At Large

Dubai Handles Bad Times

Its profligate spending is causing problems, but this merchant society goes back a long ways.

By 9.18.09

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An Agence France-Press photo of a comely, scantily clad European woman sunbathing on a beach in Dubai while several Pakistani construction workers pass by headed for the palatial building sites in the distance tells the complete story of this incongruous city and state. If the photographer had been able, he would have included a shot of the Gulf's first metro, a favorite project of the ruler. The question exists, though, whether this Disney world of development can much longer exist living at its frenetic pace.

The story is well known of this expensive dot on that portion of the western Arabian peninsula that juts into the Persian Gulf on one side and the Gulf of Oman on the other. Its oil and gas income has dwindled percentage-wise to the single digits of its economy, and it is tourism, real estate, and finance stimulated by its economic "free zones" that now keeps Dubai afloat. Unfortunately for its privileged citizenry and expatriates living in high style, the worldwide financial crisis has burned a hole in the emirate's previously gold-filled deep pockets.

In the past few years Dubai leveraged itself into eighty-plus billion dollars of debt by becoming hypnotized through prolonging its construction boom via unsustainable credit lines. Inflation has exceeded 10% annually since 2007, causing substantial increases in living costs. With each mogul, sheikh, and foreigner alike vying with one another to create the largest and most lavish of commercial and residential buildings, eyes and bank accounts were so fixed on the expected future rewards that they lost sight of the pitfalls of the present.

There appears to be a direct correlation between the easy flow of money and the acceptance of non-Islamic cultural values. Now during a time of economic instability the emirate's population has increased political pressure on its ruler and prime minister, Sheik Mohammed bin Rashid al Maktoum, who is also vice president of the United Arab Emirates (UAE), to rein in the profligate style of Dubai. Apparently this newly found conservatism is directly related to the severe business downturn and credit tightening.

The truth is that the lavish lifestyle and uninhibited opulence that has attracted so many tourists also made great inroads on the traditional culture of conservative Islam. Wine, women, and song became more than just a saying. However, the signs of a tightening of the social order are now clearly there. Arabic has been reinforced as the official language in an attempt to stem the tide of the popular use of English. The laws on drunkenness and other unacceptable public displays have been tightened and prison terms for the offenders have been applied.

Of course, this means a fine balance must be maintained between preservation of traditional values while trying to squeeze the dollars, pounds, euros, and yen out of the tourists and resident expatriates. The merchant society of Dubai goes back long before the days of the oil boom when trade with South Asia ruled the emirate region and pearl diving was a major industry. There are very few alive today who have personal memories of those days, but there are many who, with imagined nostalgia, tell of the grand old times when life was more simple -- while driving in their latest model Mercedes.

Dubai may sit squarely in the strategic cross section of the Gulf, but it does its best to pretend to political balance. As a historic entrepôt the emirate acts commercially as a friend to everyone. This is best signified by the regular smuggling traffic in everything that can be desired. Iran is a major participant in this form of trade and has been for many generations. Iranians are major investors in Dubai through various front companies, and other Persians find the location a favorite vacation site for the more wealthy among them.

Dubai is a striking example of what can be done with vast sums of money, foreign workers and engineers, and free-wheeling financial dealing. Having said this, however, it must be remembered that this is a historic community of traders who have been competing in the broad mercantile society of the Gulf and South Asia for centuries. The Emirate of Dubai knows how to handle the good times and the bad, so don't sell them short in these testing moments; all of which is good for the babe on the beach.

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About the Author
George H. Wittman writes a weekly column on international affairs for The American Spectator online. He was the founding chairman of the National Institute for Public Policy.