Strange Economics

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Time is money.   How many times in your life have you heard that hoary old axiom?   It’s a fundamental tenet of capitalism and free enterprise, isn’t it?   You snooze, you lose.   Time waits for no man.   The time value of money.   The early bird gets the worm.   The meter is running.   A day late and a dollar short.  Heck, we could probably fill a book with clichés that underline the importance of time when it comes to money.   I doubt you could even raise an argument about its innate truth in North America.

But what if you’re in another part of the world where this rule does not apply? A part of the world that is unbelievably wealthy yet does not really subscribe to any notion that time is money?   Well, there is such a place.   It is Dubai. The second richest emirate in the United Arab Emirates.

Dubai has a well-deserved reputation as a fast-moving modern city that is rapidly becoming one of the travel crossroads of the world, a destination in some demand.  Spectacular architecture, luxurious hotels, attractive beaches, and a shiny huge airport combine to make it one of only a few places in the Middle East where the rest of the world feels safe to travel.  With the help of a very large police force and army, the ruling Sheikhs have seen to it that Dubai is a safe city, at least from a crime point of view. Being a shipping centre, they fight a continual battle with drugs and smuggling but compared to most cities with that problem, Dubai is almost crime-free.  

You could be forgiven for thinking that with all the wealth and the outward appearance of a dynamic commercial centre that the phrase ‘time is money’ would be near and dear to the city’s heart.   But you would be wrong.

Consider the construction of a high-rise office or apartment building.  In North America, the focus on a timely transition from acquiring the property to making the decision to proceed to breaking the ground to achieving a 100% occupancy rate, is, shall we say, intense.  A lot of money is going to be spent before a return is forthcoming.  The money spent has a cost attached to it.   We call it the Opportunity Cost, the return that could be made from doing something else with the money.  Developers, Investors, and Bankers all consider the Opportunity Cost of this building.  IF, and it’s a major ‘IF’, they think the return from this investment will be greater or safer or whatever, they will invest in it.   But they want their Return on Investment to begin as soon as possible, knowing that with the erection of a large and complex structure like a high-rise building considerable time must elapse before that ROI can begin.  Of course, a lot of other things can happen while the building is being constructed, some good, some not so good.  But the overall emphasis is on getting the building up as quickly as possible and leased out as quickly as possible.

There is no such emphasis in the UAE.   Construction proceeds sporadically, much of the work performed by unskilled Indian laborers.  There is no such thing in the UAE as the Marginal Rate of Technical Substitution.   Increased productivity, if it is required, is achieved with yet more untrained workers swarming over the job site.  It is not inconceivable that a construction project will take three years or more just to reach the stage where leasing can begin.   No one seems to be in a hurry to do anything.   Incidental to this casual approach to project management is the nagging spectre of non-payment.  Sub-trades and construction workers are habitually stiffed by a developer clique one might expect to exist in a land of sheikhs and secrecy.   

The situation does not change appreciably after the building is ready for occupancy.  The owners set the rental/lease/purchase prices and then tend to stick with them, regardless of public demand.  They will, in effect, wait for the market to come to them (With the attendant strain on the time value of money).  And, perhaps most peculiar of all, the prospective tenant/buyer will in all likelihood, have to pay a commission to a real estate agent for the privilege of renting or leasing or buying.

If this all sounds slightly backward and impossible from a North American perspective, it’s because we don’t understand the nature of the UAE wealth.  Beginning with the ruling Sheikhs, there is an intricate web of generations-old tribal loyalties that props up the ruling regime.  Fifty years ago, the tribes were still being fought over by the Sheikhs of Dubai, Sharjah, and Abu Dhabi in a competition to see who could command the most loyalty and consequently, the most power.  Allegiances shifted with rapidity and it could be argued that it’s only since the discovery of oil that some political stability has been attained.  But when studying the economy of Dubai, this lacework of tribal-family loyalty is important to understanding.  It is with the leaders of these tribes that the wealth is shared if it is shared at all. Outsiders do occasionally infiltrate this elite – aggressive businessmen who thrive in any environment are no less evident in Dubai and they eventually form part of this elite economic fabric. They will also tell you it was not easy.  This association with the Sheikhs is called ‘Wusta’’ and means the power one wields because of proximity to the Sheikh.  For instance, a man with wusta is not someone you want to run into with your car, right or wrong.  You will be wrong.

Those of us from North America who have experienced the excesses of the oil industry when it is in full bloom have some idea of how money can be spilled when things are good.  It used to be said of the oil industry that the amount of money didn’t really matter – what mattered was getting the job done on time.  If you could do that, they would pay you handsomely, perhaps even excessively.  It didn’t matter, the profits would take care all the excesses.  And this is coming from corporations that had to share their revenues with shareholders, employees, and governments.   

Now imagine those same kinds of revenue streaming in and you don’t have to worry about shareholders, employees or governments.   That’s the Arab world of petroleum and it’s on a scale sometimes greater than the oil revenues generated in North America.  The money is staggering. It’s every hour of every day pouring into the coffers of the elite and used to create a lifestyle that dwarfs everyone save 0.1 percenters perhaps.  The economy of the UAE is run by the ruling sheikhs, a handful of associates who have ‘wusta’  and a small band of compliant banks with interlocking directorates and close ties with those who call the business shots.  Factor in some Islamic rules regarding the evil of passive income known better in the west as interest, and you have a situation where decisions are made based on factors only incidentally related to what we westerners traditionally think of as sound business practices.  No one NEEDS to be in a hurry to get that project finished.  No one is going to call them for lack of due diligence.  Ever.   The rich literally throwmoney at projects and lose no sleep over the economic merits.   There’s more money where that came from.

It will be indeed be interesting to see what happens when the money runs out. When the UAE youth are asked about this, chances are they will simply shrug and admit they will probably have to go back to living a life similar to their grandfather’s before the oil was discovered.   They don’t really believe that but neither do they see any solutions to a situation where the wealth is being splashed about in the most ostentatious way possible, with little of it being shared with the general population.  There should be widespread resentment but it’s hard to detect.

When it comes to operating as a dynamic western-style economy, I like to think of the UAE as ‘Three-Quartersville’.  Everything is taken three-quarters of the way to completion.   If it’s a restaurant or hotel, they will build the most fabulous facilities imaginable, produce a good menu, and a solicitous staff and then deliver the shabbiest meal you’ve ever eaten for 50 dollars an entrée.  This shortcoming is evident is almost everything the country does.   It’s as if some point in a project is reached where the protagonists stand back and say ‘Well, that’s enough for now.  Let’s move on.”

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I’d be happy to conclude that the situation is not beyond redemption.  But after you see the economy in action for a number of years, you realize this is not likely to happen. There’s simply too much money and too few constraints on how it is spent.   In fairness, I suppose, we might all ask ourselves if we would do differently if it were our country and our money and we didn’t have to answer to anyone but ourselves.  After all, the excesses of the Western wealthy are hardly examples of what not to do flagrantly and tastelessly.  

Robert Alan Davidson

Robert Alan Davidson

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