Last week, the default of Dubai World Group, a government investment company, caused the biggest global financial shock since the disarray of the financial crisis. Though fears of a systemic threat have waned, the default caught many investors off guard. Now, business writers and pundits are wondering why anyone was surprised in the first place. With the advantage of hindsight, they've laid out the following revelations about Dubai, its downfall and where it's headed in the future:
- Dubai's Tax Policy Doomed It, writes Matthew Yglesias at The Daily Beast: "Dubai’s low tax success story was a mirage... The collapse of Dubai’s debts, and the ongoing global financial meltdown, is about more than bad real estate investments. It’s about a bad social model, a brand of bubbled-fueled capitalism that sleights public investment and overrates private consumption. It’s a model that’s dominated not just Dubai, but to a large extent the United States of America for a period of decades. A model that should be discredited, but that we have yet to fundamentally leave behind."
- Shouldn't Have Been a Surprise to Anyone, writes Michael Corkery at The Wall Street Journal. He gives a dispiriting breakdown of Dubia's dubious investments:
Population: 1.2 million people. That was a Dubai-provided estimate as of 2006 and includes mostly expatriates and migrants workers, many of whom have left since the construction boom ended...
Worst Investment: Dubai World invested $5 billion in the $8.5 billlion MGM Mirage casino and development in 2007 in Las Vegas. The value of its stakes has been decimated by the property crash and tourism let down in Vegas.
Second Worst Investment: In 2007, Dubai World invested $1 billion in Barney’s New York, the high-end retailer currently exploring a restructuring.
Tied for Second Worst Investment: In 2006, a Dubai-controlled real-estate company, Emaar Properties, bought high-end U.S. home builder John Laing Homes for $1.05 billion. The builder declared bankruptcy only two years later and has shut its doors.
- Abu Dhabi Knew of Dubai's Fate All Along, writes Jo Tatchell at The Times of London: "It has been common knowledge here for months that Dubai’s property investment business is on the ropes. The real talk is not of how to plug the gap in DubaiWorld interest repayments but of how Abu Dhabi is going to pick and choose how it helps its neighbour. Dubai’s misfortune is a long- awaited opportunity for Abu Dhabi and it is positively glowing with schadenfreude. It has watched its wayward neighbour squirm as its global property and investment markets are exposed and is poised to assert its position. The bailout symbolises the start of a push for regional supremacy, a changing of the guard in the United Arab Emirates... Now, with Dubai’s delusions of grandeur gone, we are, at last, seeing a long-awaited shift of influence in the Gulf."
- Owed Its Wealth to American Hegemony, writes David Frum at The National Post: "Clear-headed thinkers can learn some important lessons about our 21st century world. Through the Bush years especially, Dubai represented prime evidence of America's supposedly looming decline. It was building the world's tallest tower! It was buying American port facilities! It was emerging as the world's leading banking centre! ...The claims for Dubai as a banking centre were not obviously foolish. They were subtly foolish... Dubai’s banking sector could exist only because it was backed by an implicit security guarantee from the United States. The credibility of that guarantee was spectacularly enhanced by the first Gulf War of 1990-91, and not so coincidentally Dubai took off soon afterward."