Dubai

I had the pleasure of visiting Dubai for the first time last week. The city is a wonderful example of unintended consequences; because it had the misfortune of almost running out of oil, it was forced to create other ways of generating income. It has since made huge investments in both tourism and the financial sector.

Although I didn’t get to do any touristy things myself, my good friend Nigel spent a week there with his family and could not have been more pleased with the beaches, (indoor) ski slope, dune buggy adventures, etc. Outside the city is a giant construction project for something called “Dubailand,” which looks like it will be a Disney World-scale family amusement complex. For Americans, travel time is a big obstacle to vacationing in Dubai — the trip home took me almost 24 hours door-to-door, including a connection in London. For Europeans and Asians, however, Dubai is pretty convenient. It is quicker to fly from Europe to Dubai than Europe to Chicago.

On the finance side, Dubai has created something called the Dubai International Financial Center. If I understand it correctly, it is a 100-acre area that is both a tax-free zone for financial activities and the place where financial transactions are done under a different set of laws designed to protect foreign capital. Interestingly, some recent economic work suggests that rule of law is important for economic growth, but democracy is not. Dubai is following that path: strong rule of law and protection of foreign assets, but with foreigners (who make up roughly 85 percent of the population) unable to vote.

How upset are the foreigners over the fact they can’t vote? Among the ones I talked to, at least, not the slightest bit — just as an economist would expect. All they seemed to care about was the fact that they make good wages, have a nice lifestyle, and are free from crime.


Henry

I agree with Jon_Man, a long list of terrorist sponsors,criminal and political fugitives call Dubai their current home. The Dubai government
and Sheikh Mohammed (the King of Dubai)sponsors terroristic organizations, otherwise why has there not been a single terrorist attack on Dubai despite their non-Muslim life-style?
Al-Qaida likes Dubai but hates Saudi because Dubai funds Al-Qaida.
Henry

Ferdinand E. Banks

Steve

Dubai is NOT running out of oil. Instead they are diversifying their economy. It's a brilliant move, and it's too bad Milton Friedman is not here to see it. He would be furious.

Ferdinand E. Banks

abdulla

Dubai is a great city in the middle east and those who lives there has great standard of living mainly peoples coming from india and pakistan where they have all what they never deamed off in there countries.

Hugo Galilea

@ Bieck: I couldn't agree more.
As a matter of fact, Chile (where I live)experimented the fastest economic growth when the militars, lead by Pinochet ruled the nation.

It's more a matter of Economic Policies and stabilization than Democracy per se.

JS

A tax-fee zone huh, that would make a very interesting economic study!

Abi

Not all the foreigners are like what you described ("All they seemed to care about was the fact that they make good wages, have a nice lifestyle, and are free from crime"). Take a look at this report in NYTimes:

"They still wake before dawn in desert dormitories that pack a dozen men or more to a room. They still pour concrete and tie steel rods in temperatures that top 110 degrees. They still spend years away from families in India and Pakistan to earn about $1 an hour. They remain bonded to employers under terms that critics liken to indentured servitude."

http://query.nytimes.com/gst/fullpage.html?res=940DE7DF1239F935A3575BC0A9619C8B63

This group of foreigners went on strike in October (it ended sometime in the first week of November):
http://biz.yahoo.com/ap/071028/dubai_labor_unrest.html?.v=2

Christian Bieck

Of course democracy is not required for economic growth, as we have been seing in the last 40 years in Asia - the tigers don't have democracy, or at least not US/Western Europe type and China certainly doesn't. Cultural anthropologists have told us that for quite a while - trying to measure those cultures with our yardsticks (of which democracy is one) is futile...

Hugo Galilea

Dubai... Is it cheap? expensive? a good choice for your honeymoon, family trip or a wild on spot?

Joylita

I'm not sure about the crime-free bit about Dubai.
The freedom of press is almost non-existent. This only means that crimes are never reported and everybody lives in this bubble.

Having lived there for more than 20 years, we were led to believe it's Utopia in the middle of a desert. But when the truth is almost always covered up, isn't that the case?

HR

"All they seemed to care about was the fact that they make good wages, have a nice lifestyle, and are free from crime."

Is this serious?

Did the Dubai Tourism Board ask you to spew that nonsense?

There is major labor unrest in that city. I've been there, it looks great and is fun, but it's built on the back of slavery.

You can see it with your own eyes and in the same paper you work for.

How naive. I expected a better Dubai summary from you than your doe-eyed amazement.

AK

Freedom of press is definitely a big issue in Dubai- most stuff doesn't make it to the news.

Just over two weeks ago, the Dubai Government forced two Pakistani channels based in Dubai to shut down on the pressure of the Pakistani Dictator, Musharraf. And yes, it is something that has upset people.

NB

Here's another interesting case about Dubai and the UAE in general. They just hiked up their federal employee salaries by 70% in one move. The next day, they issued a "warning" to traders against raising prices of goods and service to "take advantage" of this pay raise.

"The Ministry of Economy and local departments shall monitor the markets and prices of goods and services and impose maximum penalties on all violators" of a consumer protection law, it said. [Gulf News]

http://www.gulf-news.com/nation/Government/10169013.html

http://archive.gulfnews.com/articles/07/11/25/10170184.html

I didn't study econ, but this has to be a bad idea with the inflation rate already at over 9%.

