Before the trip
A friend gave me a copy of Plato’s Republic, half-jokingly perhaps since I often refer to Singapore as a modern Platonic Republic (liberally appropriated from Professor Mark Mancall). With some nostalgia for SLE, and an upcoming trip to the UAE/Bahrain planned, I decided it might be a good time to re-read the book.
Though the book opens with a discussion on the nature of justice, much of the content revolves around what a kallipolis, the best kind of city, would look like. “Come then, let’s create a city from its beginnings,” says Socrates. I had forgotten how much the book read like a primer for what Singapore is today. It’s focus on the role of a governing elite philosopher-king guardians, the importance of education in inculcating a sense of civic duty, even the role of censorship in ensuring that negative influences do not creep into society. I think it provides an interesting jumping off point to consider the question of how one would plan a country if you got to start from scratch. And to that end, I was curious about how Singapore holds up when compared with other countries/city-states that are attempting something similar today. I don’t know how far the comparison holds up, but maybe we can think about the ruling Sheikhs as philosopher-kings more easily than in systems that have more democratic ruling structures.
The literature we were asked to read on Dubai and Abu Dhabi makes their efforts sound somewhat like Singapore’s development efforts from an investment perspective, with a focus on foreign direct investment, but make little mention of the hard work of investing in education, healthcare and the infrastructure necessary to upgrade their populations’ skill sets such that they can compete in a global economy independent of oil wealth. Perhaps having oil buys Abu Dhabi enough time to improve literacy and healthcare, but I suspect that the “hardware” of infrastructure building will prove to be easy relative to the “software” of creating a national identity, raising educational levels, and teaching a population to be globally competitive.
Post-trip reflections
We’ve just completed a whirlwind tour through Abu Dhabi, Dubai, and Bahrain. The trip/course was structured to have us think about the various roles of state (Abu Dhabi), business (Dubai) and society (Bahrain) within an economy. Our meetings involved meeting government-linked corporations like ADNOC, Mubadala, Strata and the Bahrain Development Bank, as well as interviews with business people, both small and medium-sized enterprises, as well as MNC’s based in each location.
When thinking about the three places we visited, I kept framing each situation as an equation to be solved, with each Sheikh working with a different set of cards perhaps, but all essentially trying to accomplish the same thing: a prosperous nation/emirate. The main variables I was focused on were availability of oil & gas wealth, level of development of physical infrastructure, reliance on foreign labor and thus attractiveness to expatriates, maturity of legal frameworks, quality of local workforce, and level of political stability. I took a quick stab at rating these metrics across the three locations, and these ratings are relative to each other, rather than relative to some global standard, given that each location is in a sense competing with the others for primacy in the region.
What struck me most about our time in the UAE was the difficulty we had meeting actual Emiratis, apart from our meetings with ADNOC and Mubadala. Everywhere you looked, there were expatriates, from low-skilled construction and service workers to high-skilled bankers and oil-services executives. I quizzed all the expats I met, do you have Emirati friends? Emirati employees? Even the fresh HBS admit I met who had been born and raised in Dubai didn’t have Emirati friends. It was a very strange thing. I’ve never been to any other country where you interact primarily with non-citizens. The only people who had regular contact with Emiratis were those who worked for government-linked investment funds. I knew that 80% of the population was expats, but experiencing it was rather surreal and also created some dissonance given the government’s explicit “Emiratization” goals where companies are required to have some percentage of their employees be Emiratis. The employment targets are only one aspect of a fairly explicit government policy of favoring Emiratis. The level of benefits vary between Abu Dhabi and Dubai given the discrepancy in their oil reserves, but in Abu Dhabi, each Emirati family is given a house, a AED 75,000 grant upon marriage, and 5 or more business licenses. For foreigners to do business in the Emirates, they must have an Emirati sponsor through the purchase of one of these business licenses. This creates an annual revenue stream for the Emiratis through the sale of these licenses.
I have some discomfort around any quota-based system, even as I understand that the government seeks to upgrade the skill level of its native population and using quotas is one way of accomplishing it. It makes me think about Malaysia’s bumiputra policy but as Professor Maurer pointed out, maybe instead of thinking of Singapore as the counterfactual, I should think about racial riots and pogroms as the counterfactual. Having said that though, my instinctive response is that favoring any one group over another in a systematic way will create a generation of people who think they are entitled to different treatment for non-performance-based reasons, which is socially divisive and ultimately sets the country up for non-competitiveness. Former Malaysian Finance Minister Razaleigh Hamzah alludes to this in a speech discussing the relative decline of Malaysia’s prominence at the Regional Outlook Forum in Singapore:
“The formula of communal power-sharing that the Barisan National and its predecessor was built on had started life as a political accommodation, a nation-building compromise, a way-station on the road to a fuller-union of our citizens. Fifty years later, it had ossified into what appeared to be an eternal racial contract, a model replicated at every level of national life.”
It was also unclear to me how this heavy reliance on foreign talent without any efforts to turn them into citizens/stakeholders was a good long-term value creating strategy. In fact the UAE and I think the GCC more broadly makes it quite difficult for foreigners to become citizens, because why share your wealth with more people than necessary?
