DUBAI'S POLITICAL AND ECONOMIC DEVELOPMENT: AN OASIS TN THE DESERT?

by

CHRISTOPHER DeNICOLA

A thesis submitted in partial fulfillment of the requirements for the Degree of Bachelor of Arts with Honors in Political Science

WILLIAMS COLLEGE

Williamstown, Massachusetts

MAY 10,2005 Table of Contents

I Development Literature Oil Curse Literature Arab and Islamic Factors

I1 Regional Ovemiew and Historical Background 's Development History

PI1 Explaining Dubai9sDevelopment Outcome Why Not Other Gulf States? Dubai versus the Development Literature

IV Dubai in a Cornparatbe Corntext Saudi Arabia Brunei

Conclusion

Appendix

Bibliography Introduction

Dubai, a tiny, oil-exporting city-state located in the Persian Gulf, has recently undergone a remarkable transformation. As a member of a federation of small Arab,

Islamic monarchies known as the United Arab (U.A.E.), its leaders have implemented a bold development strategy. In the space of four decades, they have managed to shift the city's economic focus from fishing and gold trading to tourism, mass communications, shipping, and finance. Unlike many of its regional peers which have developed unstable regimes and stagnant, oil-dependent economies, Dubai has diversified its economy to become a politically stable center for commerce and tourism.

Consequently, Dubai has resisted the expectations of regional analysts and is a clear outlier from development trends in the Gulf. This observation leads to the central puzzle of this thesis: why is it that Dubai has defied the expectations of conventional wisdom and become so economically dynamic and politically stable? The answer to this question has implications for evaluating the efficacy of both development theories and policy options that emerging states may choose to pursue in their own development strategies.

Walking the streets of Dubai, most visitors are struck by the fact that instead of

Arabic, the most common languages overheard are English and south Asian dialects.

Furthermore, most of the people that they encounter on the street are south Asians, not

Arabs. This kind of experience points to one of Dubai's most surprising characteristics - the fact that its nationals are only a tiny minority of the city's overall population.

Compared to Dubai's official population of 1,112,000, most independent analysts estimate its national population to be under 90,000, or only about eight percent of the

total.'

This situation reflects the city's growing reliance on foreign labor. South Asians are the largest expatriate group and make up $4.5 percent of the private sector according to official statistic^.^ ~ostof these people perform menial jobs in the service and construction industriese3Expatriate Arabs form another 9.4 percent of the city's workforce and the remaining 1.9 percent are ~uro~eans.~The reason that so many foreign workers have flocked to Dubai is quite simple - to make money. Although low- paying jobs hammering steel and cleaning floors may not sound very appealing, they attract numerous Indian and Pakistani workers because they can make more money performing these tasks in Dubai than they can in their home countries, where jobs of any kind are often ~carce.~Similarly, Westerners who work in management positions for multinationals corporations located in Dubai9s free trade zones are lured by financial incentives such as high wages and breaks. As one expatriate in Dubai has recently stated, "We are all mercenaries here."6

Another aspect of Dubai that most visitors marvel at is the 's multitude of ambitious development projects. Perhaps the most well known is the Burj A1 Arab, a self-described "seven star" luxury hotel completed in 1999. Shaped like a massive sail, this waterfront hotel offers guests such amenities as bedroom suites with mirrors on the

Ministry of Information and Culture, , UnitedArab Emirates Yearbook 2004 (London: Trident Press Ltd., 2004) 6; Personal interviews January 2005. 2 Ashfaq Ahmed, "UAE Nationals in Private Sector Miniscule - Study," GulfNews (June 7,2004). Harrison; Nick Meo, "How Dubai, the Playground of Businessmen and Warlords, Is Built by Asian Wage Slaves," The Independent (March 1,2005). Ahmed. 5 Meo. 6 Personal Interviews January 2005. ceilings, marble bathrooms outfitted with Jacuzzis, and personal butlers.' In addition to serving as a popular tourist attraction, this hotel has given the city its own unique icon.

The image of the is ubiquitous in Dubai and can be found everywhere from souvenir key-chains to license plates.

Dubai9s other projects are perhaps even more audacious. The Palm Island real estate developments consist of two man-made islands shaped like palm trees.8 When finished, both palms will contain about 3,000 homes and 40 luxury hotels, as well as amusement parks and other tourist attraction^.^ In addition, construction has begun on

"," a series of 300 islets laid out to resemble a map of the world. These man- made islands will also offer tourists beach real estate and extensive opportunities for leisure.1° Finally, the emirate has begun work on a structure that is set to become the world's tallest building, the Burj Dubai. The exact height of this edifice is a closely- guarded secret. ''

Another facet of Dubai that visitors quickly take note of is the city's shopping- oriented culture. The city contains numerous malls, many of which offer stand-alone outlets for upscale brands such as Prada, Versace, and Dolce & Gabbana.12 In addition to the city's plethora of malls - including the world's biggest, which is currently under construction - the city annually hosts the Dubai Shopping ~estiva1.l~The festival, which has been running for the last ten years, has used intricate marketing schemes, promotions,

7 Scott Macleod, "Dubai's Oasis," Time (January 26,2004). For images of the hotel see the Appendix. 8 Jefkey Sampler and Saeb Eigner , Sand to Silicon (London: Profile Books, Ltd., 2003) 15-17. For an image of one of the Palms, see the Appendix. 9 Sampler and Eigner 20. 10 Jim Krane, "Latest Luxury Trend: Man-Made Persian Gulf Islands," The Associated Press (February 27, 2005). 11 Sampler and Eigner 1; Jim Krane, "Dubai Tower to Bring World's Tallest Structure to Middle East," The Associated Press (March 30,2005). 12 Tarek Atia, "Everybody's a winner," Yale Global Online (February 9,2005). l3 Ibid. and sales to attract over two million people per year since 2~2.'~This aggressive celebration of international consumerism has come to define Dubai9s cult~re.'~Indeed, the festival's slogan, "One World, One Family, One Festival" suggests a ruling ethos that is enthusiastically willing to embrace the more materialistic aspects of globalization.'6

Although Dubai's gaudy development projects and commercial spirit may be a curiosity for visitors, this embrace of Western-style entertainment and lifestyles has irritated some citizens.17 VVhile Dubai's rulers have clearly demonstrated a willingness to introduce globalizing forces into their society, some nationals in the emirate are less liberal and feel that the pace of change has been too fast.'' Indeed, only 40 years ago the emirate's economy was based predominmtly on gold hradirrg and fishing. lg During this period, people lived much more simply, with a greater emphasis on tradition and Islam.

Some nationals are concerned about the loss of this way of life that the shift toward greater globalization has caused.20 For example, commentators have observed that calling Ramadan in Dubai "commercialized" is to ""politely but grossly understate the case9' due to the proliferation of marketing and promotions during this traditional, Islamic holiday.21 Furthermore, some nationals feel that the government has gone too far in its desire to cater to the demands of Westerner tourists and expatriates. This sentiment is not

l4 Ibid; Sampler and Eigner, 17-18. 15 Atia. 16 Christopher M. Davidson, The UnitedArab Emirates: A Study in Survival (Boulder: Lynne Rienner Publishers, Inc., 2005) 252. 17 Harrison. 18 Personal Interviews January 2005. l9 Sampler and Eigner 7-8. 20 Davidson 262-263. 21 Harrison. hard to imagine given the fact that the government has prohibited calls to prayer at the

Jumeirah Mosque because of complaints from Europeans living nearby.22

Another issue is that many expatriate, south Asian laborers in Dubai are unhappy with life in the emirate. Although they have voluntarily come to Dubai in the hopes of making money, they often experience grave difficulties upon arrival. Once they sign work agreements, they lose nearly all of their rights.23 Predominantly male, these workers toil long hours, six days a week. They live in cramped dormitories in work camps on the outskirts of the city or in the neighboring emirate of ~harjah.~~If they try to protest about their living conditions or unpaid wages, they are branded as

'troublemakers' and are summarily deported.25 As a result of this dynamic, workers earn enough to send money home to their families, but most are not happy with life in ~ubai.~~

Even though they have been responsible for building up the city, they are reportedly banned from its fancy shopping malls and resta~ants.~~Combined with the sentiment of many citizens described above, it is evident that there is a layer of discontent beneath

Dubai's glitzy, cheerful exterior.

Despite this undercurrent, it is clear that Dubai's leaders have fostered a general sense of calm among both nationals and expatriates within the emirate. Nationals are typically satisfied with their rulers because the government has provided them with a generous welfare system that includes free or subsidized education and healthcare, as

22 Personal Interviews January 2005. 23 Meo. 24 Ibid; Prerna Suri, "Over 400 Labourers Living in Inhuman Conditions in Camp," Khaleej Times (April 5, 2005). 25 Ibid. " Personal Interviews January 2005. 27 Meo. well as a high likelihood of government As a result, there is no domestic opposition movement, despite lingering resentment in some quarters over globalization's

spread.29 Furthermore, many analysts argue that the expatriate workforce is typically docile because these workers have come to Dubai to make money. As long as they continue to do so, they will not become a threat. Furthermore, although blue-collar workers may be unhappy with their conditions, they will likely remain tranquil because they know that the consequences of dissent are deportation and income losses.30

Although the authoritmian nature of Dubai's regime has clearly led to a lack of political space for the grievances described above, Dubai's leaders have still created a development outcome that is quite unusual for the Persian Gulf. It stands out because of its liberal social attitudes, its sustained political stability, and its economic dynamism.

Inside Dubai, expatriates can openly wear western styles of dress, and the consumption of alcohol is widely permitted, in contrast with Saudi Arabia, a different regional extreme.

There, religious police enforce rigid social laws, even among expatriate^.^' Unlike neighboring countries, there are no violent domestic opposition movements in ~ubai.~~

Furthermore, power transitions have been smooth within the U.A.E. government at both

28 Davidson 294. 29 William A. Rugh, "The United Arab Emirates: What Are the Sources of lts Stability?" Middle East Policy (September 1997). 30 Anh Nga Longva, 'Keeping Migrant Workers in Check: The Kafala System in the Gulf," Middle East Report (Summer, 1999). 3 1 "Arabia's Field of Dreams," The Economist (June 29, 2004); Fareed Zakaria, "The Saudi Trap," (June 28,2004). 32 In Bahrain, Kuwait, and Saudi Arabia there are significant domestic, Islamist opposition movements. In Saudi Arabia Islamist opposition is so strong that the government regularly suffers from armed terror attacks. For more information see Michael Herb, All in the Family: Absolutism, Revolution, and Democracy in the Middle Eastern Monarchies (Albany: State University of New York Press, 1999) 173- 175; Mohammed Almezel, "Bahrain Court Postpones Trial of Islamists," GuZfNews (December 7,2004); "Kuwait Detains 32 Suspects Lirrked to Gun-Battles," Khaleej Times (March 10, 2005); Wlaled Al-Awadh, "Most Wanted Terrorists Killed," Arab News (April 6,2005). the emirate and federal level, in contrast with regional neighbors.33 Finally, Dubai's economy has in general outperformed its peers in terms of both sustained growth and

An examination of this development outcome is important because it is one which has defied conventional wisdom. Given regional trends, analysts would not have predicted that Dubai's development plan would have yielded such a high degree of economic diversification and political stability. For this reason, understanding why

Dubai has succeeded in achieving its development outcome while other states have failed to do so has important implications for both political theory and policy. Understanding what Dubai did to achieve its particular outcome can shed light on the strengths and weaknesses of the relevant theories. A thorough study of Dubai's approach to development can also illuminate specific policies that emerging states should or should not emulate in the course of their own development schemes.

As a foundation for the present analysis, the first chapter will examine the regional literature that would have failed to foresee Dubai's development outcome. The first body of literature is 'oil curse theory.' The central claim of this theory is that states that earn their incomes from the external sale of non-renewable, hydrocarbon resources

33 The other members of the U.A.E. federation are Abu Dhabi (the political capital), Sharjah, Ajman, Umm al-Qaiwain, R'as al-Kaimah, and Fujairah. While the ruling families of each state maintain absolute within their territories, the U.A.E. federal government has authority over foreign policy and defense issues for all seven emirates. For a recent example of a calm and orderly power transition in the U.A.E. see "Supreme Council Elects New President," GulfNews (November 4,2004); Shireena Al-Nowais, "Zayed Secured a Lasting Unity," GuIfNews (November 9,2004); "Bypassed Brother Pledges Loyalty to New UAE President," Arab News (November 7,2004). For examples of coups in Qatar and Oman see Herb 116-126, 150. 34 For Dubai, see Afshin Molavi, "'City on a Hill," The New Republic (February 9,2004). For regional examples see Energy Information Administration, Saudi Arabia Country Analysis Brief http://www.eia.doe.gov/emeu/cabslsaudi.html; Yahoo International Finance Center, Oman Country Fact Sheet, 2005, h~://biz.yahoo.com/ifc/om.html;Yahoo International Finance Center, Qatar Country Fact Sheet, 2005, http://biz.yahoo.corn/ifc/qa.html typically experience poor GDP growth, political instability, and political repression. The second principal school of thought that seeks to explain poor development in the Persian

Gulf region emphasizes cultural factors, more specifically the region's Arab ethnicity and its Muslim religious identity. Although there is debate within this literature, these authors typically claim that cultural characteristics have led to the region's internal political unrest, its repressive atmosphere, and its economic malaise.

