A tremor in Blingopolis

Original Article

DUBAI - In mid-July, the Department of Planning and Economy, a body of the government of the United Arab Emirates, issued a report that took many people here in Dubai by surprise. Normally, official reports like this tend to be upbeat affairs, filled with words like "growth," "surplus," and "oil." This one, though, was scolding in tone and grim in outlook, bemoaning the "unnecessarily lavish spending trends" of UAE consumers, going on to use words like "plunge" and "quagmire."

Odd sentiments indeed from a country that just went on a shopping trip to New York and came back with the Chrysler Building.

The jittery tone of the report seemed particularly incongruous in Dubai. With oil bringing in all-time high prices, the Persian Gulf is awash in excess cash, and much of this is being poured into Dubai. There is, in fact, so much money here that people literally don't know what to do with it. There are tens of billions of dollars languishing in bloated private equity funds, hundreds of billions financing an endless series of extravagant development projects. City-sized theme parks, inland waterways, towers that swivel, underwater hotels -Dubai, as a city, amounts to one large, lavish spending trend.

Underlying this city's diamond-studded veneer, however, there is a growing sense of unease - a creeping fear that the party may be coming to an end. The more Dubai rises among the ranks of the world's municipal elite, the more hand-wringing we get. Over the last few months, there have been media reports warning us about the emirate's mounting debt, a looming unemployment crisis, skyrocketing inflation, an almost total lack of local research and development, an inefficient education system, and an over-reliance on outdated, conservative, family-oriented business models. And then there's the big issue: the Problem with Oil.

It's been exactly 100 years since oil was first discovered in the Middle East, and it's taken that long for the region to really come to grips with the fact that, maybe, things haven't worked out as well as they might have. The problem, put simply, is that an entire region and everything within it has been subjected to the precipitous ups and downs of a single, volatile commodity. This century-long roller coaster ride has undermined any chances of economic or social stability, and has led to a constant sense of insecurity -the root of the collective fatalism, paranoia, and culture of victimhood we often see today.

For many here, the recent oil bonanza has revived memories of the boom of the 1970s. Then, too, the region was up to its eyeballs in liquidity, buying up large swaths of London and New York. And then -plop -oil went south and the good times came to an abrupt halt. In fact, while Americans look back on that period with a grim resolve that it never be repeated, so too do many Arabs. The entire episode is remembered now with collective shame -the idea that the region managed to parlay all that wealth into three decades of violent turmoil and harrowing poverty.

This is the main source of the heightened anxiety people are feeling now: that the next twist in the boom-or-bust oil cycle might soon be upon us, that the local property market will plummet, that the global bankers will pack up and head home, that the Dubai story will prove to be a bright blip in the otherwise gloomy history of the region.

Americans, stung by astronomical gas prices and galled by the endless stream of gee-whiz media articles about Dubai's excesses, might view the prospect of the emirate's economic collapse with eager anticipation, the way you would feel watching a billionaire hedge fund manager approach a banana peel. "This is what our money from the oil bought for these people," spat a disgruntled blogger recently, after seeing the city's plans for the world's tallest arched bridge. Underlying this sentiment is the sense that Dubai's gain is achieved at the expense of America's pain.

While such ire might be understandable, it also reflects a basic misunderstanding of what Dubai represents. In fact, there is an argument to be made that this city's decline, if it were to occur, would be a bad thing not only for Dubai, but for the world. The fact is, the rise of Dubai is not a story about oil, or at least not only about oil -it's also about a viable future for the region, one which doesn't involve a dependence on petrodollars. For the first time, the Middle East has a working model of a post-oil society.

It seems odd that the transformation of the Arab world should start here. For most of its life, Dubai has been a scrappy desert backwater, with very little going for it besides the fishing and trading that sustained it for generations. What the city did have was an ambitious and contrarian ruling family, who borrowed heavily and built prodigiously, determined to create a broad, diverse, non-oil-based economy -an idea that, when the Dubai experiment began in the 1960s, was considered by many here to be not only unnecessary, but kind of nutty.

