30 May 2008

The Territorial Corporation

A friend of mine questions whether Dubai is properly a state. He thinks it's more like a corporation with territory. I think he's right.

Dubai is essentially owned by a single family, and they don't quite seem to run it as a traditional principality is run. They do run it like a corporation in some respects, investing heavily in an effort to draw in more and more business.

Typically, governments don't invest well. They lack the pricing incentive, not being able to know what the real value--market demand--is for their investments. And they're careless about balancing costs and benefits, as well as balancing the books, because it's not their own money they're spending, but the public's money. But if you do run your government as a privately held corporation are you able to read the bottom line better? Does the Dubai government have a better ability than most to analyze the costs of their "public" spending, since most of it is coming from their own coffers, i.e., their oil revenues?

Essentially I'm over here looking for a research question that will justify returning several times over the next few years. I'm not sure political scientists have written much on Dubai yet--few of them are economically minded, and hyper-capitalist places like Dubai, particularly with it's huge environment-altering island projects, is most political scientists' worst nightmare. But moral outrage doesn't lead to understanding, and I think it's an interesting question.

I would hope that the answer is "no, they don't invest more wisely than democratic governments," because I'm libertarian enough to not want to find anything good about a non-democratic government. But, again, it's about understanding, not my own moral values.

Side note: At the Dubai airport I noticed there were two Air Emirates planes leaving for Auckland, NZ only 5 minutes apart. Does that signify a lot of Kiwi businessmen in Dubai?


James K said...

Dubai sounds a bit like some of the Italian City-States at the turn of the 16th Century, think the Medici and Florence. In fact most pre-enlightenment countries were essentially run as private concerns.

I would think a corporate state would invest better than a non-corporate one, but not as well as the private sector. The corporate state would have improved incentives, but still wouldn't have the knowledge needed to outwit the collective wisdom of the market.

The other point is that the things government is supposed to be doing don't have a simple bottom line. Most government policies are very hard to evaluate, I know I've tried.

James K said...

PS: there are a lot of migrant workers from New Zealand in Dubai. Its a very lucrative place for construction workers.

James Hanley said...

Mancur Olson has a theory about development in authoritarian countries, in a nutshell that they'll ensure enough development to keep their subjects happy. Dubai is trying a wild-west capitalist approach, while Syria has tried a more socialist approach. It could be a good case study to compare the two.

James Hanley said...

Indeed Dubai is a lucrative place for construction workers. It's claimed that Dubai has between 15 and 25% of all the world's construction cranes, as many as 30,000. It sounds impossible until you look out at the city, and realize that wherever you look you see multiple cranes. With that much demand for skilled construction work, I would imagine the wages are pretty good, but there have been reports of foreign construction workers striking over wages due to a fall in the value of the Dirham.