Following this literature review, the second chapter will present an overview of regional development trends and a brief history of Dubai's development trajectory. The regional overview will examine the social, political, and economic forces that characterize the region's regimes. The general observation will be that regional regimes are oil-dependent, economically stagnant, repressive, and politically unstable, although nearly all of them have improved their citizens' living standards through extensive welfare systems. The section dealing with Dubai's history will review the state's experience with British colonialism, the founding of the United Arab Emirates, and the details of its subsequent development path. These results will demonstrate that the state has experienced sustained political stability, economic growth, and diversification, despite several shortcomings.

The third chapter will build on this empirical understanding of regional trends, as well as the previously discussed literature, by presenting a comprehensive argument capable of explaining Dubai's particular development outcome. Above all, it will emphasize that the willingness of Dubai's rulers to pursue greater integration with the international economy, thereby taking advantage of structural changes that have occurred in the last twenty years, has contributed to the state's particular development outcome. This analysis will emphasize the agency of a state's rulers in determining its development path. Subsequently, this thesis will argue that there are several other contributing factors that have led to Dubai's development results. The first is that Dubai's limited oil supply has played a significant role in spurring its leaders toward a serious diversification strategy. The second significant factor is that Dubai's elites have consistently demonstrated sustained unity in carrying out their development strategy. In addition,

Dubai's relationship to the U.A.E. within the political structure of the federation has also contributed to this cohesion. The final noteworthy component is the government of

Dubai's ability to deliver high living standards to its citizens, which is strongly associated with its leaders9 distinctive development strategy and political cohesion.

In the fourth chapter, three comparative cases will be introduced for the purpose of further drawing out the factors which have led to Dubai's development outcome. The first such case will be Saudi Arabia. It is appropriate because while it shares many of

Dubai's characteristics, such as its Arab ethnicity, its Islamic religion, its monarchic, authoritarian political system, and its oil rents, it has had much higher degrees of politically instability and a comparatively weak economy. To control for this state's large size in relation to Dubai and the U.A.E., an examination of Qatar will follow.

Although it has not been as unstable as Saudi Arabia, and in fact has begun serious steps toward diversification in the last ten years, it has not yet reached Dubai9 s level of development. The final case that will be studied is Brunei. As a small state sharing

Dubai's Islamic religious identity, its authoritarian and monarchic political structure, as well as its oil rents, it will be relevant because its government has had substantial difficulties in diversifying its economy away from hydrocarbon exports. Following the four chapters described above, this thesis will conclude with a section that examines the strengths and weaknesses of Dubai's development outcome.

This analysis will provide the foundation for an assessment of whether or not Dubai can be viewed as a development model. Ultimately, this thesis will assert that although ruling elites in Dubai have fostered a dynamic economy and prolonged political stability, their strategy cmot be considered a model for sustainable development in the long term because its political structures are defined by authoritarimism. This fundamental aspect of Dubai's development is not one that should be emulated given autocracy's inherent lack of safeguards against a shift from benevolence to tyranny on the part of its rulers.

Still, there are many short-term lessons that can be learned from Dubai's development such as its leaders' recognition of the opporhunities that can stem from greater integration with the global economy, as well as the proper role of government for states seeking rapid development. These conclusions will hopefully be relevant to policy makers in other emerging states who seek to learn more about what policies they should consider in the pursuit of their own development objectives. Persian Gulf Development Literature

As noted in the Introduction, most of the Gulf monarchies have generally exhibited much weaker macroeconomic records and substantially more political instability than Dubai. To explain the region's comparatively shaky development, political scientists offer several theories. Oil curse theory places the blame for development deficiencies on the Gulf states' reliance on unearned oil rents. Proponents of this theory argue that these rents negatively distort economies and produce political insecurity. Another popular school of thought emphasizes cultural factors to account for regional development patterns. This body of literature uses the Gulfs Islamic religious character and its Arab ethnicity to explain regional setbacks. h examination of these theories will be useful because they will provide the necessary context for a study of

Dubai's development, which has so far diverged significantly from most predictions based on this literature.

The Oil Curse

The principal argument of oil curse theory is that government oil revenues harm the development of a state's economy and political system.35These negative ramifications stem from the fact that oil revenues arrive in the form of economic rent.

Defined as "the difference between the market price of a good or factor of production and its opportunity cost," rents can distort economies when their owners reap tremendous

35 Terry Lynn Karl, The Paradox of Plenty (London: University of California Press, 1997) 17. benefits without any concurrent increases in efficiency or investment.36 In the case of oil producing states, governments can receive substantial increases in revenue simply based on favorable price fluctuations in world markets. Hazem Beblawi and Giacomo Luciani claim that this situation typically has a negative impact on GDP growth over the long term because many of the incentives to productivity are removed as the state begins to distribute its oil wealth to its citizens.37 These funds are frequently allocated as public goods such as infrastructure and healthcm-e.38 Since citizens do not have to pay for these goods with , they learn that they will receive them whether or not they work hard.39

As a result, when oil revenues swell state coffers, the state shifts from being a

"production state9' to an "allocation state," thus creating a national mentality characterized by a break in the work-reward causation.40

In addition to negative economic effects, proponents of oil curse theory argue that there are also dangerous political consequences when state budgets are dominated by oil rents. These outcomes can manifest themselves in two ways. The first is political instability." Although oil money can initially pacify a rentier state's population, price fluctuations can dramatically decrease a state's oil revenues, thus leading it to subsequently diminish state spending." Regardless of price changes, such high levels of government spending are usually untenable in the long term anyway, due to the depletable nature of the resource. As a rentier state's oil reserves sun out, it typically

36 Alan Richards and John Waterbury, A Political Economy of the Middle East (Boulder: Westview Press, 1996) 16-17. 37 Hazem Beblawi and Giacomo Luciani, eds, The Rentier State (New York: Croom Helm Ltd., 1987) 9-10, 52. 38 Jill Crystal, Oil and Politics in the GuIJ.' Rulers and Merchants in Kuwait and Qatar (Cambridge: Cambridge University Press, 1990) 10-11. " Beblawi and Luciani 52-53. 40 Ibid. 4 1 Karl 17. 42 Karl 182-183. raises taxes on its citizens in order to maintain expenditures." This shift to taxation can cause instability because the institution of taxes on a population unaccustomed to paying them can be quite difficult.44People often react violently to such changes as is evidenced by the political turmoil in Venezuela that followed its declining oil revenues in the

1980s.~'

According to oil curse analysts such as Michael Ross, the other harmful political consequence of oil revenues is repression." This effect can occur for a variety of reasons. Initially, it can take place when a rentier state's external oil sales are sufficient for fulfilling its budgetary needs. At this point, the state becomes free from any obligations to create a social contract with its citizens in which political rights are exchanged for taxes." Instead, rentier states frequently create a new bargain in which access to the states' goods and services is exchanged for the political submission of its citizenry." As the state's revenues continue to grow, it can also increase its military spending, thereby ensuring its monopoly on the use of coercive force and further strengthening its grip over its people.49 Furthermore, once oil revenues begin to dry up, the loss of free or subsidized public goods may prompt citizen unrest, causing the state to respond by utilizing its powers of coercion to quell dissent.50

The oil curse literature provides a useful context for the present study of Dubai because although scholars classifj7 Dubai as a rentier state, it has not experienced many of

43 Ibid. 44 Ibid. 45 Karl 1 82-183. 46 Michael L. Ross, "Does Oil Hinder Democracy?" World Politics: 53.3 (2001); Marina Ottaway, "Tyranny's Full Tank," (March 3 1,2005). 47 Beblawi and Luciani 73. 48 Davidson 294. 49 Ross. 50 Karl 128. the above trends. This outcome is surprising because some scholars view the U.A.E., and by extension, Dubai, as "the world's purest example of a rentier state." This evaluation stems from the country's substantial oil rents, the presence of an enormous welfare state, and its currently pacified national populace.51 In spite of this assessment, Dubai's GDP has been steadily rising.52 1n addition, oil as a percentage of GDP has been decreasing as

Dubai has diversified into other industries such as tourism, mass communications, business, and finance.53 Furthermore, Dubai appears to be politically stable as a result of this economic growth and diversification. While Dubai is by no means democratic, the atmosphere inside the country is not extraordinarily repressive, especially when cornpaxed to other regimes in the region.54 Indeed, there are signs that Dubai has become more liberal socially given its tolerance for Western lifestyles within its borders. Despite these potentially liberalizing developments, it is unlikely that the emirate's rulers will grant their citizens more of a political voice in the short term, given that the state does not yet need their taxes. Still, Dubai's development stands out because it has not displayed economic stagnation and political instability as supporters of the oil curse theory would have predicted, though it may still be a rentier state.

Arab and Islamic Cultural Factors

Dubai's outcome has also defied the expectations of analysts who use cultural factors to explain regional development trends. In particular, these scholars pinpoint the

Gulfs Islamic religious identity and/or its Arab ethnicity as the source of its weak

Davidson 294. 52 Dubai Municipality Statistics Center, Statistical Yearbook - Enairate of Dubai (2003) 434. 53 Davidson 1 59. 54 Davidson 69; Rugh. For more detail see the second chapter. development. Some of these analysts argue that Muslim attitudes and Arab traditions are

simply not conducive to economic growth. Others claim that Islam as a religion and the overall Arab 'mind' are inherently bellicose, thus causing their people to be violence prone. They also contend that these cultural aspects have led Muslims and Arabs toward political repression.

An example of the argument that Muslims do not have economic attitudes favorable for growth can be found in a recent working paper published by the National

Bureau of Economic Research. This study focused on the relationship between different religions and economic perspectives. They found that "Christian religions are more positively associated with attitudes conducive to economic growth, while religious

Muslims are the most antim~ket."~~The authors of the study reached this conclusion by analyzing responses to statements and questions such as "Competition is good"; "Private ownership should be increased?" and "Is it justified to accept a bribe?"56 Their results point to a negative correlation between Islam and economic attitudes that are propitious for sustained growth.57

These scholars often place the blame for poor economic development in the

Islamic and Arab world on the traditions and practices of the cultures themselve~.~~

Supporters of this position contend that Muslim societies do not foster creative thought since Islam prohibits doubt and the challenging of traditions among its believers.59 This sentiment is reinforced by analysts who argue that Islamic "fatalism9' endows its

55 GU~SO,Luigi, Paola Sapienza, and Luigi Zingales, "People's Opium? Religion and Economic Attitudes," National Bureau ofEconomic Research Working Paper Series (2002). " Ibid. j7 Ibid. 58 John L. Perkins, "Human Development in the Arab World: Islam Is Blocking Progress," Free Inquiry (April-May 2004). 59 Ibid; "Self-Doomed to Failure - Arab Development," The Economist (July 6,2002). adherents with a distaste for risks and entrepreneurialism which in turn decreases

Muslims9 proclivity for innovation." Similarly, scholars such as Raphael Patai argue that

Arab culture has developed a mindset that is not open to change because of its traditi~nalism.~'We argues that this contempt for change has hindered development by fostering a widespread reluctance to embrace Western technology in the Arab

Many of these scholars also argue that the region's practice of subordinating women has contributed to its dismal economic situation.63 For these analysts, the overall result of these factors is that Islamic and Arab traditions have been detrimental to economic development. 64

Beyond economic growth, many analysts claim that Islamic and Arab societies are also prone to higher degrees of political violence than other cultures, both externally and internally. Samuel Huntington for example has reached this conclusion about Islam by examining data on ethnopolitical conflicts during the early 1990s. He found that during this period there was a higher degree of intercivilizational wars as well as internal violence within the Islamic His contention therefore is that ''Islam's borders are bloody, and so are its To explain this alleged propensity for violence,

Huntington offers several ideas. He argues that Islamic societies are more militaristic than other civilizations because Islam is a more violent religion.67He points out that

60 Perkins. Raphael Patai, The Arab Mind (Long Island City: Ratherleigh Press, 1976) 294-296. 62 Ibid. 63 Perkins; Development Programme, The Arab Human Development Report 2002: Creating Opportunities for Future Generations (New York: United Nations Publications, 2002) 27-28. 64 Ibid. 65 Samuel P. Huntington, The Clash of Civilizations and the Remaking of World Order (New York: Simon and Schuster, 1996) 257-258. 66 Ibid. 67 Huntington 263. Mohammed himself was a fierce warrior, in contrast with Jesus Christ and ~uddha." He also claims that Islamic countries are less able to assimilate minorities into their societies as a result of the absolutist nature of their religion.69 The consequence is that there is a higher degree of internecine conflict in Islamic states." He also argues that the lack of a central, core state in the Islamic world has contributed to the violent nature of the region because no one state can successfully arbitrate conflicts, whether between Muslims and non-Muslims or among Muslims them~elves.~~Furthermore, he states that the nature of the present demographic shift in the Islamic world, in which rising birthrates have created a large, frequently unemployed youth population, has contributed to the region's political instability and violence.72

Scholars such as Raphael Patai make a similar argument regarding Arab culture.

