The Jeremiads on Dubai

There have been a lot of doomsday predictions lately regarding Dubai's future. Consider this FP article on the emerging literature that has sprung up criticizing Dubai's model of development and anticipating the city's imminent downfall. Critics of the city point to a staggering number of legitimate shortcomings: Dubai is over-leveraged, its development model is unsustainable, its cultural vision is contradictory, its population is under-educated, its institutions are bureaucratic and corrupt, its labor conditions are miserable, its buildings are shiny but substance-less and now empty, its judicial system is arcane, and it is now attracting an array of unsavory criminals, smugglers, and racketeers.

All of the above criticisms of Dubai are, in my opinion, entirely valid. The city-state grew too fast during the boom years. It built in order to impress, not to develop. It tried to market itself as a meeting place between East and West, as a cosmopolitan melting pot in the Arab world. The problem is Dubai thought this utopia could be bought (or borrowed and then bought) rather than being cultivated over time.

Curious people from around the world were unsurprisingly drawn to this strange new phenomenon happening in the deserts of the Arab Gulf. They came, they took photos, some of them even settled down for a bit. Now they are all gone. With the unveiling of the new Burj Khalifa, Dubai seems not to have quite learned its lesson. The city is still trying, now increasingly desperately, to attract the world's attention with another superlative, hoping that no one will notice that they have yet to find enough find tenants to fill the monolith.

All that being said, I think the Jeremiads on Dubai are overblown. The bloom may be off the rose -- but the rose still remains. Dubai, for all its myriad flaws, has a lot going for it. For example, Dubai is the sixth busiest port in the world with thousands upon thousands of containers passing through on their way from the East to the West and back again. The only ports with more traffic than Dubai are the megaports of East Asia -- Singapore, Shanghai, Hong Kong, Shenzhen, and Busan. The next largest port within even the general vicinity of Dubai is Mumbai, at number twenty-seven. In the Middle East, Jeddah is second, with a ranking of thrirty-two and about a quarter of the traffic of Dubai.

Dubai's port is likely its greatest and most sustainable long-term asset. Think of Singapore, another city that had its fair share of skeptics and detractors in the 1970s. Its position as one of the largest ports in the world (today it is number one) has propelled it on a bull-run of multi-decade economic growth, such that it now ranks as one of the world's greatest metropolises. The Dubai port generates a huge amount of commercial activity in the city, which is the original reason that so many different companies in various industries originally decided to set up shop there. As long as the hum of port activity persists, many of these industries and companies are likely to remain.

Dubai also has a slightly less tangible asset working in its favor -- inertia. Yes, the city has seen hitches recently. But are all those companies that relocated to Dubai, convinced it was going to be the new urban center of a fast-growing emerging market, really going to pick up and relocate? Is the marginal benefit of moving down the road to Abu Dhabi, or across the sea to Doha, or further into the desert to Riyadh really that great? Dubai may have tripped, but it will take a lot more than a single sovereign debt debacle to cause a true mass exodus. As long as the Gulf remains a key emerging market (and with oil supplies still plentiful, that will likely be for a while), it will need a regional capital out of which firms can base their operations. For the foreseeable future Dubai still looks like the most likely city to have that honor.

No doubt Dubai's glory days are over. But the city-state can still learn from the poor choices of the past decade and right itself. It can get itself back on a road to growth and development, though this time it will have to be at a much more restrained and sustainable pace.