In many regards, the experiment has worked. Dubai's GDP is expected to grow by 11 percent a year over the next decade, and the contribution of oil to the emirate's GDP is well under 10 percent. It has a thriving tourism industry, a booming construction sector, and has established itself as the media, finance and trading hub of the region. It's a rags-to-riches tale on a grand scale, and there is, frankly, a nyah-nyah, told-you-so tone to the way the story is told.

Americans aren't the only people getting fed up with the much-touted Dubai Miracle. There is a bit of a backlash underway in the Gulf, too, similar in tone to the gripes you hear about New York: it's too big, too flashy, too Dubai.

For all its nouveau riche vulgarity, however, the true miracle of Dubai isn't that it is home to the world's tallest building or largest man-made islands. The wonder of Dubai is that it has succeeded where generations of diplomats and politicians have failed: with the creation of a stable, tolerant, prosperous state in the heart of the Middle East.

This is why, for people in the Arab world, brash, overachieving Dubai is a source of hope as well as irritation. This city and its successes have helped to reawaken a sense of possibility and purpose in the Middle East that has been absent for generations. And Dubai has made good not by adopting democratic values or tamping the fire of Islam, but by embracing a gung-ho, anything-goes economic approach that makes Shanghai look fiscally conservative.

Predictably, in recent years countries across the Gulf have taken a me-too approach to economic development. For example, Dubai's success at attracting business and overseas professionals has relied in large part on a constellation of discrete, self-contained "cities" -Media City, Internet City, Healthcare City, and so on -mini-principalities that offer not only tax-free status, but laws and regulations that are wildly liberal by Gulf standards. Qatar, meanwhile, has followed suit with its "Education City," which boasts outposts of Carnegie Mellon, Georgetown, and Cornell universities. Even the Saudis want a piece of the action, building a glistening "Economic City" from scratch, at a cost of $26 billion and counting.

Not to be outdone, Abu Dhabi has commissioned a cluster of museums -branches of the Louvre and Guggenheim included -as part of its plan to skim the cream off Dubai's tourist trade. Abu Dhabi is also home to a particularly dramatic expression of the region's post-oil ambitions: Masdar, a zero-carbon, solar-powered city-within-a-city. This initiative, while promoted as an example of the emirate's commitment to the environment, is also an exercise in branding -as Dubai's leaders have long understood, economic and social reformation necessarily begins with an extreme, top-to-bottom image makeover.

Thanks to Dubai, the entire region is preparing itself for the end of oil. This is the reason for the increasing voraciousness of the region's sovereign wealth funds. It is the reason for the establishment of the financial centers of Qatar and Bahrain. It is the reason for recent economic and political reforms - not meant to keep American tanks at bay, but to lure foreign investment. It is the reason for the beachfront hotels and megamalls springing up across the region.

But oil is a difficult habit to break, especially now. The irony is, while the latest petrodollar bonanza is helping to fuel the region's many post-oil schemes, the resulting glut of cash also threatens to leave people here in a kind of economic stupor, which may in turn cause these schemes to fizzle. Why bother to rejigger outdated business models, establish a manufacturing base, or work to improve the skills and education of the region's young people? Heck, why even bother to balance our household budgets? Times are good!

This is the attitude that is giving local economists peptic twinges. A few weeks before the Department of Planning and Economy warned the UAE's consumers that they're going to hell in a shopping basket, an equally damning report was published in the region, this one informing us that productivity across the Gulf is on the decline. Taken together, these two trends - rising consumption and falling productivity - can mean only one thing: Sooner or later, the UAE will be putting the Chrysler Building up for sale on eBay.

Again, many Americans would likely see Dubai's decline as a good thing. It must be vexing to hear about the latest excesses of this desert Versailles while you're trying to decide between filling up the car or feeding the cat. We should bear in mind, though, that this tiny emirate, as glib and gaudy as it often is, may just represent a turning point in the history of the Middle East. Dubai doesn't want your oil money so much as it wants your billing information - a weird starting point for a new roadmap to peace, perhaps, but a starting point all the same.