City of Gold: Dubai and the Dream of Capitalism (23 page)

THE SYSTEM OF
government in Dubai and the rest of the UAE is perhaps best described as tribal autocracy. It’s autocratic because a single ruler, Sheikh Mohammed in Dubai’s case, holds unlimited power. It’s tribal because rule is based on tribe and family, with power handed down the generations.

Martin Hvidt, a Danish scholar who has studied Dubai’s governance, describes it as a neo-patrimony, organized around the ruler as an individual. Those under him depend on his good graces for their jobs.
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Sheikh Mohammed probably wouldn’t describe himself as a tribal autocrat. His advisers would never use those terms, which disguise the benevolence and pragmatism that also characterize his rule. He’d probably say it like this: Dubai is a big corporation and I am CEO, otherwise known as “the boss.”

Dubai’s government is a steep pyramid. Below Sheikh Mohammed sit his second and third sons, Hamdan, the crown prince, and Maktoum, the deputy ruler. Both are untested men in their twenties. That’s where the royalty ends.

The bureaucracy begins with The Executive Office, Sheikh Mohammed’s cadre of advisers. It sits on the forty-third floor of the Emirates
Office Tower. The Executive Office is comprised of a few dozen planners and managers who oversee every entity that reports to the ruler. These are the technocrats who plot the city’s growth strategy and incubate its initiatives and state-owned companies. It’s the home of Sheikh Mohammed’s tough Delivery Unit, which follows up after a manager promises to, say, increase passenger throughput at the airport. The unit ensures the manager “delivers” on that promise.

Six floors down is the Dubai Executive Council, the ruler’s Cabinet. The nineteen members—appointed by Sheikh Mohammed—exert direct control over the municipal government. They draft legislation and budgets, draw up development plans, and see that Sheikh Mohammed’s policies are coordinated across all twenty-four government departments. Most department heads have a seat. That is the structure. In reality, council members are many of the same overstretched personalities who show up elsewhere. For instance, Sheikh Mohammed’s uncle Ahmed—the chairman of Emirates Airline—is a member, in his capacity as chief of Dubai Civil Aviation. Police Chief Dhahi Khalfan has a seat. So does Sultan bin Sulayem, as chairman of the Ports, Customs & Free Zones. Mohammed Alabbar is a member, in his capacity as the head of the department of economic development. Dubai’s crown prince, Sheikh Hamdan, chairs it.

Vying with these two offices for influence is the Ruler’s Court, or
diwan
, on the creek. The new director, Mohammed al-Shaibani, was a rising force in 2008. Under him the
diwan
had taken control of the city’s Department of Finance, which oversees the city budget, and several functions previously held by The Executive Office.

Least influential is Dubai’s city hall, known as the Municipality, which sits across the creek from the
diwan
. The building is as thronged as any American city hall, with waiting rooms and take-a-number counters. The municipal director, Hussain Lootah—Dubai’s mayor—is just one member of the Executive Council. The city’s day-to-day affairs, its sewers and roads, take a backseat to the plotting of Dubai’s growth and investment.

The contrast between the Municipality and The Executive Office is like the difference between GE’s lightbulb and jet engine divisions. The municipal building is grimy and mundane, with vending machines and shoe-shines. The Executive Office is swish and corporate, with espresso and teppanyaki.

Nabil al-Yousuf runs The Executive Office.
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He’s a big, fit man of
forty, with a precisely sculpted goatee. He’d look like a biker if it weren’t for the crisp white
kandoura
and
gutra
headscarf. Al-Yousuf is relaxed and eloquent, and his polite listening style belies his position as one of the city’s busiest men. He sits back on his office couch, bare foot on his knee, clicking a string of milky yellow prayer beads. Behind, the plate glass that is his office window is a trophy case of skyscraper crowns.

Al-Yousuf is an industrial engineer with an MBA who studied at American and British universities. If Sheikh Mohammed is CEO of Dubai Inc., and his four lieutenants—Gergawi, Alabbar, bin Sulayem, and al-Shaibani—are the board of directors, al-Yousuf is the chief financial officer. He doesn’t mind the comparison.

