Tehran-London) is strongly concentrated, both in geographic and ethnic terms. Looking closely at the Tehran Carpet Bazaar, evidence shows a strong dominance of Iranians from the Azerbaijani province, mainly from Tabriz.

The Tehran Carpet Bazaar is tightly concentrated in few adjacent streets. Both domestic and export carpets are to be found here, but usually in different trading houses depending on the main nature of business line of the owner and the owner’s international linkage relationships. Almost all carpet traders in Hamburg Free Harbour are represented by a counterpart in Tehran Carpet Bazaar and the existence of a dual loyalty relationship is clearly evident. The most common indication of this dual loyalty is the Hamburg trader’s business card which contains two addresses: one in Tehran and one in Hamburg.

In Hamburg Free Harbour one finds marked ethnic divisions among the carpet traders, revealed in location patterns and the architecture of buildings. In order to understand these patterns, one needs to look closely into the history of the harbour.

According to an interview with Hamid Shayesteh, the Kianiyan family is one the oldest Iranian trading families in Germany. The family’s trading records are also documented and published by Farsh Iran (1994b, No. 5, pp.15–18) being based on an exclusive interview with Hossein Kiyanian whose father established the Kiyanian Carpet Trading House in 1928 in Hamburg. At that time, Iranians were not able to trade freely in Germany and they were forced by some special regulations to trade via a third country trader. Those few Iranians residing in Germany chose Russia as their trading partner, so the “... normal way of trading at that time was to sell Iranian merchandise to Russia who sold it in Germany and the Iranians in Germany bought their German products from Russian businessmen in Germany and then sent them off to Iran” [‘H. Kiyanian’ in Farsh Iran (1994b, No. 5, p.15)].

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In 1929, on behalf of the Iranian Government, the Iranian ambassador to Berlin, Mr. Farzin, signed the trade treaty between Iran and Germany. The treaty allowed for both countries to open up for mutual trade purposes and permitted bilateral export and import quotas with the introduction of special quotas on dry fruits and carpets. According to the quotas, Iranians were allowed to export carpets up to a limit of approximately 8 million DM per year. The treaty was in force both before and during WWII with some parts of the treaty still in force today [Farsh Iran, (1994b), p.15, No. 5].

At the end of the WWII, foreign troops introduced Personal Ausweis (personal identification documents), required by all residents in Germany. Hamburg was included in the British Zone, and therefore the British authorities issued these in the Hamburg area with the special indication of Britische Zone. Hossein Kiyanian was a holder of one of these documents and still has it.

Hossein Kiyanian, who has lived in Hamburg since 1936 and who was at that time 14 years old, explained to us that he left Hamburg for Iran during WWII. Shortly after the war, the family returned to Hamburg and realised that the Kiyanian Carpet Trade House and their residence were totally destroyed by bombs.

The Economic Reform of Germany began in 1949 with Professor Erhard in the lead with his belief in free trade, which led to changes in the import quota system with Iran that had been introduced in the 1929 German-Iranian treaty. In 1950, the quota between Iran and Germany was abolished [Farsh Iran, (1994b), No. 5, p.17,]. An increasing number of Iranian traders of Persian carpets established their businesses in Hamburg, which had the consequence of undermining the role of London as the world’s leading centre for the Persian carpet trade.

According to the interview with H. Shayesteh and documentation produced by this participant in our study, the number of named Iranian Persian carpet traders in Hamburg Free Harbour before 1960 was 59. According to H. Shayesteh, the majority of these 59 traders were either Azari or Iranian Jews. According to interviews with more than 20 of the Iranian Persian carpet traders in Hamburg Free Harbour and an interview with Mr. Heinz Oberlach, HHLA press officer and Mr. Nikandish, manager of Verband Iranischer Teppichimporteure (VIT), the number of traders increased during the 1960s and 1970s from around 65 traders to around 110. In the period following the Iranian revolution in 1979 until the present day, the number of traders has increased to well over 200.