I grew up there and my parents still live there now, so I have a vested interest in opinion about how Dubai is doing economically and politically. There are many benefits of Dubai's crazy boom, but there are a lot of oddities that accompany it.

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Adam

There are huge problems in Dubai under the surface.

There's a big sex trade industry. Women, particularly from Eastern Europe, are brought there by capitalizing on their poverty and lack of education. Once in Dubai, they are forced into prostitution and have no means of having their voices heard. Search for the documentary "Desert Nights" on Google Video and you'll see what I mean. As people mentioned, there is no freedom of press. The major newspapers, Khaleej Times and Gulf News, are puppets for the rulers.

The local ISP, Etisalat, blocks any websites that speaks out against Dubai or the UAE. They started out blocking pornographic websites, but moved on to censorship of any differing ideas. This includes personal journals and sites like "blogspot.com".

If you attempt to access websites that are deemed 'inappropriate', you will see a screen like this - http://tinyurl.com/2sxzlx

There are also labor issues. People from some of the poorest countries like Bangladesh and Pakistan come to Dubai to seek a better life, and they are given no rights whatsoever. They cannot own land, a privilege that is restricted to locals. There is no democracy or freedom of press, as mentioned. They have to work in boiling heat in the peak of summer constructing huge skyscrapers so that Dubai can continue to be the economic hub of the Middle East.

I lived in Dubai for 18 years and while there is a low crime rate, the ones that occur are brushed under the rug by the media. It is a beautiful city, but it has a dark underside that they work desperately to keep hidden.

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Ryan

60 Minutes has an excellent story on Dubai which you might be interested in:

http://60minutes.yahoo.com/segment/101/dubai

Michael Strong

Because Dubai has become rich, people hold it to 1st world standards. While it is a good thing to encourage Dubai to become more humane, it is worth considering that many of the harsh conditions of the immigrant poor in Dubai represent an improvement on the working conditions these people experience in their home countries. In Nepal people are so poor they are selling their daughters into sex slavery in India. Many Nepalese men go to Dubai to get jobs and send money home to their families. Would they be better off if they were not allowed access to these jobs?

If, say, Denmark allowed hundreds of thousands of developing world immigrants temporary work permits, and allowed employers to hire them at a market wage, wage rates would plummit as developing world immigrants flocked to get a better job than they had access to in their own country. The more people they allowed in (in my mind, a measure of real generosity), the lower the wages would fall. The unseemly site of large numbers of poor people (some of whom would be abused by their employers) would alienate the Danes and they would put a halt to such "social injustice." And they would close up the gates to their "gated community" welfare state and keep the poor out once again.

The perceived "moral superiority" of welfare states is a direct artifact of their "gated community" immigration policies. Dubai, which allows large numbers of poor people to come there for jobs, is then regarded as morally tainted. Perversely, if Dubai had a more restrictive policy regarding immigrant labor, wage rates would increase, the fantastic rate of economic growth and job creation would slow somewhat, and most people would regard Dubai as having "improved." Given the living conditions for hundreds of millions of the world's poor, including truly gruesome abuses of women in many places around the world, why shouldn't we have more moral outrage for those nations with closed borders (i.e. most wealthy nations) than for Dubai?

Clearly giving jobs to poor people is a P.R. disaster which should be avoided. It is far smarter to keep them out and preach generosity, and maybe even have "generous" policies to those lucky few who live within the gated community. In order to claim that "generous" foreign aid compensated for the selfishness of closed borders, one would have to show that it was greater in magnitude and positive impact than the prospective remittances resulting from open borders, not at all an obvious proposition in most circumstances.

But open borders are not politically viable, therefore we can all continue to smugly criticize Dubai, while keeping the riff-raff out as best we can in our pleasant gated community nation-states.

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Peter

C'mon, Steven:
http://www.nytimes.com/2007/11/01/world/middleeast/01dubai.html

We've come to expect more honesty and intellectual rigor from you.

Nile

The rule of law isn't all of the story: firstly, investors must be confident that the rule of law is impartial.

No special breaks for the Ministry of Justice's son-in-law who opens a competing business across the road from you.

Secondly, there is a need for confidence in the permanence of the rule of law; and, indeed, all of the institutions of the state. What will happen when the Kingdom of Saudi Arabia finally collapses? Or the next Gulf war wipes Dubai off the map?

ptro

So, how many tons of raw sewage this financial miracle dumps into the ocean every day?

I guess, it does not matter at NYT anymore.

Jonathan

I appreciate what Michael says, but chances are illegal immigrants working menial jobs in the USA typically make more than the $1 per hour someone noted Pakistani construction labourers receive per hour.

This same issue exists in Malaysia. Construction safety does not seem to be a required concept - you simply import more Indonesians and Pakistanis as the others fall from the bamboo scaffolds.

Is it not reasonable to think that a tax shelter zone like Dubai, which clearly has and makes a lot of money, should be able to pay more than $1 a day to Pakistani labourers?

Arjun

While I agree with Levitt's main point that oil-rich countries should try and avoid the "dutch disease," I can't help but wonder how much of Dubai's break-neck expansion has been subsidized by slave labor coming from the Indian subcontinent -- a problem that might have at least some level of institutional control if individuals were given basic freedom. I also have to wonder who exactly Levitt gets (directed) to talk to while he is in Dubai.

I can't wait to hear about his report on North Korea.