Isegoria

On some level, Keith Yost says, it is hard not to sympathize with the Emiratis of Dubai:

The executives I met all showed pictures of their youth, reminding me that just a few decades ago, their country was nothing more than sand, tents, and simple stone. Maybe they held on to the pictures to impress upon me the great progress Dubai has made, maybe they held on to them to reassure themselves that life would go on even if they had to return someday to their tents. Personally, I took the pictures as a reminder that the men running Dubai’s gargantuan companies had been given an upbringing that could not prepare them corporate management. I could criticize, but I had the benefit of rigorous secondary and college education. Had I shared their circumstances, could I have done any better than them, and if not, how much blame could I really place on their shoulders?

Nonetheless, whatever disadvantages Dubai’s natives may suffer from, my judgment is that their failures were entirely avoidable. I am not convinced that they were well-intentioned or trying their best. My impression of the average Emirati businessman varies between apathetic and self-important. They are running businesses much in the same way a teenager would buy clothes with a swoosh on them — they aren’t trying to generate profits so much as they are adopting a lifestyle brand. Their empires are not built for power, they are built for image. When you are born with everything, the one thing that you cannot buy is the sense that you earned your status. But it is counter-productive to try and scrub off the image that you lucked your way into wealth — trying to overstep one’s limitations only highlights them.

Perhaps it is too late for Dubai. Their oil reserves are gone, and depending on the seriousness of their financial troubles, so too might be much of the money they made from the past sale of oil. But for Dubai’s neighbors, such as Abu Dhabi, who still have seas of petroleum at their command, the collapse may prove to be a teachable moment.

Abu Dhabi needs to review the business case for locating industry in the UAE. Labor is not cheap — there is little of it natural to the area, and that which is imported (both of the skilled and non-skilled variety) typically costs three times more than what it would cost in its native country. Energy is not cheap — lacking coal or dammable rivers, the UAE is powered by natural gas, itself often imported from neighbors like Qatar or Saudi Arabia at high cost. Equipment, buildings, and other capital are no cheaper in the UAE than elsewhere — indeed, if anything the relatively harsh environment is more costly to build and operate in. Water and food supplies are more expensive. Even the things that the UAE has in spades, sun and sand, are no great benefit — solar insolation is impeded by the frequent presence of dust clouds, and the sand is unsuitable as a feedstock for silicon or glass production. The one natural resource available is oil, and the ease of transporting that liquid makes it easier to locate industry elsewhere and export the crude.

The basis for Dubai’s “ambition” seems little more than an optimistic interpretation of New Trade Theory. Much as Silicon Valley has established itself as high technology cluster, and New York has become a finance hub, Dubai hoped that through the might of its wealth it would become a world center for something and maintain its position through inertia and network effects rather than natural advantages. Even if this strategy were feasible (and there is much to suggest that it is not), it was executed poorly — Dubai made little attempt to understand the clustering phenomenon it hoped to take advantage of, invested in a scattershot manner, and left its holdings to be managed incompetently.

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