During an interview with us, Mr. Rainer Albrecht, “Die Ausländerbeauftragte, Referent für Ausländerrecht, an den Senat”, (special legal advisor in immigration issues for the Senate of Hamburg), emphasised to us that the official name of the city of Hamburg is Freie und Hansestadt Hamburg (Free and Trade City Hamburg) and, in fact, Hamburg has had this status for several centuries. This might be one of the reasons why Iranian traders chose Hamburg as the place to establish their businesses.

Hamburg has, due to its strategic position along the rivers of Alster and Elb, suffered from several damaging attacks and wars. In 1188 the new city was built along the Alster River and harbour and shipping facilities were established. The promising harbour business opportunities made it possible for Hamburg to declare itself as economically independent in the 15th century. It is since that time that Hamburg became known as Freie und Hansestadt Hamburg. Another highlight in the history of Hamburg’s harbour can be traced back to the US proclamation of independence in 1776 and the opening up of US harbours to foreign ships. This led to increasing levels of activity with the result that, in 1913, Hamburg was declared as the third biggest harbour in the world after London and New York, but after WWII, due to bomb damage, almost nothing was left of

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Hamburg and the whole city was left in ruins. Soon after the war, the city was re-built once again [Farsh Iran, (1994a), p.15, No. 10].

According to our interview with Mr. Heinz Oberlach, HHLA press officer, the largest Free Harbour of the world is in Hamburg. According to HHLA, the main part of Hamburg Free Harbour was built during 1885 to 1910 due to Hamburg’s participation into the German Customs Union in 1881.

The HHLA has 359,000 square metres of available space, divided into 322,000 square metres warehouse facilities and 37,000 square metres office facilities. HHLA itself uses only 31,000 square metres of the facilities and the rest is rented out to different tenants in different business lines. The percentage of the distribution of the tenant’s business lines and activities in HHLAs buildings are as follows: Offices for personnel and warehouse handling agents 70%, carpet trade 11%, shipping agents and related 10%, tea trade 1% and all other business lines including buildings without any tenants 8% [Farsh Iran, (1994a), p.19, No. 10).

Looking closely at the structure of the Hamburg Free Harbour and the ‘Warehouse City’, it appears that the harbour is divided into different sections, including the Container section and the Cool House section. The same terminology is also used in the Speicherstadt, such as Tea and Coffee section, Carpet section and so forth. It is in this area, Speicherstadt, where carpet traders have their ‘Trading Houses’. Specifically, the carpet trade is conducted from three different streets in the ‘Warehouse City’:

1 Brooktorkai

2 Am Sandtorkai

3 Magdeburger Strasse.

By closely studying the carpet Trading Houses in these three streets, the concentration of Iranian Persian carpet trading houses can be seen in all three areas. These trading houses are mainly located in six-storey high buildings and, normally, two different trading houses on each floor can be observed. Each trading house consists of approximately 300 square metres of warehouse and office space with approximately 3.5 metres distance between the floor and ceiling.

All of the other handmade carpet producing nations such as Afghanistan, China, India, Pakistan, Turkey and the other nations are, in contrast, located at only one street, namely, Am Sandtorkai. Here, approximately 50 trading houses from the other carpet producing countries are situated in adjacent locations. According to interviews with the traders and HHLA, Am Sandtorkai is a less attractive street where buildings are not renovated, there are no customer elevators and, due to all theses disadvantages, HHLA demands less in rent. HHLA demand the highest level of rent from the tenants in Magdeburger Strasse. These buildings are newer than the others and the level of rent reflects the condition of the buildings and range of facilities and is not an indication of the level of business activity. The oldest and the most attractive business area is Brooktorkai where the level of rents is in between the two other areas and, according to the HHLA, the most powerful and demanding tenants of these three areas have their trading houses located there. According to Brooktorkai traders, HHLA has always met their demands and wishes regarding buildings. One important demand, made several decades ago, was for the installation of customer elevators.

The combination of ‘old timers’ and ‘newcomers’5 can be found in all three areas. One particular change regarding the replacement of ‘old timers’ by ‘newcomers’ is,

Ethnic minority entrepreneurs in the international carpet trade 145

according to the interview data, that a notable number of Iranian Jews who had their trading offices in all three areas of the carpet trade in Hamburg Free Harbour, sold their businesses and left Germany, mainly moving to the USA and Israel. Iranian Jews, in the main, sold their businesses to Iranians who left Iran after the revolution and these ‘newcomers’ who took over the trading houses were largely of ‘Azari’ descent with close ties to Tehran Carpet Bazaar.