His claim is that since Arab culture places a large amount of emphasis on the family,

Arabs have a very keen sense of honor.73 As a result, any slight to a family member is taken very seriously and proportional retaliation is often considered appropriate in order to defend a family's honor.74 Disputes between individuals can thus rapidly expand into larger conflicts by drawing in other family member~.~"n this way, Patai claims that

Arab culture has contributed to a high proclivity for violence.

Many scholars who hold Islamic and Arab cultural factors responsible for the region's development deficiencies also contend that these societies typically exhibit large amounts of political repression. Bernard,Lewisargues that the autocratic political

68 ibid. 69 Huntington 264-265. 70 Ibid. 71 Ibid. 72 Ibid. 73 Patai 222-224. 74 Ibid. 75 Ibid. structure of states in the Islamic world has been strengthened in the modem era rather than weakened as it has in the To explain this phenomenon he points to the

comparatively lower degree of secularism in Muslim states.77 Lewis states that while there has been a separation between religious authority and political power in the West since the time of Christian Rome, there has been no corresponding separation within

slam.^^ This sentiment is echoed by Hutington who notes that "In Islam, God is

Nevertheless, there is disagreement among scholars who perceive a correlation between Islam and the region's authoritariaism. Steven Fish for example agrees that there is a link between Islam and autboriwianism but unlike Lewis and Huntington, he does not identilji Islam as a causal mechani~m.~'We breaks down this line of reasoning by arguing that the distinction between church and state is not as deep in majority

Christian countries as many believe. He points out that as recently as 1995 many

European democracies with a sizable Lutheran majority had long-standing state ch~rches.~'Furthermore, he contends that the lack of a dual religious and political structure in the Islamic world has been exaggerated given that regimes such as and

Afghanistan under the are not character is ti^.'^ Instead, he argues that the predominant subordination of women in Muslim societies explains the connection between Islam and a~thoritarianism.~~In his view the oppression of women contributes

76 Bernard Lewis, "Islam and Liberal Democracy: A Historical Overview," Journal of Democracy (April 1996). 77 1bih. 7x bid. 79 Huntington 70. 80 Steven Fish, "Islam and Authoritarianism," World Politics (55.1 2002). " Ibid. *'Ibid. '"bid. to authoritarianism because "oppression as a habit of life blocks the oppressor's own advancement and freed~m."'~However, he does not blame Islam itself for this situation but instead argues that it is a question of interpretation since female subordination does not have a strong scriptural f~undation.~~

Other scholars focus on Arab political culture to explain the region's authoritarianism. Alfred Stepan and Graeme B. Robertson find that in contrast to non-

Arab Muslim countries, which perform well in terms of competitive elections, Arab countries exhibit a substantially greater amount of political repression.86 They conclude therefore that rather than Islam, Arab political culture explains the region's authoritarian bent.87 In particular, they pinpoint the relatively recent and arbitrary borders of Arab states." These borders, drawn haphazardly by colonial powers, have created weak nation-state identities that have brought about internal instability and repressive responses.89 In addition, they hold pan-Arabism responsible for repression since it has destabilized internal politics within Arab states by further weakening nation-state id en ti tie^.^' This movement, which is strongly linked to the Arab-Israeli conflict, can hinder political development because when Arabs focus their energies on Arab nationalism, they become distracted from their own states7 concern^.^'

Although this regional Arab-Islamic cultural literature would have predicted economic stagnation and political instability for Dubai, given the Islamic and Arab

g4 Ibid. s5 Ibid. 86 Alfred Stepan with Graeme B. Robertson, "An 'Arab' more than 'Muslim' Electoral Gap," Journal of Democracy (14.3 2003). 87 Ibid. Ibid. 89 Ibid. Ibid. 91 "Self-Doomed to Failure - Arab Development." identities of its rulers and citizens, the emirate has not had this experience. In terms of its

economy, it has displayed instead consistent growth and movement toward greater

modernization. While it is true that a significant percent of Dubai's workforce is non-

Muslim, the city-state of Dubai and the U.A.E. as a whole are both governed by

Thus its economy, which is by no means fully free market, is in part guided

by Muslim economic attitudes .93 Furthermore, although Dubai's rulers are conscious of the need to preserve traditional culture, they have not been closed to new ideas and have instead embraced many aspects of Western culture and technology wholeheartedly.

Indeed, the Maktourn family supported the selection of Shaykh Mohammed A1 Maktoum as Dubai's Crown Prince in 1995 precisely because of his demonstrated willingness to aggressively lead's Dubai's modernization and development program forward.94 As a result, Dubai's economic performance does not conform to the expectations of the Arab-

Islamic literature which would have predicted that the traditions and psychologies of these cultures would hinder growth.

In addition, Dubai has not experienced much political violence since joining the

U.A.E. in 1971. The country has not fought in any major conflicts and has only ever been seriously threatened during Iraq's invasion of Kuwait in 1991 .95 Internally, there has been persistent calm in the emirate of Dubai and a very low level of domestic unrest

92 Given that over 84.5 percent of the workforce is Asian, it is difficult to determine what percentage of the workforce is Muslim since they could be Hindu, Sikh, etc. Still, it is very plausible that a significant plurality of these Asians are Muslim given that pro-Muslim riots started by Asian workers occurred in A1 Ain, an enclave of Abu Dhabi, following a Hindu mob's destruction of a mosque in the Indian city of Ayodhya in 1992. See Davidson 269 for more information. 93 On a scale of 1 to 5, with 1 being the most free, the U.A.E.'s economy was only rated 2.68 on the 2005 Index of Economic Freedom published by the Heritage FoundationlWall Street Journal. For more information see Marc A. Miles, Edwin J. Fuelner, and Maria Anastasia O'Grady, 2005 Index of Economic Freedom (Wall Street JournallHeritage Foundation: 2005). http:l/www.heritage.orglresearch/featureslindex/index.cfm 94 Davidson 101, Personal interviews January 2005. 95 Joseph A. Kechichian, ed., A Century in Thirty Years: Shaykh Zayed and the United Arab Emirates. (Washington: The Middle East Policy Council, 2000) 192-1 93. in the other emirates compared with the region in general.96 This result is a clear outlier to the trend of Muslim and Arab violence described by analysts such as Huntington and

Patai.

Furthermore, while Dubai's government is clearly authoritarian, it has not fostered a repressive internal atmosphere, and social liberalism is permitted. Beyond allowing expatriates to drink alcohol and wear bikinis, small steps have been taken to promote the role of national women in the emirate as well. For example, Shaykha Lubna, a University of California graduate and a niece of the ruler of Sharjah, served under

Shaykh Mohammed for several years as senior manager at the Dubai Ports Authority and later, as the managing director of Tejari.com, a local e-government initiati~e.~?In 2004, she was appointed as the first woman minister to the President of the U.A.E.'s ~abinet.~'

In this way, although Emirati women are in general still expected to maintain traditional,

Islamic customs in Dubai7s society,99the state has taken small steps to encourage the participation of women in public life. Since the state has only begun this process very recently, it is too soon to say whether this trend proves or disproves the cultural scholars7 assertion of a clear causal link between the status of women and authoritarianism.

The primary purpose of the preceding discussion of oil curse and Arab-Islamic cultural literature has been to describe some of the major schools of thought that seek to explain development trends in the Gulf. Since these theories are designed to decipher the

96 There have been no violent, opposition movements as in Bahrain, Kuwait, or Saudi Arabia. There has only been one reported coup attempt, which failed in Sharjah in 1997. For more information on the coup in Sharjah see Davidson 99-1 00 and the second chapter for more information on regional political violence. 97 Vijaya George, "Shaikha Lubna A1 Qasimi," Womenone.org, a Khaleej Times community initiative (200 1). http://www.womenone.org/faceslubna04.htm 98 Samir Salama, "Restructuing of Sixth Cabinet Sees First Woman Minister," GulfNews (November 3, 2004). 99 Gina L. Crocetti, Culture Shock! United Arab Emirates (Portland: Graphic Arts Center Publishing Company, 2001) 144-155. region's general political instability and economic weaknesses, Dubai's development results do not fit into their conceptual frameworks. As the second chapter will demonstrate, Dubai has instead experienced a high degree of political stability and a dynamic economy. Ultimately, a thorough understanding of Dubai's development history will provide the background necessary for establishing an explanation of why its particular outcome has occurred. Regional Ovewiew and Development Histoly

To fully understand Dubai's development, it will be necessary to examine the regional and historical contexts within which it occurred. In the Persian Gulf, there are many similarities among the Arab states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the U.A.E. These common trends manifest themselves politically, economically, and socially. In terms of political structures, all of the regimes are authoritarian monarchies with substantial bureaucracies. Fiscally they are predominantly dependent on oil rents.

In addition, many of these states exhibit high degrees of political repression and instability. Economically, these Arab monarchies have all pursued state-led growth strategies based on oil and natural gas exports. Neariy all of these states have failed to significantly diversify their economies and have not achieved substantial integration into the global economy outside of the hydrocarbon sector. Socially, these states offer a wide range of services to their citizens, such as free or heavily subsidized healthcare and education. Despite these benefits, there are significant social problems in the region, such as rapid population growth, widespread unemployment, and an influx of foreign labor. After describing these regional political, economic, and social trends, a look at

Dubai9s recent history will demonstrate that its development stands out. It has exhibited sustained political stability, consistent growth, and a comparatively large amount of economic diversification. Understanding the ways in which Dubai's modern history diverges from regional development trends will be a precondition for developing an explanation of why this process has occurred. The Arab monarchies of the Gulf are all authoritarian in nature. Gove the region typically impose their will through large, coercive apparatuses. loo For example, in Oman, the sultan maintains absolute power and rules by decree."' When confronted with a domestic insurgency in 1970 to 1975, he used the state's military might to crush it.lo2 In Saudi Arabia, the government argues that it derives political legitimacy from the fact that citizens can confer with government officials in a rnajbis, or consultative ~ouncil."~Direct political participation is extremly limited.'04 Not only is there very little political participation available to citizens in Saudi Arabia, but there is also a high degree of social repression. The goverment has established mles barring women from being shown on television, as well as the use of any form of music in the media.lo5 Furthermore, these strict rules are enforced by religious police."6 While none of the other Arab states in the Gulf are as repressive as Saudi Arabia, they nevertheless do not allow their citizens many political rights or civil liberties. This pattern is clear when one examines Freedom House's ratings of these countries. From 1994 to 2002 all of these countries except Kuwait were rated as "not free."lo7

In addition to repression, another widespread feature of regimes in the region is political instability. Coups, rocky succession struggles, and Islamist opposition movements are common, Saudi Arabia is by far the most turbulent regime, having

loo Cause 68-69, Abbas, Abdelkarim, ed., Change and Development in the Gulf(London, MacMillan Press, Ltd., 1999) 238-240. 101 Freedom House, 2003 Country and Territory Reports: Oman. http://www.freedomhouse.orglresearch/fi-eewor1d/2003/countryrat~m 102 Cause 68-69. 'Ohl-~asheed80 -86. 104 Freedom House, 2003 Country and Territory Reports: Saudi Arabia. http://www.freedomhouse.org/research/~eeworld/2003/countryrat~ 105 Fareed Zakaria, "The Saudi Trap," Newsweek (June 28,2004). '06 Ibid. '07 Freedom House, 2003 Country and Territory Reports: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates. http://www.freedomhouse.org/research/freewor1c8/2003/countries.htm suffered a dramatic increase in bloody opposition attacks in recent years.108In addition, many analysts foresee a violent power struggle following the death of King Fahd, whose health has been deteriorating in recent years.109The other Gulf states have also experienced serious political instability. For example, Qabus, the current ruler of Oman, overthrew his own father in a coup in 1970, while another coup attempt against him was thwarted in 1994.'" Similarly, Qatar experienced a coup in 1995 in which the ruler,

Khalifa, was also overthrown by his own son.'ll Furthermore, nearly all of these states have experienced problems with Islamist terrorist movements as is evidenced by the numerous attacks that have been peqetrated and foiled during the last two decades.'12

Economically, the Arab Gulf states have all pursued hydrocarbon-export-led growth strategies. The goal of these top-down development schemes has been "to acquire revenue from mineral exports to create an industrial base for sustained development after the natural resource is e~hausted.""~In short, all of these states have sought to use their resource wealth to build an economy that will ultimately no longer be overwhelmingly concentrated in the hydrocarbon sector. However, unlike in Dubai, most of these states have failed to reach this diversification goal. For example, in Oman oil sales for 2003 still represented more than one third of GDP and 80 percent of export

114 earnings. In Qatar, oil and gas revenues comprised one half of its GDP and about 90

'08 Daryl Champion, The Paradoxical Kingdom: Saudi Arabia and the Momentum of Reform (New York, Columbia University Press, 2003) 142-143,278-286; Peterson, Saudi Arabia and the Illusion of Security (New York: Oxford University Press, 2002) 6; Stanley Reed, "Shaking the Timbers of the House of Saud," Business Week (May 17,2004). lo9 Al-Rasheed 186-187. "O Herb 150, 173-1 75, 178-179. 111 Herb 116 -126. ll%lerb 173-175, 178-179, Gause 68-69. 113 Alan Richards and John Waterbury, A Political Economy of fhe Middle East (Boulder: Westview Press, 1998) 23-24. 'I4 Yahoo International Finance Center, Oman Country Fact Sheet, 2005, http://biz.yahoo.com/ifc/om.html percent of export receipts in 2003."~ Indeed, even Kuwait, which has had a significant amount of success diversifying away from oil exportation, has only managed to diversify within the oil ind~stry."~While Kuwait International owns oil refineries in

Western Europe and is a direct supplier for a large number of European retail outlets, oil still makes up about 40 percent of the country's GDP. In this manner, although Kuwait's government now controls more downstream operations and distribution networks, its economy is still heavily geared toward the petroleum industry. The result of this lack of international competitiveness in the non-hykocabon sector is that Gulf exports have been unstable while real incomes in many countries have remained low or decreased markedly horn 1980 to the present. "7

Furthermore, the Gulf economies suffer from a lack of foreign direct investment

(FDI). As Table A. of the Appendix indicates, FDI as a percentage of GDP is very low in the Arab world compared with other regions. This factor has hurt the Gulf economies because they have not been able to take advantages of the benefits that accompany

FDI.~'~Typically, high FDI enhances efficiency as a result of the technology transfers and increases in competition that accompany it.''' All of these statistics demonstrate that although the Arab Gulf states still receive significant earnings fiom oil sales, in general their economies suffer from a lack of diversification, international competitiveness, and broad-based integration with the global economy.