Al-Yousuf has spearheaded the introduction of corporate management tools into government. One is the Dubai Government Excellence Program, an intense and humiliating contest among city departments. Each year the boss rewards the top municipal departments and singles out the worst. Winning is great, but losing is so devastating—sometimes career-ending—that bureaucrats go to outrageous lengths to increase their scores. The award system has seen departments hiring consultants, spying on each other, and revamping their floor plans. They’ve raced to offer services online. They even compete over the freshness of the coffee and homemade buttermilk they offer visitors.

The government has also adopted—and tweaked for its own use—the “key performance indicators” introduced by Harvard Business School professor Robert Kaplan. The indicators measure a company’s financial performance, customer satisfaction, and internal functions. Dubai relentlessly benchmarks itself against governments it sees as competitors. Hong Kong, Singapore, Ireland, New Zealand, and Australia are favorites. “This reflects the leadership style of Sheikh Mohammed,” al-Yousuf says. “He really runs this country as a corporation.”

Government jobs in the UAE used to be like those in the rest of the Arab world, a gravy train for life. The longer you stayed, the bigger your salary. Dubai’s new human resources law—modeled after GE’s—reserves promotions for those who outperform their colleagues. If a worker devises a technique that saves the government money, a portion of the savings winds up in his paycheck. “The reward is based on what you do rather than how long you’ve been in the job. It’s a major shift in paradigm for our government,” al-Yousuf says.

Sheikh Mohammed oversees a cadre of undercover mystery shoppers,
like the one who discovered Gergawi. They pose as prickly members of the public seeking the government’s help. Their reports are instrumental in firings and promotions. No bureaucrat can be sure the demanding customer across the counter isn’t secretly reporting to the boss. Once in a while, Sheikh Mohammed turns up at 7:30 a.m. on surprise inspections. He’s been known to fire late-arriving managers on the spot.

Dubai isn’t run like a business for reasons of style. That’s partly how it raises its budget. Dubai levies no income, property, or corporate taxes. Its tax base is small: hotel occupancy taxes, levies on restaurant meals and liquor sales, as well as a 5 percent duty on imports that aren’t destined for free zones. There are fees for permits, road tolls, and a regressive renter’s tax on apartments and offices. But part of the budget comes from the profits of government businesses like Emirates airline, Dubai Taxi agency, and the city’s aluminum and glass plants.

The World Economic Forum ranks the United Arab Emirates as the most competitive economy in the Arab world. But Dubai, viewed on its own, rates much higher. Dubai’s economy is more competitive than those of Japan, Britain, and Germany, and its government is more efficient, says a report by the prestigious Swiss IMD business school. Dubai beats the United States in government efficiency as well.
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“Dubai is successful because it is a government that is an entrepreneur at the same time,” al-Yousuf says. “It can spot opportunities and immediately take advantage, unlike the rigid five-year planning and specific road maps that many developing economies follow.”

The institutions that make Dubai hum function in obscurity. Their power isn’t codified in law. They are driven by individual personalities whose influence rises and falls on the sheikh’s favor. Most Dubaians, even some whose business takes them to city hall, could not tell you where The Executive Office and Executive Council are located. Many don’t know they exist. These offices are rarely discussed in the press. They’ve got no facilities for the public, no ombudsmen, no accessible press spokespeople. Dubai Inc., after all, is an autocracy.

Most people associate state-owned businesses with socialism-inspired factories you might see in Iraq or the former Soviet bloc. These places
bear names like the State Enterprise for Soap and Cleaning Products. Years ago, governments sought self-sufficiency and jobs by making their own soap, rather than importing it. But most state companies needed subsidies to survive, and their products were too bland to be exported. The experience was so dismal that economists generally agreed that governments shouldn’t be producing private goods and services.

Now comes Dubai to turn the model on its head. While the rest of the world was privatizing state business, Dubai was launching a new breed. Dubai created these companies by calving them off from the government. It hired top managers, usually expatriates, to run them.

Dubai’s portfolio of businesses is huge. Dubai World is one such group, with its profitable port operator DP World and glamor developer Nakheel, responsible for the Palm islands. Emirates airline and Dubai Aluminum are 100 percent state-owned, as are investment funds Istithmar and Dubai International Capital, a slew of property developers, banks, and several others. Each is run along conventional corporate lines, financing investments with debt or earnings.