According to interviews6 held with three former Iranian-Jewish carpet traders in Hamburg Free Harbour, now residing in the USA, they could more or less ‘feel’ certain tensions emanating from the suppliers’ side and were, therefore, forced to think of alternatives, resulting in selling their businesses in Hamburg.

Almost all carpet trading nationalities in Hamburg Free Harbour, and Iranians in particular, use their cultural competency and only deal with carpets from their own country of origin. Because of this, products and trading houses are segregated by owner national origin.

The in-depth analysis of the location of the Iranian Persian carpet trader indicates that Iranians are not distributed across three different areas due to the lack of space in one area, but rather due to their preferences and networking practices. Iranians in the Am Sandtorkai area are in most cases, ethnically classified as Persians. In a few cases some Iranian newcomers who are ethnically classified as Azari can also be observed. Iranians along Magdeburger Strasse mainly consist of old timers, almost all of whom are, ethnically Persian. In a couple of cases, Jewish-Iranian traders as well as Azari traders can be observed. A few, ethnically Persian ‘newcomers’ have replaced the former Jewish-Iranian traders. Almost all Iranians in Brooktorkai are, ethnically, Azari. As well, a few ethnically Persian and Jewish-Iranian ‘old timers’ can be observed. Some of the Azari ‘newcomer’ traders have replaced some of the Iranian-Jewish ‘old timer’ traders, who left Hamburg after the revolution in Iran and moved to Israel or to the USA.

The segregation that exists amongst Iranians of different ethnic backgrounds is also apparent when looking at the interior design of the trading houses belonging to different ethnic groups. Almost all trading houses belonging to Azari traders can be divided into four distinct sections:

• Entrance to a large and empty hall. The hall is kept clear for receiving and despatching carpets: in an annex to the entrance hall, one usually finds a small kitchen.

• A waiting room for guests/customers where it is also used as an office for the manager of the trading house.

• An office behind or beside the waiting room belonging to the owner of the trading house which is completely separate from the manager’s office.

• Linked to the large and empty entrance hall is the warehouse: the warehouse is behind a thick steel fireproof door, which is almost always closed to strangers so that no uninvited person can gain admittance to the carpet warehouse and inspect the carpets inside.

Almost all trading houses belonging to Persian traders can also be divided into four distinct sections but with a much different internal layout to that of the Azari traders. The interior design of Persian trading houses usually takes the following form:

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1 Entrance to a large hall where the carpet warehouse begins: the same area is used for receiving and despatching carpets.

2 At the end of the warehouse hall, or along the hall, a waiting room for guests/customers is prepared. The room is designed in such a way that guests/customers can look into the warehouse through windows and inspect the carpets: this room is also used as the manager’s office.

3 Linked to the manager’s office is another office, which belongs to the owner of the trading house. This room is completely separate from the manager’s office.

4 A small kitchen can be found at the end of the warehouse hall or along the hall.

In spite of highly visible ethnic segregation and strong competition against each other amongst Persian carpet traders in Hamburg Free Harbour, this limited group of traders stick together against the ‘outsiders’ in order to remain in control of their global multi-billion dollar trade.

A meeting was held on July 13, 1994 to discuss new regulations regarding the export of carpets from Iran, imposed by the Iranian Government and the Iranian Central Bank. According to Persian Carpet (1994, No. 5, pp.53–59) during a 3 1/2 hours long discussion, VIT members rejected the new regulations and prepared a set of alternative propositions to the Iranian Central Bank and the Iranian Government; not surprisingly, the propositions are quite different to those imposed by the Iranian Authorities. According to interviews with the traders in Hamburg Free Harbour, the ‘normal’ way of negotiation with the Iranian Trade Authorities, both in Hamburg via diplomatic channels and directly in Iran, is to show ‘who’ is behind the ‘Propositions’ and then start the negotiations with the hope of being able to shape the new regulations in a more flexible way. In an interview Habib Mashreghzamini former Chairman of VIT and one of the leading figures in Hamburg Free Harbour said, “We can only hope to be able to influence the Iranian authorities’ regulations by proposing our common requests through our networking and public channels like V.I.T.’s Persian Carpet Journal which we also forward to the authorities”.