115 Yahoo International Finance Center, Qatar Country Fact Sheet, 2005, http://biz.yahoo.com/ifc/qa.html 116 Crystal 96; Energy Information Agency, United States Government, Country Analysis Briefs: Kuwait (March 2004). http://www.eia.doe.gov/emeu~cabsikuwait.html 117 Toby Dodge and Richard Higgott, eds., Globalization and the Middle East: Islam, Economy, Society and Politics (London: Royal Institute of International Affairs, 2002) 109. For more information see Table C. in the Appendix. 118 Dodge and Higgot 98-100. 'I9 Ibid. Despite the economic troubles that plague the region, the Arab Gulf monarchies have all maintained large social welfare systems. Paid for by oil rents, these systems are largely free or heavily subsidized.120They include a range of healthcare services from simple procedures to costly, experimental practices performed abroad. 12' These programs have produced substantial results as infant mortality rates have decreased while life expectancy rates have increased.122In addition, Gulf states have used oil money to improve ed~cati0n.l~~As a result, they have boosted educational enrollment at the primary, secondary, and university levels. 124 1n this way, rulers in the Gulf have used government bureaucracies to concretely improve the lives of their citizens.

Although state welfare programs have had many positive effects for Gulf citizens, there are nevertheless significant social problems throughout the region. To begin with, there has been a tremendous amount of population growth which has produced a particularly large youth population. 12' This trend has contributed to high youth unemployment in many countries by increasing the supply of labor relative to capital.'26

While statistics are often not officially published, the government of Qatar reported that

44.6 percent of citizens, male and female, between the ages of 15 to 24 were unemployed in 1997.127 Surprisingly, there has also been a simultaneous influx of foreign labor into

Gulf states. Although it might seem logical for companies to hire some of the unemployed youth in these countries when there are labor shortages, in fact, companies

120 Gause 65-67. 12' Ibid. '22 Ibid. 123 Gause 64-65. 124 Ibid. 125 Richards and Waterbury 77, Gause 150. Richards and Waterbury 94. 127 United Nations Development Programme. prefer to hire foreign labor.12' This tendency stems from the lower salaries and benefits that these workers require. In addition, they are often willing to work in positions that citizens typically look down upon.12gThe result of this shift to foreign labor has been that approximately three quarters of the Gulf labor force are expatriates, with Dubai's percentage being even higher.130

This trend has sometimes produced conflict between Gulf rulers and their citizens.

This uneasiness with a large foreign labor force manifested itself during the first Gulf

War when leaders of Kuwait and Saudi Arabia used the crisis as a pretext to expel

Palestinian and Yemeni workers, respectively. Ruling elites in these states felt threatened by the fact that these two groups, from countries supporting the Iraqi side in the war, had linguistic and cultural ties with their own citizens. They feared that they might use these bonds to influence domestic politics. Since then, both countries have welcomed an influx of south Asian laborers who do not share the same cultural links with their citizens.l3l

The above political, economic, and social trends demonstrate that the Arab Gulf monarchies have experienced substantial development problems. Although there have been limited successes, such as improvements in healthcare and education, in general the region has experienced poor development. Governments in these states are typically repressive and unstable while their economies suffer from a lack of diversification and integration into the global economy. Since Dubai is also an authoritxian, oil-exporting,

Arab monarchy, these regional trends would lead one to predict that it would exhibit a

128 Gause 150. 12' 12' Ibid. 130 Abdelkarirn 15 1; Personal Interviews January 2005. 131 Gause 161-162. similar development outcome. Nevertheless, Dubai9sdevelopment performance has been

markedly different from that of its peers in the Gulf.

Dlabai9sDevelopment Wistsv

Due to the increasing importance of Persian Gulf shipping routes in the 1 9th century, from 1820 to 1892 the British signed a series of agreements with Gulf rulers to guarantee their regional supremacy. These treaties, which designated the local Arab shaykdoms as ',' resulted in the signatories9agreement not to enter into any treaties with other foreign powers without British consent. In addition, these documents allowed Britain to control their foreign policies, although local rule still governed internal affairs. Ultimately, the treaties were simultaneously beneficial and disadvantageous for the Gulf monarchies because while they afforded them a high degree of protection,

British hegemony also isolated them.'32

As one of these Trucial States, Dubai resisted the economic introversion which characterized most of its peers. Instead, it developed a reputation as a regional entrepot.133During this period, Dubai's economy flourished as a result of extensive fishing, pearl-diving, and gold-crafting. Its exports of pearls and gold brought in significant quantities of Persian traders as well as many others from around the region.134

As a result, Dubai developed a reputation for international commerce long before its first free trade zone was established in the 1980s.

As British power declined on a global scale following the Second World War, it began to decrease its military presence in the Persian Gulf, especially during the late

132 Davidson 33-35; Sampler and Eigner 8. 133 Sampler and Eigner 8. 134 Ibid. 1960s.'" Although the Trucial agreements were still in effect, by January 1968 the

British government had signaled its intention to terminate its treaty relations with these

co~ntries."~To maintain collective security, the British strongly encouraged the seven emirates, along with Qatar and Bahrain, to fonn a political unj~n.'~~Many British and

Arab administrators during this period considered such a federation to be a logical step for the Trucial States.13' In the four years preceding British withdrawal in 1971, the Gulf monarchies held a series of negotiations to discuss the form that their federation would take. At the same time, British advisors assisted Arab administrators in the creation of state infrastructure through the Tmcial States Development Office and Development

~und.'~'Although Qatar and Bahrain opted not to join the federation, out of a hesitancy to sacrifice their sovereignty, six of the seven remaining emirates attained independence as a federal state on December 2, 1971, with R'as al-Mhaimah joining the following year.

The federation's provisional Constitution, adopted in 1971, became the foundation for this new state - the United Arab Emirates. In addition to designating Abu

Dhabi as the country's capital, it describes the separation of powers between individual emirates and the country's federal government. It stipulates that while the national government has jurisdiction over foreign policy and defense, the rulers of each emirate retain absolute authority within their states. In addition, the Constitution outlines the organs of the federal system and the role of the country's President. The Supreme

Council of the Federation (FSC) is the state's highest authority and is comprised of the rulers of each emirate. According to the Constitution, the FSC has executive powers,

135 Davidson 45. '" 61 bed 12 1. 137 Ibid; Davidson 45-47. 1.38 Davidson 45-47. '""1 Abed 127. powers of legislation, and the ability to select the country's President. As the state's chief executive, the President is responsible for signing laws and decisions endorsed by the FSC and is also the Commander-in-Chief of the Armed Forces. Below the President and the FSC is the Council of Ministers, an organ charged with drafting federal laws and overseeing their implementation. In addition, there is a 40-member Federal National

Council (FNC) whose members are selected on a fixed basis by each emirate's r~1ers.l~~

Although designed to resemble a parliament, this body does not possess any significant authority. Its primary function is to provide consultation on legislative issues. Finally, the U.A.E. has a Federal Judiciary with a Supreme Court that delivers judgments on inter-emirate disputes and the constitutionality of federal laws. This provisional

Constitution was made permanent by the FSC in 1996. l4'

Shortly before Dubai's accession to the federation, the state's rulers had begun an economic program designed to build on their tradition of international trade described above. They decided to focus on developing a base for future economic growth and diversification by investing in macro-infrastructure projects.'42 Since oil revenues had not yet begun to flow into the emirate, Dubai's ruler, Shaykh Rashid A1 Maktoum, borrowed substantial sums of money from Kuwait in 1960, in order to fund the dredging of the . The result of this risky venture was a dramatic improvement in trading capacity as larger ships could now dock in Dubai. Simultaneously, he authorized the construction of an airport to further modernize Dubai's business ~a~abi1ities.l~~

140 Article 68 of the Constitution states that for the FNC, Dubai and Abu Dhabi will each maintain eight seats each, R'as al-Khaimah and Sharjah will have six seats each, and Umm al-Qaiwain, Ajman, and Fujairah will have four seats each. For inore information see A1 Abed 134-141. 141 Ibid. '42 Sampler and Eigner 22-23. 143 Sampler and Eigner 9-14. After the influx of oil rents that began in 1969, Shaykh Rashid continued this strategy of infrastructure development by greatly expanding Dubai's Port Rashid in the

1970s. He also used oil money to invest in the development of heavy industries such as aluminum ansl desalination plants. These projects constituted a base from which Dubai could attract foreign investment and fuel its economy. They also allowed Dubai to position itself for an expansion into a wider variety of indu~tries.'~~

Rashid's diversification process continued with Dubai's dramatic growth in tourism in the 1980s. During this period, hotel capacity began to greatly increase.'" At the same time, Rashid developed and promoted Emirates Airlines, a luxury airline designed to attract additional ~isit0rs.l~~We also used available oil wealth to encourage diversification by authorizing the constmction of Dubai's first fi-ee trade zone, the Jebel

Ali Free Zone. Within this zone, firms could hraction in a liberal economic environment where they could fully own businesses and could operate fi-ee from currency restrictions.

They also had the opportunity to take advantage of the zone's close proximity to Dubai's recently completed PO&.'" These projects, built on the foundation provided by the industries and infrastructure that Rashid fostered in the 1 960s, allowed Dubai to continue its modernization and diversification effort.

After Shaykh Rashid's death in 1990, his son Shaykh Mohammed continued

Dubai's aggressive development strategy. He contributed to tourism promotion by establishing sporting events such as the Dubai Summer Classic, an annual golf

Ibid. 145 Sampler and Eigner 15. '46 Ibid. 147 J.E. Peterson, "The United Arab Emirates: Economic Vibrancy and US Interests," Asian Affairs (July 2003). tournament, and annual festivals such as the Dubai Shopping ~estiva1.l~~Additionally, he initiated construction on the sail-shaped Burj A1 Arab hotel, which quickly became

Dubai's most recognizable and widely disseminated symbol. He also authorized the creation of new tourist attractions such as , a theme park, and the , the two man-made islands designed to resemble palm trees.149

As a result of these projects, Dubai's biggest growth sector today is its tourism industry. Dubai went from having under 50 hotels in 1985 to more than 250 in 2002.l~~

Demand for rooms has increased dramatically, as is evidenced by Dubai's relatively constant occupancy rates of about 60 percent despite its increase from 4,601 rooms in

1985 to 21,428 rooms by 2001 .''I ~ouristsare enticed by Dubai's warm climate in the winter, its beaches, and its tolerance for many aspects of Western lifestyles among its visitors, including the consumption of alcoh01.l~~In addition, the attractions that Dubai's leaders have developed have contributed to its viability as a tourist de~tinati0n.l~~

Shaykh Mohammed has also directed an expansion of the free trade zone concept that began with the Jebel Ali zone in the 1980s. To encourage mass communications, his administration has created a free trade zone known as Media City. Inside this zone, corporations can take advantage of an extremely liberal trade regime that mimics the initial Jebel Ali zone. Dubai's leaders have used the conditions within this zone to create a regional media hub that hosts many of the biggest companies such as Reuters and

148 Sampler and Eigner 15-16. 149 Scott Macleod. "Dubai's Oasis," Time (January 26, 2004); Seth Sherwood, "The Oz of the Middle East," The New York Times (May 8,2005). 150 Sampler and Eigner 19 1. 15 1 Sampler and Eigner 192. 15' "Arabia's Field of Dreams," The Economist (June 29,2004). lS3 Ibid. CNN.'~~Similarly, Dubai's rulers have developed an emerging high-technology sector by creating a free zone known as Internet City. This zone contains all of the same liberal elements as Jebel Ali and Media City. In addition, the government provides a range of benefits such as its 'corporate concierge' service which assists companies with many administrative burdens such as incorporation, real estate management, and visa^.'"^ The added incentive that Internet City offers firms is that since all of the companies are located on one campus, their shared proximity allows them to establish contacts and increase communication flows. These enticements have allowed Dubai to attract industry leaders such as Hewlett Packard, Dell, IBM, and Sony, many of which have established their regional headquarters inside Internet City. There, these multinational corporations take advantage of the zone's tax free status to re-export their information and communications technology around the w0r1d.l~~