It was after talking to businesspeople in Dubai, however, that I started to change my mind. For the spice trader in the souk and the hardware wholesaler who sells to retailers in the GCC region, Dubai was the best place for them to do business. They had come from Iran and India, and been in Dubai for almost 20 years a piece, and had didn’t even consider living or relocating to other GCC countries. Dubai gets to import a merchant class, as it is geographically conveniently situated for trade with East Africa and the Middle East, and relative to other GCC countries, is a more comfortable place to live.
Maybe I was thinking about this in the wrong way. I was framing the problem from a Singapore perspective (focus on nation building and institutional integrity), when I really should have been thinking about it from the Sheikhs’ perspectives. Oil gave these economies a way to leapfrog the earliest stages of development, thus allowing them to bypass the low-wage manufacturing stage, and go straight to building knowledge-based service economies. The sheikhs priorities are to keep the native population happy, through ensuring that the economy continued to grow. With a small native population, and a seemingly endless supply of low-cost labor on the manual end, and enough money to pay top-dollar for expats at the high-end, Abu Dhabi and Dubai are able to keep their emirates happy, rich and well-fed. They don’t have to spend as much money on education and other social services traditional governments provide to their youths, since the expat workforce enters the country full-trained and grown up, and they don’t have to pay for healthcare because all expat workers must have a health checkup every 3 years and non-citizens are asked to leave upon turning 60 so no need to worry about social security. One could argue that there will always be a ready supply of cheap labor in the world, so might as well make it easy for them to come and take the jobs in your society that no one wants. This presumably also buys them time to upgrade their own population’s skills so that they end up in managerial roles eventually.
Brilliant plan, right? All my concerns about turning expats into stakeholders? It’s actually the ultimate form of Darwinism. Declining industries will naturally force people to either a) leave Dubai, or b) find another business, all without government having to shoulder any responsibility for the retraining/unemployment since you can only stay in the UAE if you have employment. No need to nationalize anything here to save jobs. You only need to concern yourself with the very small population of native Emiratis. For a while I thought – well, it’s not how I would’ve done it, but I can see why they’ve pursued these strategies Granted, Abu Dhabi is quite different from Dubai given the relative vastness of oil reserves that Abu Dhabi has, and the apparently more long-term focus of their sovereign wealth funds, and headline desire to invest for the future of their emirate.
One way we were asked to think about the Abu Dhabi government was as an asset manager, of a) oil in the ground, b) investments outside the UAE, and c) Emirati and foreign human capital with Abu Dhabi. And to be honest, this is a difficult analogy for me because I’m not really clear what metrics we’re measuring them by. Is it literacy? Per capita GDP? Technological adoption? Because for all intents and purposes, the UAE is already there. Just as a quick thought experiment, we did a quick back of the envelope calculation suggesting that with $1 trillion in assets (ADIA+Mubadala+other smaller SWFs), assume a 5% rate of return and approximately 200,000 Emiratis, we could pay each citizen $250,000 annually. Why even bother with Mubadala and the Masdar initiative?
I think it’s because every nation, needs to have a story that it tells itself, and its citizens. This is especially true for post-colonial states who often have nothing in common other than a shared history of subjugation. For the UAE, it’s slightly different I suppose, Emiratis have a shared Bedouin past, and are all Muslim. The role of the story here then, is in helping the population make sense of the sudden windfall that hydrocarbons have given them, and giving a sense of meaning to all this wealth. People need something to believe in, and what is more compelling than the idea of a benevolent, far-sighted prince, both taking care of his subjects, and showing the rest of the world how the UAE can lead trade, innovation and development?
After extolling the brilliance of the setup though, I started to see some cracks in the system – expat business executives spoke of the deep divide between Emiratis and non-Emiratis; that in business dealings it was all too easy for an Emirati to call in the authorities or sue in what may have been just standard transactions gone wrong. The recent acquittal of Sheikh Issa (a member of the ruling family) on rape and bodily harm charges is merely the most recent public example of the blurry line between institutions and the ruling family. Expats spoke of the extreme care they needed to exercise in all dealings with Emiratis because of the fear that all disputes would be resolved in favor of the Emirati parties. This could range from the minor, traffic accidents or foreign women spurning the advances of Emirati men, to serious disputes between Emirati sponsors and business parties. Everyone spoke of the huge amount of capital in the region, the opportunities there were, but I didn’t feel any genuine love for the place. It is a place of great opportunity and commerce, and nothing else.
Conclusions…
So if I go back to Socrates and the hypothetical creation of a city from scratch, is this how I would have done things? I guess it goes back to who I am and what my time horizon is. For now, Abu Dhabi and Dubai have enough going for them to sustain their economies and keep their native populations happy. I worry that it is the generational handover that will struggle. Will the UAE look back in 20 years and realize that they’ve created an economy filled with industries entirely dependent on foreign talent, while failing to adequately motivate their native population to use their freely acquired educations?
More on Bahrain at a later date…