The importance of the Persian carpet trade to Iran is indisputable. This is also confirmed in a speech given by the former Iranian Minister of Trade, Mr. A. Vahadji, during his visit to Germany in December 1992. The Minister was invited to a meeting arranged by the members of VIT in Hamburg to discuss several different export obstacles imposed by Iran regarding Persian carpets. The Minister is quoted as saying: “We are trying to ease transportation problems for you: one issue to mention is establishing special carpet export terminals at Tehran airport: another easing of restrictions to come is the plan to establish a direct cargo line between Tehran and Hamburg, adding to the existing passenger carrier line” [Persian Carpet, (1993), No. 1, p.5].

The former Iranian Minister of Trade Mr. A. Vahadji was quoted as saying, “At this stage we have production of carpets in 30,000 of our villages and more than 1 million workshops are set up and more than 8 million people in Iran are directly or indirectly involved in the carpet industry. Iran’s export of carpets during last year [1992] was, in weight, only1 per cent of the total of Iranian non-oil exports, but the monetary value of that 1 per cent was more than 35 per cent of the total of Iran’s non-oil exports” [Persian Carpet, (1993), No. 1, p.13). The official estimated value of the annual export of carpets from Iran is close to $2 billion.7

Ethnic minority entrepreneurs in the international carpet trade 147

Evidence we discovered shows that the ‘single entity’ image of traders in the Free Harbour as presented to the outside world consists, in reality, of a series of ethnically defined sub-groups that each occupy different positions in the internal hierarchy. The fact is that Persian carpet traders of ‘Persian ethnicity’ are a minority group and are forced to play the game and follow the agenda set by the majority group. According to interviews with Persian carpet traders of Persian descent in Am Sandtorkai and Magdeburger Strasse the business agenda is set by the Azari traders in Brooktorkai and their respective trading partners in Tehran Carpet Bazaar.

Much of the Hamburg-Tehran business constellation is built on an affinity between family members and strong ties based on trust. In some rare cases these affinity relationships are replaced by long-term historical business relationships built on mutual trust. According to interviews with the traders of Persian descent in Hamburg Free Harbour, only when non-Azari traders learn to speak Azari language, can they become trustworthy and equal business partners, able to participate as one of the ‘Price Setters’ and no longer restricted to the role of an ordinary ‘Price Taker’ agent.

A wide range of evidence indicates that certain values and norms, other than those of business flair and rationality, play a significant role. Amongst the traders in Hamburg Free Harbour the role of ‘Cultural Competency’ and multi-linguistic abilities are of much more importance than ‘Financial Capacity’. This was evidenced when, after the Iranian revolution in 1979 and subsequent nationalisation of almost all Iranian industries of importance to the country as well as imposing import and export restrictions, the Iranian Government established a number of trading ‘Funds’ with the authority to control all foreign trade. These funds established a number of trading offices outside of Iran and were in charge of selling Iranian merchandise on the one hand and purchasing foreign merchandise to send off to Iran on the other hand. Due to historical reasons Germany, particularly Hamburg, became one of the main countries to set up these kinds of new offices as well as the UAE, with Dubai in particular, due to its short distance from Iran, becoming another centre for these new offices. In the first few years after the Iranian revolution private traders were not allowed to export carpets outside Iran. The existing of Iranian governmental and semi-governmental trading offices made Dubai into a new Persian carpet trading centre. At the same time, the decrease in the number of Persian carpets on the world market pushed the demand and prices to a high level. Consequently, the smuggling of carpets from Iran to Dubai became inevitable. Another negative side of these market fluctuations was that some other ‘hand-knotted carpet producing’ countries like Afghanistan, China, India, Pakistan, and Turkey tried to take over the market and, to a certain degree, even to copy Persian carpet designs in order to make a lucrative business. At this stage the Hamburg Free Harbour Persian carpet traders were fighting on many different fronts. The major problems were:

1 export restrictions from Iran

2 losing market share to Dubai

3 competing with the new established governmental trade offices both in Germany and elsewhere

4 losing market share to all the other hand-knotted carpet producing countries

5 barter-trade bilateral and multi-lateral agreements between Iranian governmental bodies and foreign countries.