Dubai has also begun to position itself as a regional center for finance. In contrast to many merchant banks in the Arab world, Dubai's banks lend capital equally to state and private entities. Furthermore, these banks supply open credit markets and strong lending structures. Beyond capital lending, Dubai also offers other banks in the region attractive investment opportunities given its liberal economic opportunities. Construction is currently underway on the Dubai International Financial Center, which its leaders hope will allow Dubai to expand its role as a regional banking hub.'57

These efforts demonstrate that Dubai's rulers have succeeded in establishing an economy which is significantly more diversified than its peers in the Gulf. In contrast

154 Sampler and Eigner 108- 109. 155 Ibid. 156 Pranay Gupte, "Dubai's New Export: the Internet City," The Straits Times (July 28,2004). 157 Afshin, Molavi, "City on a Hill," The New Republic (February 9, 2004). with regional trends concerning international competitiveness, Dubai is currently quite competitive outside of the oil sector. While other states in the region typically demonstrate poor growth in non-oil exports and per capita income, Dubai has not had this experience. Its non-oil GDP has steadily decreased since it joined the U.A.E. in 1971.15'

For instance, from 2000 to 2002, the emirate's non-oil GDP rose from 87.7 percent to

90.2 percent.159 In addition, its comparatively high real incomes have been static over the past decade in an economy with only one percent inflation.160 Moreover, while Gulf states have in general failed to attract high levels of foreign direct investment, Dubai has experienced a strong amount of FDI due to its liberal economic policies and relatively strong banking instituti~ns.'~'Along with Bahrain, the U.A.E. led the Arab Gulf states in

FDI inflows as a percentage of GDP in 2003. As Tables B. to E. indicate in the

Appendix, Dubai's economy has become highly integrated with the global economy.

This outcome is unusual because it contrasts starkly with the regional results described above.

Dubai's surprising development results are not confined to economic growth however. The state is also now known for having a high degree of political stability.16'

In addition to the fact that Dubai has experienced very little volatility from its expatriate workforce, despite having a higher percentage of foreign labor than the Gulf average,16'

158 Sampler and Eigner 10. 15' 15' tati is tical Yearbook - Emirate of Dubai (2003); World Bank, World Development Indicators (Washington, DC: September 2004); "Dubai, FDI Grows," AME Info (March 23, 2005); United Nations Conference on Trade and Development, Foreign Direct Investment Database (2002). http://www. unctad.org/Templates/Page.asp?intItemID=1923&lang= 1 '60 "Where Tourism Ranks above Oil," The Banker (August 1,2003). 161 Molavi. 162 Rugh. 163 While Dubai's expatriate population is estimated to be 92 percent of its total, the overall Gulf expatriate population is only estimated to he about 75 percent of its total population. For more information see Abdelkarim 15 1. there has also been very little trouble from citizens. This stability is clear from the absence of any anti-government Islamist movements in ~ubai.'~~The respect that most citizens have for their government is illustrated by the outpouring of grief that arose following the November 2,2004 death of the U.A.E.'s President and founder, Shaykh

~a~ed.'~~As the ruler of Abu Dhabi, the political capital of the U.A.E., he, along with

Shaykh Rashid, was one of the chief architects of the U.A.E.'s economic growth and political stability. The stability that they fostered is illustrated by the smooth transfer of presidential power to Zayed's son, Shaykh Khalifa, that occurred in late 2004.'~~Despite the fact that many analysts predicted that Zayed's death would herald the demise of the u.A.E.,'~~Dubai and the U.A.E. overall have remained a bastion of political stability amid widespread turbulence in the Gulf.

Although Dubai's government, like the U.A.E. as a whole, does not allow its citizens any direct political participation, it does tolerate Western culture to an extraordinarily high level when compared with the other Arab Gulf states. In this way,

Dubai is more socially liberal than its neighbors. The emirate allows its visitors, including women, to dress quite liberally while also permitting extensive alcohol c~nsunn~tion.'~~These stances are noticeably different from the other Gulf states which often have strict rules concerning dress and alcohol. Furthermore, Dubai's embrace of

164 Rugh. Over 20,000 messages were posted to the Zayed condolence website, www.sheikh-zayed.info, between November 2,2004 and November 30,2004, many from UAE nationals. See "Over 20,000 Messages, 2.5 Million Hits on Zayed e-Condolence Site," Ministry of Information and Culture web site (November 30, 2004). www.uaeinteract.com/#14303. '66 "Supreme Council Elects New President;" Nowais; "Bypassed Brother Pledges Loyalty to New UAE President." 167 Sean Foley, "The UAE: Political Issues and Security Dilemmas," Middle Eust Review of International Affairs (March 1999). 168 "Arabia's Field of Dreams." Western liberal economics has extended to its own way of life. Its shopping festivals, its extravagant landmarks, and its Western forms of amusement, such as the nearly completed theme park, Dubailand, demonstrate a degree of permissiveness for Western culture that is unique in the region. 16' Indeed, Western commentators now frequently consider Dubai to be "the fun city of the Gulf' 170 since its social atmosphere is so much less conservative than its neighbors'.

After examining Dubai's economic, political, and social trends, it is clear that its development has defied conventional wisdom. In addition to the regional development literature described in the first chapter, Dubai has also resisted expectations based on the

Gulfs empirical data. Althoub many analysts have predicted failure for nearly all of

Dubai's development projects, from the state's airport to the Palm Islands, on each occasion so far, skeptics have been proven wrong.'71 Instead of hindering development, these projects have contributed significantly to Dubai's steady growth and stability.

Nevertheless, critics have had good reason to be pessimistic about Dubai's development prospects, given the region's track record. While many governments in the Gulf have attempted state-led diversification schemes, few have been able to achieve any meaningful results. The following chapter will set out to explain how Dubai has achieved its surprising development outcome by analyzing the regime's political structure, the development strategies advanced by its leadership, and the relationship between the state and its citizens. This analysis of Dubai's approach to development will ultimately provide the framework for an examination of the strengths and weaknesses of the development theories described in the first chapter. In addition, it will help to

169 Macleod. Ibid. 171 Sampler and Eigner 9, personal interviews January 2005.

4 1 illuminate specific policy lessons for other emerging states that are pursuing development projects. 111 Explaining Dubai's Development Outcome

Many of the characteristics that define Dubai's political and economic structures such as its oil exports, its authoritarianism, its ethnically Arab rulers and citizens, and its

Islamic culture and heritage, are shared by its neighbors in the Gulf. Yet as the previous chapter has illustrated, Dubai has had a considerably different development outcome from its neighbors. While the other Gulf monarchies typically exhibit economic stagnation, political unrest, and social repression, by comparison Dubai has had a strong economy, a high amount of domestic stability, and a more liberal social atmosphere. In addition to resisting development predictions based on regional trends, Dubai's performance has defied the expectations of the regional development literature. This literature, which essentially blames oil or cultural factors for the region's development deficiencies, cannot fully account for Dubai's outcome either. For these reasons, it is necessary to formulate a comprehensive framework capable of explaining Dubai's development results.

To understand Dubai's development, it is crucial to begin by examining the structural changes that have occurred in the global economy since the late 1970s, or in other words, the process known as ""gobalization." To define this slippery term, Robert

Keohane and Joseph Nye's definition is useful. They argue that "globalization" is not just interdependence. Instead they claim that globalization is a process in which

"globalism" is increasing. They identify "globalism" as "a state of the world involving networks of interdependence at multi-continental distances" whose links take place through the movement and effects of capital, goods, information, ideas, and people. They

argue that what has changed since the 1970s is that globalism is thickening due to the

"increased density of networks, increased 'insitutional' velocity,' and increased

transnational participation." Economically, the result has been more interconnections,

increases in the volume and speed of communications, and an expansion of transnational

ideas which has strengthened interdependence. 172

As a result of these structural changes in the world economy, new opportunities

for growth in developing countries have emerged. When developing states embrace

greater linkages with the world economy, they can become more competitive through

their exposure to the increased speed of capital, labor, and information flows which have

characterized the recent global economic changes.173This greater international

competitiveness can in turn enhwe public and private income levels, thus increasing the

material benefits and standards of living available to citizens.

There are many globalization scholars who argue that it is precisely the Gulf

region's lack of integration with the world economy that has impeded its development.

Ali Sadik points out that although the Arab Gulf monarchies have begun liberalizing their

trade regimes, they are still not yet internationally competitive, except in the oil ~ect0r.l~~

This low degree of international competitiveness and diversification has contributed to an

overall lack of FDI in the Gulf compared to other regions.175This lack of investment has

hindered development because FDI is the biggest source of capital for developing

17' Robert 0. Keohane and Joseph S. Nye Jr., "Globalization: What's New? What's Not? (And So What?)" Foreign Afluirs (Spring 2000). 173 Clement M. Henry and Robert Springborg, Globalization and the Politics of Development in the Middle East (Cambridge: Cambridge University Press, 2001) 44,49. 174 Dodge and Higgott 94,109. 175 Dodge and Higgott 99- 100. ~0untries.l~~Sadik argues therefore that these states must learn to take advantage of "the

interaction among trade, technology, and productivity growth in order to achieve

international competitiveness and harness the benefits that globalizations offers."177

Clement Henry and Robert Springborg also support this concept when they argue that the

region must become more integrated into global capital markets in order to take

advantage of the influx of investment that will be necessary to drive economic

development f0r~ard.l~~They argue that since there is currently no viable economic

alternative to greater international integration, these regimes must embrace it. If they do

not, their economic outlook will become even more gloomy.'79

To explain why the Gulf states have not fostered greater integration with the

global economy, some scholars blame domestic actors who are hostile to the forces of

globalization. These groups can form at both the leadership and citizen levels. Leaders,

especially authoritarian ones, often fear that greater globalization will precede regime

destabilization as a result of the accompanying new flows of external information that are

beyond their control.1s0Citizens often react harshly to globalization because the

introduction of foreign or Western ideas can contribute to the erosion of their own

cultural values and identities.lsl In this manner, leaders and citizens can both react

negatively to the prospect of greater linkages with the world economy, even if they are

doing so for different reasons.

176 Clement M. Henry and Robert Springborg, Globalization and the Politics of Development in the Middle East (Cambridge: Cambridge University Press, 2001) 49. 17" Dodge and Higgott 1 12. 178 Henry and Springborg, 44, 49. 179 Henry and Springborg 60-6 1. 180 Lucian W. Pye, "Political Science and the Crisis of Authoritarianism," The American Political Science Review (March 1990). 181 Dodge and Higgott 14- 18; Henry and Springborg 60,223. In the case of Dubai, the argument of this thesis is that the emirate has thus far escaped its neighbors9 fates because its ruling elites have pursued a development strategy that has encouraged greater links with the global economy. Although they may fear that globalizing forces will someday undermine their authoritarian rule, Dubai's rulers have clearly felt that the threat was not significant enough to stop them from embracing globalization. This perspective was likely bolstered by the fact that, according to opinion polls, U.A.E. citizens are not as opposed to change when compared with citizens of other

Arab countries.'82 As a result, Dubai's leaders have implemented a development strategy designed to take advantage of these new oppoI.emities occurring in the world economy.

So far, they have been rewarded by this decision with high levels of economic growth and diversification, which have contributed to the state's current political stability.

Although Dubai's expansion of international trade links began in the early 1960s, before the influx of state oil revenues, the emirate's limited oil supply has played a significant role in determining its development outcome. Since Dubai's leaders knew from the beginning that their oil wealth would rapidly decrease, and they did not count on any significant new discoveries, they had a strong incentive to prudence in disbwrsing their windfalls. To strengthen integration with the global economy, Dubai's leaders concentrated spending on infrastructure and industries designed to attract foreign investment. The sustained economic growth and diversification that this strategy fostered has contributed immensely to their own legitimacy and budgetary resources. Therefore,

18' In a study of Arabs living in eight Middle Eastern states, only 27 percent of U.A.E. nationals favored "Maintaining tradition" over "Changing with the times." Only Arabs living in and Israel favored "Maintaining tradition" less than citizens of the U.A.E. For more information see James. J. Zogby, What Arabs Think: Values, Beliefs and Concerns (Zogby International/The Arab Thought Foundation, 2002).

46 these investments have allowed Dubai's rulers to reinforce their position atop the political and economic hierarchy of Dubai.

Despite the importance of Dubai9sdiminishing oil incentive, its development result is impossible to understand without recognizing the cohesion of its ruling elites.

Dubai's leaders at the state level and at the United Arab Emirates presidential level have consistently demonstrated sustained unity in carrying out their development strategy. In addition, the nature of Dubai's political relationship to the U.A.E. within the larger federal structure has also contributed to this coherence. As a result of this political cohesion, Dubai's leadership has been able to offer its citizens sustained benefits and high living standards. This ability stands in sharp contrast with other governments in the

Gulf which have often angered citizens by failing to maintain consistently high living standards. The central theme of this chapter therefore is that Dubai9s economic diversification and political stability can be attributed to its incentive of diminishing oil wealth and the cohesion of its ruling elites in implementing their self-interested but benign development strategy.