The companies aren’t subject to civil service hiring rules. They get special access to the ruler and bypass the bureaucracy. Sheikh Mohammed asked them all to develop internationally, and several are dominated by foreign investments, especially DP World, property developer Sama Dubai, and increasingly Emaar, partly state-owned and building neighborhoods in more than a dozen countries. Sheikh Mohammed’s own Dubai Holding Group, with its Jumeirah hotel brand, operates the same way.

These state companies are central to Dubai’s growth strategy. Sheikh Mohammed directs them to take the risk of breaking open sectors targeted in the city’s strategic plan, and private companies sweep in behind them, perceiving their investments protected by the government. The cluster zones like Internet and Media cities are examples. Dubai International Airport and Emirates work in tandem, and the Nasdaq Dubai stock exchange gets backing from state firms, like DP World, that offer shares there.

Dubai’s state-owned corporations challenge the conventional wisdom about public sector inefficiency. The rest of the Gulf has scrambled to follow along. Qatar’s developer Qatari Diar, launched in 2005, looks like Emaar. Emirates has spawned copycats in Abu Dhabi’s Etihad Airways and Qatar Airways. But by the crash of 2009, Dubai-owned businesses were among those in the biggest trouble. Their easy access to
capital meant they carried most of the city’s debt, worth tens of billions of dollars. There was talk of merging some of them.

In February 2006, American news outlets began running an alarming story. It centered on Dubai, a place many Americans were hearing about for the first time. The story said that cargo operations in several major ports—including New York, New Jersey, Philadelphia, Baltimore, New Orleans, and Miami—had been purchased by the Arab government of Dubai. Reporters described Dubai as a logistics center for the September 11 terrorists, and pointed out that it sits in a country that was the birthplace of two of those hijackers. Soon, they alleged, the security of America’s ports would rest in the hands of Arabs: the Dubai-owned port operator DP World.

New York Senator Charles Schumer led the charge against Dubai. Just after the story broke, Schumer called a press conference with families of the September 11 terror victims. He demanded that President Bush reconsider a deal he had approved.

“A lot of families are incensed by this, because you’re talking about the safety of the country,” said William Doyle, whose son Joseph died at the World Trade Center. “We have a problem already in our ports because all of our containers aren’t checked, but now they want to add this unknown? It’s not right.”
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Soon, Schumer’s Senate partner from New York, Hillary Clinton—now the U.S. secretary of statae—added her voice to the uproar. New York Congressman Peter King said he opposed the deal because Dubai had not explained how it would prevent al-Qaida from infiltrating its ports company, and, it can be assumed, attacking America. This furor was, in the words of
The New York Times
columnist Nicholas Kristof, an episode of “quasi-racist scaremongering” of the sort that hadn’t been seen since the World War II internment camps.

Foreigners had been running U.S. ports long before Dubai got into the business. In fact, foreigners were already managing the U.S. ports in question, through Britain’s Peninsular and Oriental Steam Navigation Company, known as P&O. Dubai acquired the U.S. operations—as well as those in sixteen other ports around the world—when it bought P&O
for $6.8 billion. No one cared that a British-owned firm had operated U.S. ports. But when the owners of that firm became Arabs, it became a national security crisis.

Otherwise reputable Americans tarnished their names by joining the Dubai bashing. Even the Anti-Defamation League took its turn at defamation. Dubai’s investor-technocrats, used to operating behind closed doors, were shocked to find themselves at the center of a storm of xenophobic hysteria. And they weren’t sure why.

Dubai and the UAE remained among America’s closest Arab counter-terror allies, even though the U.S. government has problems with Dubai’s freewheeling trade with Iran. UAE authorities had handed over terror suspects and allowed U.S investigators to monitor its banking sector for suspicious transactions. U.S. spy planes and refuelers fly out of Abu Dhabi. Dubai is the U.S. Navy’s biggest overseas port. The fact that two UAE nationals
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had attacked America was a distraction to an otherwise solid friendship.