148 I. Light et al.

According to the interviews with the Iranian Persian carpet traders in Hamburg Free Harbour the most important reason that the Iranian Persian carpet traders of Dubai were not able to take over the business from Hamburg, although they played an important role during the first few years after the revolution in Iran, was firstly due to lack of historical business records engendering feelings of natural distrust in the established network of Tehran Carpet Bazaar traders, shown in the way traders in Tehran Carpet Bazaar would only deal with them in cash. The second reason was again due to lack of historical business records amongst buyers, in the way that buyers were only willing to purchase in small numbers and that was again due to distrust and uncertainty regarding after sale service. Consequently, after grasping the fact that other hand-knotted carpet producing countries were taking advantage of the situation in Iran and realising the importance of the carpet industry in Iran, the Iranian government eased the export ban on Persian carpets and lifted some of the restrictions. Iranian traders in Hamburg, by using their channels of distribution in Iran, were soon back in business in Hamburg.

By the mid-1980s, a number of governmental and semi-governmental trading offices were established in Hamburg Free-Harbour, mainly in the Am Sandtorkai area. According to our interview data, “the policy of these offices was to sell off as many carpets as possible, side by side with private traders, at almost give-away prices”. According to the interviewees, “in spite of these offices unlimited access to carpet workshops across the country and sufficient capital to purchase carpets for cash in Iran, all these offices were, one by one, forced to shut down, due to buyers’ distrust of them and lack of business records”. The last governmental trading house in Hamburg Free Harbour was the Iranian Carpet Company, as mentioned earlier, the largest carpet producing entity in Iran and under direct administration of the Iranian Ministry of Trade. But even this governmental trading house was recently forced to close down in the Hamburg Free Harbour. As an alternative solution, and in order to continue with some level of activity, the Iranian Carpet Company has left the Hamburg Free Harbour area and moved to a recently built exclusive shopping centre area, called Borsteler Chausee, near the airport, and has given up the advantages of being in a Free Harbour area and acting as wholesaler. It now operates using the slogan: “Direct sale from Producers to Customers”.

One of the other huge obstacles facing Persian carpet traders in Hamburg Free Harbour was, according to our interviewees, being held as hostages in some political dispute between Iran and the USA. Due to political tensions, the USA imposed economic sanctions on Iran and its products. As a result the Persian carpet traders in Hamburg Free Harbour lost one of their most important markets. Having endured several years of losing their market share to other hand-knotted carpet producing countries, and experienced a difficult period of time due to the political situation, the Iranian Persian carpet traders in Hamburg Free Harbour may once again be able to look to the future with optimism.

On March 17, 2000, the former US Secretary of State Madeleine Albright announced a lifting of import bans on Iranian carpets, caviar, nuts and dried fruit. According to Agence France Presse, Albright said at a conference on the USA-Iran relations, sponsored by the American-Iranian Council: “We have no illusions that the United States and Iran will be able to overcome decades of estrangement overnight. We want to work together with Iran to bring down what President Khatami refers to as the ‘wall of mistrust”. Nevertheless, Albright made clear that the administration had no illusions that the USA and Iran would be able to overcome their hostility overnight. “We can’t build a

Ethnic minority entrepreneurs in the international carpet trade 149

true relationship on carpets and grain alone, but the direction of our relations is more important than the pace”.

6 Conclusions

We wish to emphasise that the New Economy shares points of similarity with the pre-modern bazaar. Like bazaaris of old, new economy entrepreneurs build a tiered marketplace whose participants do business on the basis of prior relationships. These relationships are mutually advantageous. For any given deal, prices and terms depend on those prior relationships. In these bell-weather industries the vaunted one-price standard of neo-classical economic theory exists no more. To some extent, the rationale for the relationship-dependent marketplace of the new economy derives from the same point of origin as the bazaars. This foundation is the assurance of self-survival by the establishment of trustworthy business relationships that reliably yield good outcomes with minimal search costs.