Understanding Dubai9s relationship with its oil wealth is certainly key to explaining its current political and economic situation. Like other leaders in the Gulf after World War 11, Dubai's rulers were eager to discover oil within their borders.lg3 In the early 1960s Dubai's ruler, Shaykh Rashid, quickly established significant offshore concessions with a consortium of foreign oil companies. This consortium includes companies that are today known as Conoco, TotalFinaElf, and ~epsol.'~~Although the details of the arrangement between the companies and the rulers of Dubai have never

18' "Dubai & Other UAE Emirates - 'The Upstream," APS Review Oil Market Trends (June 10, 2002). I8"bid. been fblly explained to the public, it is believed that by the time oil was discovered in

1966, an agreement had been reached in which oil revenues would thereafter flow directly to the Maktoum family.lS5

While most states in the Gulf experienced large inflows of oil and gas wealth in the post-War period, what is different about Dubai is that it has had a very limited supply of oil. Indeed, Dubai's oil exports peaked in Octobermovember of 1990 when production levels stood at 425,000 barrels per day. In 2002, Dubai was only capable of producing 150,000 barrels per day.lS6 Furthermore, Dubai's rulers have been aware of the limited nature of their oil supply since it was disco~ered.'~~Government planners expect that by 20 10 oil will account for less than one percent of GDP and that by 20 15

Dubai's oil supplies will be completely exhausted.'88 The result of this dynamic is that the size of these windfalls has spurred Dubai's leaders to spend their revenues

Although Shaykh Rashid had already embarked on an ambitious development plan by the early 1960s, the oil rents that the ruling family received starting in the late

1960s allowed it to greatly increase the scope of its development projects.190This expansion is clear from the port enlargements, airport constmction, and free trade zones described in the second chapter. Dubai's leaders therefore used the monarchy's oil revenues to invest in infrastructure and industries that could allow for future growth and diversification.

185 Ibid; Davidson 94-95. 186 "Dubai & Other UAE Emirates - The Upstream." 187 "Where Tourism Ranks above Oil," The Banker. (August 1,2003); Sampler and Eigner 10- 11. 188 Ministry of Information and Culture, United Arab Emirates 13 1; Tom Owen, "Dubai: Reality or Mirage?" The Middle East (April 2002). 189 Sampler and Eigner 10- 1 1. 190 Sampler and Eigner 9-14. The driving force behind this process has been the strategy of Dubai's ruling elites. Beginning with Shaykh Rashid and continuing to the present day with Shaykh

Mohammed's administration, the ruling family's aims have always been to use development projects to increase the state's links with the international economy. Even before the influx of oil revenues, they were executing risky development schemes designed to enhance their international commercial opportunities. This commitment to global trade is embodied in Shaylch Moh ed's observation that:

Any country which isolates itself will never learn or benefit.. .We have a vision, which we exert all efforts to realise, of Dubai as a major trade centre for the East and the West and we believe that Dubai is well qualified to play this great role.lgl

Mohammed explains further that Dubai9spromotion of international trade, national industry, and foreign investment depends "on a policy to decrease dependence on oil as the sole source of income."lg2 Furthermore, when asked about his international ambitions for Dubai, he has reportedly said that "he would like people to have heard of it," thus stressing his desire for Dubai to become a globally recognized brand.lg3 The goal of the government's investments in infrastructure and industry therefore is to create internationally identified assets which can foster a climate conducive to foreign investment while progressing toward a globally-oriented, knowledge-based economy. 194

Overall, it is clear that the stated objective of the Maktoum family's development approach is to escape economic dependence on oil through strategic modernization and asset creation in order to reap the benefits of greater integration with the world economy.

191 Middle East Magazine (December 1 8, 199 1). http://www.sheikhmohammed.ae/english/quotes/quotes.asp. 192 Al Khaleej (January 23, 1997) http:Nwww.sheikhmohammed.ae/english/quotes/quotes.asp. 197 Sampler and Eigner 73. 194 Omar Bin Sulaiman, CEO , "Knowledge for Development" conference (March 15- 16,2004). For more information, see Figure A. in the Appendix, a model that Sulaiman, a government official, presented at the "Knowledge for Development" conference to explain the 's development strategy. Since the early 1990s, the biggest source of inspiration for the development vision

of Dubai's rulers has been Like Dubai, Singapore is a tiny city-state that

gained independence from British rule in 1965. While it offers its citizens slightly more

political rights and civil liberties than Dubai, it is also an authoritarian regime that has

pursued aggressive and rapid deve10pment.l~~It has undergone a similar transformation

from a sleepy economic backwater into a diversified intemational center for tourism,

industry, and technology. It has achieved this result though infrastructure development

and liberal economic opportunities that have attracted a large number of multinational

corporations and foreign in~estrnent.'~~Clearly, Dubai's strategy has displayed many

similarities since the 1960s. However, Singapore has reached a higher stage of

development since it is now much closer to having a howledge-based economy. While

Dubai is just beginning to establish itself as a center for finance and technology,

Singapore first made a name for itself in these industries as early as the 1970s and

1980s.'~~

One of Shaykh Mohammed's key advisers, Mohammed Ali Alabbar, the director

general of the Department of Economic Development of Dubai, believed by the

beginning of the 1990s that Dubai's government could improve its efficiency in order to

stimulate growth in a manner similar to Singapore.lg9Having spent five years working

there, he was instrumental in bringing the example of this Asian city-state to the attention

of Dubai's Crown Prince. When he returned from Singapore, he assembled teams of

young professionals to advise Moh ed on issues ranging from transportation, tourism,

195 "The Architect Speaks," The Business Times Singapore (March 6,2004). 196 Sampler and Eigner 45-48; www.£reedomhouse.org 197 Sampler and Eigner 45-48. '98 Ibid. 199 "The Architect Speaks." and economics. They introduced creative ideas designed to attract international attention such as building the world's tallest building, the Burj Dubai, which is currently under construction.200They also instituted liberalizing reforms such as eliminating visa requirements for more than 45 countries and permitting expatriates to enter into long- term land leases in ~ubai.~O'The hope has been that through greater economic liberalization and ambitious development projects, Dubai can emulate Singapore's rapid growth and build its own international reputation.

One of the main concepts behind this strategy, which both states have utilized in the formulation of their development programs, is the idea of the 'virtuous cycle.'

Leaders in both states hope to sustain their economic growth and diversification through the creation of this system, which Jeffrey Sampler and Saeb Eigner refer to as a strategic vortexa202In this process, the creation of initial assets begins a cycle in which these assets play off of each other and create a base from which further assets can be leveraged.203In Singapore, the state's rulers used government funded infrastructure and liberal trade zones to attract multinational corporations. After locating there, these companies stimulated growth throughout the economy while drawing in new businesses as Singapore established itself as a regional center for commerce.204To a lesser degree,

Dubai's leaders have also used its infkastructure and free zones to attract multinational firms. The presence of these firms within the fiee zones has in turn spiked demand for hotels, restaurants, entertainment, and property throughout the entire emirate while simultaneously raising its international profile. In this way, initial investments and the

200 Sampler and Eigner 75-76. 20' L'TheArchitect Speaks." 202 Sampler and Eigner 169-1 70. 203 Sampler and Eigner 24-26. 204 Sampler and Eigner 46-50. subsequent assets that they have created can spawn new processes of investment, asset

creation, and leverage to initiate an economic expansion that frequently demonstrates a

self-perpetuating momentum.205

Despite the numerous similarities between Dubai's development strategy and

Singapore's, there is at least one fundamental difference. While Singapore's approach

has been almost entirely top-down, many analysts consider Dubai's method to be

"middle-~ut.~~~~~Certainly, the gove ent of Dubai has played an enormous role in

shaping the state's development. But the story of Dubai is not one of completely free

markets driving organic growth. Indeed, private businesses would never have come up

with projects as risky and ambitious as dredging the Dubai Creek or building the Palm

~slands.~~~Dubai's leaders, instead advised by teams of experts, have used bold

government initiatives to create new projects and industries while allowing the private

sector to compete over the implementation of these ventures.208The ruling elites of

Dubai therefore have sought to create a climate where businesses can grow and prosper

without experiencing as much government control as in ing gap ore.^^^

The result of their efforts so far has been the creation of a dynamic and resilient economy. Dubai's GDP has steadily increased from $2.2 billion in 1975 to $1 7.5 billion in 2001 (at 2003 Since 1995 the city-state's economy has grown by 71 percent and has had an average real GDP grovvth rate of over 6 percent per year.211 Not only has

Dubai experienced consistently strong growth since it began its program of

Ibid; Personal Interviews January 2005. 206 Sampler and Eigner 57,60. 207 Personal Interviews January 2005. 208 Personal Interviews January 2005. 209 Sampler and Eigner 6 1. 210 Sampler and Eigner 7. 21 1 Molavi; Sampler and Eigner 182; Statistical Yearbook - Emirate ofDubai (2003). modernization and development, it has also prospered amid prolonged regional turbulence. Despite local conflicts such as the Iran-Iraq War, the first , Shiite unrest in Bahrain, and the second Gulf War, Dubai's growth has continued unimpeded.

Some analysts actually credit these events with boosting business in ~ubai.~'~As these situations undermined political stability in countries such as Iraq, Iran, Kuwait, and

Bahrain, many businesses relocated to Dubai. These crises therefore became opportunities in which Dubai's leaders could fill the region's economic void.213 For example, the outbreak of war in Iraq in 2003 stimulated shipping within the emirate significantly.214Dubai's leaders have therefore clearly succeeded in branding their state as an oasis of economic stability in the Gulf. This outcome has allowed it to draw in business over a sustained period of time despite, and perhaps because of, regional dangers.

Dubai's economic dynamism has also contributed to political stability in the emirate because it has strengthened the ruling elites' position through the influx of new forms of rent. As discussed previously, the Maktoum family realized very quickly that their oil rents would soon evaporate. One of the motivations for Dubai's project of economic expansion and diversification therefore was to establish new sources of rent.215

The reason that they required these new forms of income was that once their modem economy had been created, the government bureaucracy that had been built up to oversee it would not be able to survive without continuous revenue streams. Given the authoritarian nature of the regime, it is unlikely that taxation was considered a preferred

212 Personal Interviews January 2005; Davidson 158. "'" Ibid. 2'4 DubaiWar: What is it good for? Lloyd's List (April 10,2003) 215 Davidson 225. option since it typically brings with it popular dennands for representation.216To sidestep

such a potentially destabilizing move, Dubai7s leaders sought fresh sources of rent which

would allow for the maintenance of the political status quo.

They established these new sources of rent predominantly in two ways - by

leasing property and by renting plots within the emirate's free zones.217Until very

recently, foreigners were not permitted to hold land in Dubai, as it was discouraged by

U.A.E. law and custom.218However, starting in the late 1990s under Mohammed Ali

Alabbar, the Director General of the Dubai Department of Economic Development, this

policy shifted dramatically. Since Alabbar was also the owner of , a

local real estate development company, he convinced §hay& Mohammed that it was in

their interest to allow long-term, 100-year leases for foreigners. This shift enriched both

Alabbar and the ruling family enormously. While Alabbbar profited from the

development contracts, the Maktourn family received substantial gains from the lease

arrangements as the owners of Dubai's undeveloped land.219Dubai's elites also derived

rents from leasing parcels of land and office space within the free zones to foreign companies. 'The leases often have terms that grant firms tax exemption and freedom from less liberal U.A.E. federal laws for up to 50 years.220As a result of Dubai7s continuous expansion, demand is high for both residential and commercial property.221As oil's replacement, these new sources of rent appear to be stable for the foreseeable future and will undoubtedly contribute to the continued survival of the regime.

216 Beblawi and Luciani 73. 217 Davidson 225. 21K Davidson 228. 219 Davidson 229-232. 220 Davidson 232-235. 221 Ginetta Vidreckas, "Big Designs on Dubaj," The Independent (September 22,2004). Another reason that the Maktoum family has so far succeeded in sustaining its unchallenged leadership role in Dubai is that it operates with a high degree of political cohesion. Although there were internal divisions during British rule, the influx of oil wealth which allowed Dubai to emerge as a rentier state contributed to the family's consolidation. Discordant family members could essentially be bought off with government posts that allowed them a degree of Another factor which has led to the Maktoum family's political cohesion is their succession mechanism. Instead of simply following primogeniture patterns, crown princes are appointed by elders within the family and must display a substantial amount of bay 'a, or recognized personal

In this manner, the elders can make sure that the crown prince who is selected is both competent and popular within the national community.224Family members have an incentive to then bandwagon with the appointed crown prince as a result of a prisoner's dilemma that can arise in interfamily succession negotiations.

While certain members might prefer to increase their own power more than that of the family as a whole, most family members will rationally choose collective support for the family over augmenting their own authority in order to not jeopardize the dynasty's control of the state.225

Dubai's most recent succession provides an excellent example of this mechanism's ability to produce smooth power transitions that do not threaten political stability.226When Shaykh Rashid died In 1991, he left behind several sons. As the eldest, Shaykh Maktoum was named emir while Mohammed became crown prince.

