Dubai: Liberalism’s failure?

Too much too fast?

The Dubai government sent shockwaves to the world when it declared, on the 25th of November, that it is working on re-structuring Dubai World’s $59 billion debt and in doing so, asked for a 6-months extension on further payments. Markets on the following Monday plunged as fears of a renewed financial crisis worried investors and bankers alike. Headlines and analyses flooded the Internet and television stations worldwide. All depicted a very bleak picture of the struggling city-state’s future. Dubai, they wrote, was not too big to fail. In an effort to become the region’s premier business and tourism hub, the emirate had lost sight of what it was doing and how it was doing it. It grew too fast and too quickly.

Today, Dubai has an estimated debt of $80 billion, a housing market which lost more than 50 percent of its value, and a bad reputation. To add fuel to the fire, oil-rich Abu Dhabi’s reluctance to come to the rescue of its eccentric neighbor was interpreted as a clear indication of the two emirates’ never-ending competitiveness and disagreement over Dubai’s economically and culturally liberal lifestyle. Today, Dubai’s future seems to be in jeopardy.

But is reality as bleak as it seems? Despite obvious challenges and problems (and Dubai has its fair share of those), can we really announce the beginning of the end of the once-glorious Dubai? Are Dubai’s liberal days coming to an end as it seeks the help of its more conservative neighbor? Did Dubai fail?

A quick step-back into the emirate’s modern history shows that this little coastal city off the shores of the Arabian Gulf Sea has been a liberal enclave of laissez-faire economics since its early beginnings. It was a city destined to shine and a town eagerly waiting to embrace the age of globalization. Economic liberalism, with its emphasis on free trade and low barriers to businesses and investments, was always the backbone of Dubai’s growth. Placing business at the forefront of politics is one of the main reasons why the emirate became the leading economy of the Arab world.

Moreover, in contradiction to what some analysts believe, Abu Dhabi’s assistance to Dubai will not entail a curtailing of personal freedoms and a decrease in Dubai’s liberal culture. If there is any cultural limitation to come in the future, it will be imposed by Dubai’s local society and not by oil-rich Abu Dhabi. Amidst fast-paced times and a society made up of hundreds of nationalities, Dubai needs to re-define what kind of city it is aiming to be.

How did it all start? Dubai was a fishing and pearling community in the early nineteenth century and up until 1950, was a small and poor settlement of 300 000 people. The town had no electricity, no running water, no airport, no port, and no oil. There was nothing special about Dubai; nothing that could indicate the kind of future that was awaiting the city. Today, Dubai is the commanding economy of the Arab world and is compared with global cities such as New York, London, and Hong Kong.

Indeed, Dubai was ranked twenty seventh on the Foreign Policy Magazine 2008 Global Cities Index which ranked sixty cities in the world according to various business, cultural, human capital, and political indicators. Dubai ranked higher than Istanbul, Rome, Buenos Aires, Dublin, Tel Aviv, and Johannesburg. Cairo was the only other Arab city to make the list and occupied the 38th position in the ranking. Moreover, the city has become a trendsetter with the various business models it adopted and has been copied by countries such as Qatar, Iran, and Saudi Arabia.

During the period of 2000-2006, Dubai sustained an annual growth rate of 17.9 percent, according to the Dubai Chamber of Commerce and Industry and the city’s Gross Domestic Product (GDP) grew by 168 percent during that period of time. Moreover, Dubai’s GDP per capita reached $42 686 in 2006, as opposed to $19 000 in 2000. The city now stands at an equal footing with countries such as Switzerland, Austria, the Netherlands, and Canada.

The city is also the seat of multinational companies such as General Motors, Heinz, IBM, AT&T, Shell, and Sony which are located in the city’s specialized “free zones.” Despite federal laws that prohibit foreign companies from operating freely in the UAE (a system known as “kafala” or sponsorship, which requires foreigners to take on a local sponsor), Dubai circumvented the system by allowing free zones to act like business parks where foreign companies can enjoy full ownership of their capital. It seems that the emirate recognized early on the importance of being fully integrated within the global economic system by attracting investors and businessmen from around the globe. This was a need that bolstered Dubai’s strategic position as the business hub of the Arab world yet also engendered the city’s current debt and real-estate burdens.

Being economically and culturally liberal is not a new phenomenon in Dubai. The emirate adopted liberal economic and social policies since the beginning of the twentieth century. Indeed, when Dubai’s tribal community focused on fishing and pearling activities, the Persian city of Lingah, controlled by Qawasim Arabs until 1902, was the region’s dominant port and harbor. At the end of the nineteenth century, the Persian government, in desperate need for additional revenues, imposed taxes on the Lingah harbor and then took control of the city. During the following years, taxes on trade, commerce, and basic services increased and merchants started looking for other places in the Persian Gulf to dock their vessels and do business. There was a need to replace Lingah by another city where businesses could thrive. As early as 1894, Sheikh Maktum of Dubai abolished the 5 percent custom duty on trade and in 1901, declared Dubai a free port. He also sent agents to Iran to convince merchants to move to Dubai in return for free land, representation in the Sheikh’s majlis, and protection.