All that conceded theorists of the new economy may have imposed on the historic bazaars an inappropriate image of anarchy that better fits the current commercial world than the pre-industrial past. In the 20th century, it is true, bazaars went into contraction, and their governance systems declined [Ray, (1995), pp.551–553]. Of these systems, guilds were the pre-eminent form. Therefore, 20th-century anthropologists depicted bazaars as lawless business environments in which everyone intended to cheat everyone else. However, in their heyday, pre-modern bazaars had network-based governments that constrained cheating and individual entrepreneurship while facilitating collective entrepreneurship some of which, indeed, laid the legal and political basis for capitalism. In the New Economy, this historic priority is reversed. Today’s New Economy has individual entrepreneurship in abundance, but it lacks the means to impose industrial governance whether on a voluntary or informal (ethno-religious) basis. In the last 30 years, even government has stepped back from regulation of markets out of deference to self-regulation. Operating in this unregulated context, new economy entrepreneurs operate as individuals in an anarchic commercial environment that resembles a bazaar without any rules. However, real bazaars had rules.

The new economy’s bazaar without rules may be crueller and more dangerous than the pre-modern bazaars. The financial crisis of 2008 offers a case in point. AIG did not have a bazaar-style, secure relationship of mutual support with its banker. Such an old fashion relationship would have prevented the disaster that befell AIG. But in the same unregulated context, AIGs disaster suggests why other firms are returning to the allegedly obsolete security of the pre-modern bazaar.

The statistical data on the hand-knotted carpet trade for the period 1976 to 1989 confirms the role of Hamburg as the world’s leading trading centre of hand-knotted carpets. The Teheran-Hamburg axis remains the core of this trade. The same data also indicates different fluctuations of the hand-knotted carpet trade. These fluctuations can be historically explained. The historical evidence presented here illustrates the formation of one of the strongest single-commodity trade centres of the world controlled by a couple of hundred businessmen and shows how a limited group of traders in Hamburg Free harbour stick together in order to remain in control of this multi billion dollars trade while, on the other hand, competing strongly amongst themselves in their private businesses. The evidence illustrates how Persian carpet traders from Iran in Hamburg

150 I. Light et al.

Free Harbour have survived different crises. Furthermore, the evidence also illustrates that the Iranian carpet traders, both in Tehran and in Hamburg Free Harbour, consist of different ethnic backgrounds and the Iranian Azari traders is the group controlling the carpet market. Evidence also showed the existence of a hierarchy of sub-ethnic groups from the same country and a pattern of overlapping ethnic identities which challenge the mainstream ethnic business theory.

The formation of international business centres through trading diasporas around the world has created some kind of bottom-up globalisation process which, through formal and informal business networks, function as commercial and financial connection points between immigrant business communities and immigrants’ countries of origin.

The historical evidence shows that a world war, political turbulence, cuts and shortages in supply and financially strong new actors in the Persian carpet trade could not break down the existence of strong ties and networks which had been built up during decades and even centuries. Furthermore, all the financially powerful actors were, one by one, forced to leave this line of trade due to the lack of sufficient networks. Historical evidence also illustrates the strongest kind of relationship is affinity relationships between families.

The historical and statistical evidence shows that the only competitor of significance that can threaten Persian carpet traders in Hamburg Free Harbour is the one who forms new business ties that use more or less the same strategy as those traditional traders in Hamburg Free Harbour. The new actors of significance are Persian carpet wholesalers in different countries who left Iran during the 1980s and established new business strategies. The key to their success has been the diversity of their ties over the years and a learning-by-doing process which developed and transformed these ties into strong ones. The Danish statistical data indicates the success of this strategy in that the direct imports of Persian carpets from Iran has for the first time during the late 20th century shown an increase compared to data for the import of Persian carpets to Denmark via Germany.