222 Davidson 99, Herb 9-10. "' Davidson 7 1, Herb 26. 224 Davidson 10 1. ""erb 9- 10,46-48. 226 Davidson 10 1 . Although the emir is technically the head of state, in this case Shaykh Maktoum

compromised and agreed to serve as a figurehead while Shaykh Mohammed became

Dubai's de facto ruler. The Maktoum family cast their weight behind Mohammed

because they felt that his personal ambition and competence would allow him to

successfully continue Dubai7s aggressive development program.227Mohammed

succeeded his father therefore as a result of his bay 'a. As this example illustrates, the

Maktoum family's ability to oversee smooth power transitions has allowed it to maintain

its monopoly on Dubai's state apparatus.

Similarly, the presidential succession system at the U.A.E. federal level has

contributed to Dubai's political stability. The U.A.E9s first President, Shaykh Zayed,

rose to power in a manner that reRected the themes of Shaykh Mohammed's accession.

We was selected by the A1 Nahayyan family of Abu Dhabi to replace his brother

Shakhbut who was condemned for his unwillingness to sufficiently embrace modernity

and As derof the emirate of Abu Dhabi, he became President of the

U.A.E. when the federation formed in 1971. As a result, the presidential succession

system was not tested until late 2004 when Zayed died.229Since Zayed left behind 19

sons, there were bound to be succession disputes, especially given the lack of

primogeniture in Abu Dhabi, which uses a family consensus system similar to ~ubai's.~~~

Indeed, at this time there were rumors circulating in the U.A.E. that Zayed had been dead

for weeks prior to the official announcement on November 2nd . 231 This state of affairs seems to imply that there were substantial internal succession debates involving ruling

227 Ibid, Personal Interviews January 2005. 228 Davidson 103, Herb 136-137. 229 "Supreme Council Elects New President." 230 "Sheikh Zayed," The Economist (Novetnber 20,2004), Davidson 103. 23 1 Personal Interviews January 2005. elites from Abu Dhabi as well as the other emirates.232However, the fact that these discussions were resolved quietly and peacefully demonstrates that this method of consensus building successfully prevented any destabilizing divisions within the country.233This fluid power transfer at the presidential level thus contributed to Dubai's political stability by confirming the unity and constancy of the country as a whole.

Dubai's place within the U.A.E.'s federal system has also contributed significantly to its political and economic performance in other ways. As the political capital of the U.A.E. and holder of more than 94 percent of the U.A.E.'s total oil reserves, which constitute 1068 billion barrels, or 8.6 percent of the proven world reserves, Abu Dhabi has used this wealth to massively subsidize the oil-poor emirates.234

However, Dubai has not received the same degree of financial support from Abu Dhabi as the other emirates, since it has had its own oil wealth and a much more dynamic economy.235Even if it did receive subsidy comparable to the other emirates, Dubai could not rely on federal funds for development. Despite federal subsidies to the smaller emirates, standards of living for citizens are still much lower than in either Dubai or Abu

Dhabi. Indeed, compared with the first world lifestyles of the two larger emirates, nationals in the northern emirates of Ajman, R'as al-maimah, Umm al-Qaiwain, and

Fujairah often experience shortages of water, schools, hospitals, and road networks.236

Primarily, Dubai has benefited from U.A.E. federation because political union has enhanced its relationship with Abu Dhabi. Before the founding of the U.A.E., the two

23"bid. Bypassed Brother Pledges Loyalty to New UAE President," Arab News (November 7,2004). 234 Ministry of Information and Culture 122; Rugh. 235 Rugh. "'Mahmoud Ali and Salah A1 Deberki, "Dh 1.5b Plan for N.Emirates Soon," Khaleej Times (January 24, 2005). emirates were on poor terms and had even clashed militarily over a border dispute in

1948.~~~In the early years of the federation, the two emirates often disagreed over how much autonomy individual emirates should maintain with Abu Dhabi supporting a stronger federal role and Dubai advocating greater state level authority.238Disputes were often so heated that as recently as the 1990s many analysts predicted that the rivalry could break apart the

As a result of the give and take involved with integration into the u.A.E.:~~ tensions have been diffused and the two emirates now appear to enjoy a symbiotic relationship. Although the two states have pursued different development strategies, with

Abu Dhabi focusing on oil and heavy industry while Dubai has concentrated on shipping, tourism, and services, the two strategies seem to complement each other.241While Abu

Dhabi has developed extensive financial reserves though oil sales, Dubai's diversified economy is more likely to provide long term employment for U.A.E. citizens.242

Additionally, although the two emirates have historically had distinct cultural values, with Abu Dhabi typically stereotyped as quiet and conservative, compared with Dubai, which is perceived as more outgoing and mercantile, the two states now seem to coexist happily.243Dubai's leaders appear more comfortable with relinquishing autonomy to the federal government while Abu Dhabi's elites are increasingly less offended by Dubai's

237 A1 Abed, Ibrahim and Peter Hellyer, eds., 147; Foley. 238 Kechichian 35. 239 Foley. 240 Ibid. 24' Davidson 162. 242 Ibid. 243 Ibid; Kechichian 62; "Future's so bright for Abu Dhabi," 7 Days (January 9,2005). free-wheeling, commercial spirit.244Today, their rivalry has become more of a friendly competition, as is evidenced by their trade fairs and sporting events.245

This improvement in relations has contributed to Dubai's development because its leaders now have a powerful ally in the federal government. Most analysts contend that if one of Dubai's ambitious development schemes were to falter, Abu Dhabi would now step in to prevent fai~ure.~~"his willingness on the part of Abu Dhabi's officials to support Dubai in the case of an emergency reflects their newfound appreciation for

Dubai's approach to development as well as a recognition of the fact that failure in Dubai would be detrimental for national prestige and business. In this manner, Dubai's position within the U.A.E. has not only eliminated its potential security problem with Abu Dhabi; it has also created an alliance that will likely help to soften the effects of any future economic slowniw-s.

Dubai's membership in the U.A.E. has also contributed significantly to its stable political climate as a result of the federal government's internal security apparatus.

Although the U.A.E. does not suffer from a tremendously repressive social atmosphere, due to the low level of popular opposition to the regime, the state nevertheless maintains an elaborate system of controls that encompass many aspects of life within the

In terms of mass communications and publishing, the federal government limits internet access and it controls the press by requiring all publications to be licensed by the

Ministry of Information and ~~1iu1-e.~~~In addition, the state regulates and monitors

244 L'Future's so bright for Abu Dhabi." 245 Rugh. 246 Personal Interviews January 2005; Kechichian 65; Davidson 162. 247 Davidson 69-70; Daniel Byman and Jerrold D. Green, Political Violence and Stability in the States oj the Northern Persian Culf(Santa Monica: RAND, 1999) 92-93. 248 Davidson 277. nearly all mosques and Islamic organizations.249All $miimams are employees of the

federal Ministry of Justice and Islamic Affairs which issues weekly advice regarding

what topics are appropriate for sernl~ns.~~~This extensive control of mosques and

Islamic charities stems from the state's desire to control a public space that often fosters

destabilizing political discourse in other Arab authoritarian regimes.251The state's

monitoring also extends to expatriate workers, another perceived source of volatility in

the region.252This vigilance has led to repopts that the goverment has taken on its first

political prisoners in recent yeas.253However, from the perspective of Dubai's officials,

the result of the U.A.E.'s internal security operations is that a number of terrorist attacks

have been prevented.254

External security has also increased as a result of Dubai's position within the

U.A.E. Paul Sutton and Anthony Payne, two political scientists who have studied small

states, note that such states often suffer from indefensibility due to a lack of manpower

and resources.255This lack of war capabilities is certainly apparent in the U.A.E., a

country of less than 100,000 sq. kilometers with a citizen population under one million.256

Sutton and Payne argue that small states like the U.A.E. typically enter into alliances with

powerful states to augment their security."7 As a major oil producer with deep trade

links to major Western countries such as the U.S., Britain, France, and Japan, Abu Dhabi

249 Davidson 275. 250 Ibid. 25 1 Gause 40. 252 Byman and Green 73. 251 Peterson, "The United Arab Emirates: Economic Vibrancy and US Interests." 254 Davidson 79-80. 255 Paul Sutton and Anthony Payne, "Lilliput under Threat: the Security Problems of Small Island and Enclave Developing States," Political Studies (December 1993.). "'Central Intelligence Agency, United States Government, The World Factbook 2005: United Arab Emirates. http://www.cia.gov/cidpublications/factbook/geos/ae.htna1 257 Sutton and Payne. has indeed embraced such a strategy.25gThis arrangement has allowed the U.A.E. as a whole to enjoy the benefits of strong defense forces in the face of regional threats such as

Iraq and ran.^^' By joining the U.A.E., Dubai has enhanced its external security by falling under the umbrella of Western military protection.

Although a thorough understanding of Dubai's development must include a discussion of its diminishing oil incentive, combined with the strategy and cohesion of its elites within the context of the U.A.E., there is one final factor which must be addressed.

This last explanatory component is the ability of Dubai9s leaders to deliver strong development to their citizens. Beyond increasing its GDP, Dubai's government has also succeeded in providing its citizens with a wide array of services such as free or subsidized healthcare, education, and housing, as well as government jobs.260These programs have produced tangible improvements in their lives as the enormous increases in literacy rates and life expectancies during the last 30 years dem~nstrate.~~'The result of this process is that ruling elites have provoked a positive response from their citizens, who loolc up to their ~ha~khs.~~~Due to this dynamic, Dubai's citizens have now become dependent on the state's welfare system and maintain a vested interest in preserving the status In this manner, they have entered into a social bargain in which state benefits and other economic advantages are exchanged for political submission.264This situation is therefore consistent with the rentier system that Beblawi and Luciani described, as the state will continue to generate income from rents, just no

Davidson 93-95. 259 1bid. 260 Davidson 74; Kechichian 3. 26' Kechichian 3. 262 Shireena AI-Nowais, "'Zayed Secured a Lasting Unity," GzllfNews (November 9,2004); Rugh. 263 Davidson74, 89; Rugh. 264 A1 Abed, Ibrahim and Peter Hellyer, eds., 149; Davidson 294. longer those derived from oil.265As a result, this process appears to demonstrate that escape from the oil curse is possible when alternatives to oil are located. While such an arrangement will likely stymie progress toward political rights for citizens, it has nevertheless contributed to Dubai's present stability.

Why Not Other Gulf States?

The above explanation of Dubai's development path demonstrates why Dubai has achieved its particular result while other states in the Gulf have not. Although Dubai shares many of its peers' characteristics, Dubai has several qualities that make it stand out. To begin with, unlike Gulf monarchies that were endowed with plentiful oil or natural gas reserves such as Saudi Arabia, Kuwait, Oman, and Qatar, Dubai had a substantial but limited supply of oil. With its oil income, the state could fund a variety of quality infrastructure developments from which a base for subsequent economic diversification could be launched. Oil rich states could have chosen to invest their revenues in a similar fashion but their abundance of oil wealth frequently resulted in poor planning and substantial government waste.266 There was not the same sense of urgency.

In addition, ruling elites in these four states did not have the same cohesion that

Dubai's leaders had. For example, Qatar suffered from a ruler who was not sufficiently capable of embracing modernization. Consequently, he was overthrown by his son in a coup in 1995.267 Presently, Shaykh Hamad is steering his country on a path that is similar to Dubai's but which is more overtly pro-American since it hosts a major U.S. air base

265 Beblawi and Luciani 53-54. 266 Herb 242. 267 "Qatar - Economic Liberalisation and Impact," APS Diplomat Fate of the Arabian Peninsula (February 4,2002). within its borders.268However, its economy is still heavily dependent on natural gas

exports and is significantly less diversified than ~ubai's.~~~Similarly, interfamily

disputes have slowed diversification attempts within Saudi Arabia where oil still

represents 40 percent of GDP.~" It has also suffered from instability in the form of

serious opposition attacks within its borders.271These failures, which will be explored in greater detail in the fourth chapter, demonstrate that the lack of cohesion and political

will for economic modernization among ruling elites will be a key determinant of whether or not they bring greater development to their states.