Sheikh Maktum announced that Dubai was to be a place of tolerance where no tribal or ethnic tension could undermine business transactions. This was the precipitating event that prompted various waves of Persian immigration to Dubai. It was also a rare instance where a leader deliberately declared his city open to anyone with business ambitions. In return for a commitment to do business, the Sheikh promised peace and stability. Dubai leaders, it seemed, had a knack for exploiting other countries’ misfortunes to the benefit of their emirate. By positioning itself as a tolerant and liberal society that welcomed and respected all ethnicities and religions, Dubai stood in contrast with many of its more conservative neighbors.

The “live and let live” policy that it boasted encouraged many expatriates to choose Dubai as their place of residence. Today, more than 80 percent of Dubai’s population is foreign and Dubai’s local population became a minority in its own country. The long-established combination of liberal and diversified economic policies with social tolerance made Dubai the city of choice for anyone seeking to do business in the Arab world. When globalization came knocking, Dubai was the only city that was ready to embrace change. The “New York City of the Middle East”, as it is sometimes dubbed, not only had the ambition to do so but its economic and social infrastructure proved to be adequate.

Thus, when one examines the foundations of the Dubai development model, liberal economics constitute its core. From trading and re-exporting to attracting the highest share of Foreign Direct Investments (FDIs) in the Arab world – estimated at $3 billion, Dubai’s development owes much of its success to its liberal economic policies. And this is nothing new. Renouncing those principles today in the face of economic hardships would mean a loss of much of the businesses that the emirate acquired. It would mean that an entire century of steady growth would be coming to a halt. There will be nothing that distinguishes Dubai from other cities in the region. It is a big sacrifice which the Al-Maktum family, Dubai’s ruling family since 1833, will not so easily make. It is a sacrifice that the UAE as a whole will not allow. What Dubai will have to do, however, is re-iterate its commitment to an open and transparent business environment while, at the same time, implementing rigorous regulatory and legal mechanisms that can re-assure investors and decrease the effects of another financial crisis.

From a cultural perspective, however, there seems to be more tension. While the official stance of the Dubai government is to allow freedoms of lifestyle to be practiced, in response to recent scandals, the most notable of which was the arrest of two British expatriates caught having illicit relations on the beach, it seems that Emirati society is taking on the role of the cultural policing force. Indecent behavior is heavily frowned upon. If a woman finds herself walking through a mall with shorts on, chances are a security guard will ask her to dress more appropriately next time.

No one is arrested for wearing shorts or skirts in Dubai. But today, signs at the entrances of malls emphasize the need for people to dress modestly. The local population has made it clear that expatriates and tourists need to research local norms and traditions before coming to Dubai in order to acquaint themselves with what’s acceptable and what’s not. In an article in Gulf News on August 7, 2009, more and more cries have been made to define Dubai as a Muslim city. This tension was best portrayed with the online circulation of a “Code of Conduct” in July 2009. The Code specified how expatriates should dress and act when in Dubai.

Needless to say, this new set of laws infuriated expatriates who interpreted it as an infringement on their personal freedoms. The code, however, is not an official government document. In fact, no one really knows where it came from. But Dubai’s local society has made it clear: aggressive awareness campaigns should be conducted to inform foreigners on what Dubai tolerates and what it doesn’t in an effort to preserve the emirate’s Muslim identity and heritage. In the face of swooping change, Dubai finds itself pulled towards a Westernized and purely cosmopolitan identity, on the one hand, and towards a more conservative image on the other. The city needs to define itself in a way so as to please both its citizens and its foreign population.

Despite those tensions, during a recent trip to Dubai in the summer of 2009, it was glaring to me how much expatriates enjoyed living in the emirate. For Amina, a Palestinian woman born and raised in Saudi Arabia, living in Dubai means having the ability to do things she would never dream of doing elsewhere. She was thrilled when she found out that she could practice kabbalah in Dubai, a practice that’s forbidden in Saudi Arabia.

Other expatriates I talked to expressed how much they enjoyed meeting people from all around the globe and learning about new cultures while keeping the same way of life they had in their home countries. Muslim expatriates from Egypt and Jordan delight at the fact that they can live in a modern city while keeping true to their Arab and Muslim heritage. Expatriates from the South Asian sub-continent, the UK, and North America also enjoy living in a city that offers them a chance to stay connected with their respective cultures while mingling with others.

Most foreigners understand that indecent behavior is unacceptable and they respect local traditions and customs. While a couple of scandals made the headlines in 2008 and 2009, the general rule remains that tolerance and moderation are keys to life in Dubai. With only a few exceptions, the Dubai cosmopolitan model seems to have fared well so far. What Dubai needs to do now is address the economic and social challenges that come with being a global city in-the-making. In addition to strengthening its economic and financial prowess, the emirate needs to re-define itself in an age where identity issues are becoming all the more important.

(Photo: Paul Keller)

Sara Chehab is a PhD candidate and an Instructor of Development Politics at the University of Delaware.