This development raises two issues:

1 the existence of a time-lag from the date of arrival of new migrant groups before the group is able to establish some weak business ties and transform those to strong ones

2 the key to the success of new immigrant groups in business can be found in their multicultural and multi-linguistic competencies that lead to a higher level of mutual understanding and mutual trust relations which in turn lead to a strengthening of what were initially weak ties.

Evidence in our study case also indicates the importance of exploring the potential of the existing weak ties carried by immigrant groups to their respective countries of origin, and developing methods to strengthen these weak ties so that they can contribute to a greater level of international trade.

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Notes 1 Source: Persian Carpet (1993, No. 1, p.5) (Persian Carpet is the official publication of the

Verband Iranischer Teppichimporteure, the Association of Iranian Carpet Importers, known by the acronym VIT).

2 Brotton (2002, 42–43) wrote, “At the very beginning of the 13th century the Pisan merchant Leonardo Pisan, known as Fibonacci, was using his commercial exposure to Arabic ways of reckoning profit and loss to write a series of highly influential books on mathematics... In his commercial exchanges with Arab merchants ... Fibonacci realized that the European practice of using roman numerals and the abacus was awkward and time-consuming.... Fibonacci carefully explained the nature of the Hindu-Arabic numerals from ‘0’ to ‘9’, the use of the decimal point, and their application to practical commercial problems involving addition, subtraction, multiplication, division, and the gauging of weights and measures, as well as bartering, charging of interest, and exchanging currency.... signs for addition (+), subtraction (-), and multiplication (x) were unknown in Europe before Fibonacci”.

3 This section is largely based on our interview with Mr. H. Shayesteh in Hamburg Free Harbour.

4 Due to limited space in Tehran Bazaar, in recent years many traders have chosen to locate only their offices within the bazaar area, preferring to site their warehouses elsewhere in the city.

5 Due to limited space in Tehran Bazaar, in recent years many traders have chosen to locate only their offices within the bazaar area, preferring to site their warehouses elsewhere in the city.

6 These interviews were telephone interviews with former Persian carpet traders in Hamburg of Iranian-Jewish descent, who are currently resident in the USA. A brief summary of one of the interviews is as follows: “We could feel that the supply channels would become tougher and we probably could not return to Iran: at the same time, we even heard some gossip about export bans from Iran on carpets in general, which actually happened. That is one of the reasons why we actually decided to leave the business and sell it to some “newcomers” who can find their way around in Iran with the right supply channels. We came over her, to New York, and established a new “Carpet Trade Centre” for ourselves. We had to admit that we could neither get “new” Persian carpets nor did we want to compete with Hamburg. That’s why we established our own Persian carpet business in the USA based on “Antique” and “second-hand” Persian carpets. In doing this, we cut off our ties with the establishment in the Tehran Carpet Bazaar. While the situation got even worse for Persian Carpet traders both in Tehran and Hamburg, when the USA imposed an import ban on Iranian goods to the USA, we set up our organization in such a way that today we have the world’s largest “Antique” trade of Persian carpets run by Jewish-Iranians in and around New York’s 5th Avenue”.

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7 There is not ‘only one’ reliable and standard way of declaration in different countries’ customs. Some statistics are based on the monetary value of carpets. Others measure in square metres and value per square metre. Yet, others measure value weight. Eurostat measures ‘Hand-knotted and Hand-woven carpets’ on the basis weight and monetary value. A final problem is an ‘Underestimation’ of the real value, when dealing with any type of merchandise that is subject to duty and then using customs documents as official statistics.

Appendix

List of interviewees

Name of non-anonymous interviewees in alphabetical order

Denmark Germany Netherlands

Mr. H. Heydarpour Mr. R. Albrecht Mr. R. Rejaye Mr. E. Spruit Mr. R. Amirkhizi Mr. H. Arzanesch Mr. R. Arzanesch Mr. S. Azadi Mr. S. Davood Mr. A. Hosseindjani Mr. G. Kermanshahi Mr. H. Mashreghzamini Mr. Milani Mr. P. Möller Mr. Nikandish Mr. H. Oberlach Mr. M. Saghafi Mr. Shaker Mr. H. Shayesteh Mr. K. ZarinKafsh