Bahrain is an unusual case because it was endowed with less oil than Dubai but in many respects has still had a wealter development outcome. While Dubai's oil production peaked at 425,000 barrels per day in the early 1990s, Bahrain's production peaked at only 75,000 barrels per day in the 1970s.~~~The problem therefore was that it had even less to invest in diversification efforts. Nevertheless, it succeeded in replacing

Beirut as a regional financial center by the 1970s.~~~Today however, it has been surpassed by Dubai as the Middle East's banking hub, in addition to being outshone by the emirate in other fields such as tourism and shipping.274Furthermore, it has had significantly less political stability than Dubai as a result of its government's relationship with its people. Unlike Dubai's rulers and citizens who are nearly all Smi,Bahrain's

268 Ibid; "Qatar - Deepening Military Co-operation," APS Diplomat Strategic Balance in the Middle East (February 10,2003). 269 "Qatar - Economic Liberalisation and Impact." 270 Champion 9-1 1, 142-143; Energy Information Agency, United States Government, Country Analysis Briefs: Saudi Arabia (January 2005). http://www.eia.doe.gov/emeu/cabs/saudi.hhnl 271 Champion 278-286; Peterson, Saudi Arabia and the Illusion of S'ecurity 6; Al-Rasheed 186-187; Reed, "Shaking the Timbers of the House of Saud." '72 "Dubai & Other UAE Emirates - The Upstream"; Energy Information Agency, United States Government, Country Analysis Briefs: Bahrain (November 2004). hetp://www.eia.doe.gov/emeu/cabs/bahrain.hhnl 27' Rugh. 274 Ibid. Sunni minority rules over a Shiite majority. This majority population has caused a

sustained amount of turbulence within the country in the form of violent protests and

riots.275In Bahrain, these sectarian divisions have contributed to more political

instability and weaker economic development than in ~ubai.~~~

These results demonstrate that although Bahrain shared Dubai's diversification

incentive of diminishing oil revenues, the relationship of ruling elites to their people can

be profoundly important. In contrast with Bahrain's unsteady situation, Dubai's rulers

have developed strong bonds with their citizens. These ties have been fostered through

common religious affiliations as well as the plethora of welfase benefits disseminated by

the state. These links heled to a pacified public generally content with its rulers.277

For this reason, Bahrain has had a much rockier development trajectory despite an early

start on diversification as well as recent political reforms.

Dubai versus the Development Literature

In explaining Dubai's development outcome, the factors outlined above also demonstrate why Dubai has defied the expectations of regional development literature.

Regarding oil curse literature, Dubai is distinguished by its incentive of diminishing oil wealth. Nearly all of the oil producing states that have been studied as "rentiers" have large oil reserves or have not yet reached a drop off in production comparable to

~ubai.~~'Bahrain is one of the only exceptions and as mentioned, it has also had much greater economic diversification in comparison with the region, despite its instability and

275 Herb 64,75; "Landslide Win for Bahrain Reforms," BBC News Online (February 16,2001). 276 Energy Information Agency, Country Analysis Briefs: Bahrain. 277 Rugh. 278 Karl; Ross; Beblawi and Luciani. sectarian divisions. The case of Bahrain confirms the idea that diminishing oil revenues can spur sound investment toward diversification, in contrast with states such as Kuwait or Saudi Arabia, which have plentiful oil reserves and oil-dependent economies. This result also stands out from the expectations of oil curse writers such as Luciani, who does not predict sound investment toward diversification when state oil revenues dry up. He argues instead that when oil revenues decrease the state will implode and become a ghost town.279Clearly, this has not occurred in Dubai.

Although the oil curse literature has its shortcomings, it is still useful for understanding Dubai's development. In its discussion of rentier states and the formation of rentier economies, it is quite relevant. In particular, Beblawi9sassertion that the oil rent-seeking phenomenon has created a "rentier mentality9' throughout the Arab world is instru~tive.~"This mentality, which is defined by a break in the work-reward causation, is clearly at work among Dubai9selites. In particular, it is evident in Shaykh Mohammed and Mohammed Ali Alabbar9s new schemes to obtain rent by leasing land and office parks to foreigners. Similarly, this mentality is apparent in Dubai9s citizen populace which is heavily dependent on the state's welfare system. The effect of the rentier mentality on their productivity is also evident in their lack of participation in the private sector compared with the public sector.281Indeed, the government estimates that a mere

2.4 percent of the private sector in Dubai is comprised of nationals.282In this way, although the oil curse literature typically neglects states which have limited oil wealth, its discussion of rent-seeking behavior is quite useful.

279 Beblawi and Luciani 8 1. Beblawi 52, 62. 281 Ashfaq Ahmed, "UAE Nationals in Private Sector Miniscule - Study," GulfNews (June 7, 2004); Personal Interviews January 2005. 282 Ahmed. The cultural literature, which claims that Arab and Islamic culture is violence

prone and not conducive to economic growth, is in general less helpful. These writers

would have predicted that the Arab and Islamic identities of Dubai's leaders and

populace would have led to internal violence. In addition, they would have argued that

Dubai's people, being Arab Muslims, would have tended to reject greater links with the

world economy due to their traditionalism and disdain for risk-taking. The actual attitude

of Dubai's rulers and citizens is markedly different, however. Instead of being

characterized by internecine fighting, Dubai's rulers and citizens have exhibited a high

degree of unity and a willingness to embrace profouzad economic changes. In addition,

while these cultural scholars might respond by arguing that Dubai's version of Islam is

the exception that proves the rule in the Gulf, B&rain and Qatar's recent development

results could be used to severely question this line of reasoning.

Overall, it is clear that the commitment of Dubai's leadership to greater

integration with the world economy has contributed significantly to the state's

development outcome. This process, which has been spurred by the state's diminishing

oil reserves and which has been aided by the cohesion of its ruling elites has led to

sustained political stability and economic growth in the emirate. Although Dubai's

leaders may be guilty of pursuing development strategies which have brought them

significant personal financial gains, they have nevertheless fostered a development

outcome which is the envy of other Gulf rulers.283While its people may also have fallen

prey to a high degree of dependence on the slate's welfare system, their broad support for

283 Many of the other Gulf states such as Abu Dhabi, Qatar, and Bahrain have begun attempts at replicating Dubai's gaudy development projects. For more information see "Future's so bright for Abu Dhabi"; "A Pearl of a Project," Middle Easl Economic Digest (November 19,2004) and "'Rising Pearl' - World Class Concept in Living," Khalecj Times (January 18, 2004).

66 the regime suggests that they are content with this state of affairs. In this manner, Dubai has demonstrated that the recent structural changes which have occurred within the global economy can provide significant opportunities for state leaders willing to take advantage of them.

The following chapter will continue by delving deeper into the factors which have led to Dubai's development results. In the next chapter, Dubai will be compared to other states that share many of its characteristics. Saudi Arabia, Qatar, and Brunei will be examined as they are all hydrocarbon exporters. These states will be relevant because they all offer a range of development outcomes in terms of economic growth, diversification, political stability, and repression. An analysis of their development outcomes will be useful because it will facilitate a deeper understanding of why Dubai has achieved its particular results. Above all, these comparisons will be valuable because they will help to shed light on general development trends while also providing insight into lessons that might be learned from their individual outcomes. Dubai in a Comparative Context

Building on the explanation of Dubai's development previously presented, this

chapter will stress as a key development theme the agency of a state's leadership in

determining its development outcome. Dubai illustrates this concept because once its

leaders decided that they wanted to use their limited oil wealth to diversify their state's

economy, they did so, by enhancing infrastmcture and increasing the emirate's links with

the global economy. As noted in the last chapter, these policy makers were spurred

toward development by their incentive of diminishing oil wealth and they achieved their

goals as a result of their political cohesion. Dubai's development results demonstrate that

if planners are committed to impiementing economic modernization, and they have the

resources to do so, they can use this process to reach higher stages of development.

In contrast, although Saudi Arabia shares many of Dubai's characteristics, such as

its Arab ethnicity, its Islamic religion, and its authoritarian, monarchic political structure,

it has had a vastly different development outcome because its leaders were less

committed to economic modernization. Saudi Arabia's leaders did not need to pursue

development with the same dedication and cohesion as Dubai's elites because they did

not feel the same financial pressures, as a result of their enormous oil wealth. The outcome has been that instead of attaining economic diversification and political stability,

Saudi Arabia has experienced serious economic difficulties and high degrees of political unrest.284

284 Champion 142-143,278-286; Peterson, Saudi Arabia and the IlIusion ofsecurity 6; Al-Rasheed 186- 187; Reed, "Shaking the Timbers of the House of Saud."

68 To control for the fact that Saudi Arabia is significantly larger than the U.A.E. in

both geographic size and population, while maintaining all of the other variables

described above, a comparison with Qatar will be useful. This comparison will be

relevant because Qatar is a state that is also pursuing a diversification strategy but which

has not, as of yet, achieved results comparable to ~ubai.~'~Qatar has only recently

begun to approach Dubai's level of economic diversification and stability because it did

not share Dubai's impetus of diminishing resource wealth. Indeed, prior to 1995, when the current ruler took power, its leaders only pursued its development strategies half- heartedly. Since then, its increased commitment to modernization at the leadership level has allowed it to use its resource wealth to develop sound infrastructure and increase its links with the world economy. This contrast between different administrations in Qatar highlights the idea outlined above - that if policy makers are dedicated to carrying out economic modernization, and they have the resources to do so, they can use this course of action to attain higher stages of development.

The case of Brunei is applicable because it is a state that shares many of Dubai's features such as its small size, its Islamic culture, and its authoritarian, monarchic political system. Unlike Dubai however, it has significant hydrocarbon reserves and consequently, much larger revenues from these resources. Although it has had sustained political stability, Brunei's economic development more closely resembles Saudi

Arabia's, or Qatar's before 1995, since its economy is not diversified and its political elites have lacked cohesion in implementing development strategies. The fact that it has not shared Dubai's incentive of dwindling oil reserves has likely contributed to its

285 Warren R. True, "Maybe this Time," Oil and Gus Journal (August 23,2004).

69 leaders' unwillingness to pursue greater integration with the world economy

aggressively.

Overall, these case studies will show that when a state's revenue source is derived

from non-renewable resources, the rapid depletion of these resources can be a powerful

inducement to economic modernization and diversification. The development failures of

Saudi Arabia and Brunei will illustrate this concept. The case of Qatar will serve to

qualify this assertion however. Its current development results appear to indicate that

escape from the 'resource curse' may be possible without an incentive of diminishing oil

revenues. In general, these comparisons will demonstrate that above all, the commitment

of a country's political leadership to increasing its linkages with the global economy and

the availability of the requisite financial resources for the implementation of this process

will be the major determinants of whether or not a state reaches higher levels of

development.

Saudi Arabia

The case of Saudi Arabia is useful for a study of Dubai because it has had a

dramatically different development result despite the fact that it too is an authoritarian

monarchy with an Arab and Islamic cultural make-up. Unlike Dubai, which has resisted the expectations of the oil curse literature, Saudi Arabia has conformed to the predictions of this literature in many ways since it has suffered from economic stagnation and high degrees of political instability.286The argument presented here is that this situation has been produced by Saudi Arabia's leadership, which has not been seriously committed to

286 Champion 142-143,278-286; Peterson, Saudi Arabia and the Illusion of Security 6;Al -Rasheed 186- 187; Reed, "Shaking the Timbers of the House of Saud."

70 the pursuit of economic modernization. This lack of political will can be attributed to a

confluence of factors, most notably the regime's bargain with the country's conservative

religious establishment, in which authority over cultural and educational affairs has been exchanged for political support, as well as popular resistance to many aspects of

modernity, widespread corruption in government and business, and massive oil reserves which have not provided incentives to diversification. All of these factors contrast sharply with the case of Dubai and illustrate why it has achieved economic diversification and political stability while Saudi Arabia has not.

In 1932, the modem state of Saudi Arabia was formed following the con~lusionof a 30 year campaign in which Abd Al-Aziz bin Abd al-Rahman A1 Saud, also known as

Ibn Saud, fought to consolidate the many tribes of ~1-abia.~'~After securing control, he established a monarchy with his family, the A1 Saud, in control of the state.288Currently,

Saudi Arabia's official ruler is King Fahd, one of Ibn Saud's aging sons. However, he is incapacitated due to poor health and the day-to-day affairs of the state are run principally by Crown Prince Abdullah, one of his brothers.289

The main source of political legitimacy for the regime has historically been an alliance between the A1 Saud family and the Wahhabi, an Islamic sect which emphasizes a return to the most strict and unspoiled interpretations of the religion. 290 In exchange for political support, the Saudis have accepted the Wahhabi version of Islam as the ideological basis of their state.291The government's support for conservative

287 Daniel Yergin, The Prize: The Epic Quest for Oil, Money & Power (New York: Simon and Schuster, Inc., 1991) 284-286. 28g Ibid. "'Zakaria, "The Saudi Trap." "O Gause 12-1 3. 291 Ibid. interpretations of Islam increased in the 1980s following the brief seizure of the Grand

Mosque of Mecca in 1979 by religious militants. Many well known, conservative aspects

of contemporary Saudi society, such as the prohibition of women on television, began

during this period as the state ceded greater authority over cultural affairs and education

to the religious establishment in an attempt to co-opt dissidents.292Today however, many

consider this policy to be a failure as the state's greater support for fundamentalism

backfired when the so-called Arab-Afghans returned from Afghanistan in the 1990s and

formed the nucleus of domestic opposition to the regime.293

To appease its own population, and international opinion as well, Saudi Arabia

has instituted a number of political reforms in recent years. These changes began in 1993

with the establishment of the Majlis al-Shura, a consultative council comprised of

officials appointed by the ruling family.294In January 2005, further political reforms

began as municipals elections were held for 37 cities and regions, although women and

members of the armed forces were barred from voting and running for office.295These elections are purportedly only the beginning of an expansion of democratic participation

which will ultimately extend all the way to the Majlis al-~hura.~~~

In general, the Saudi people hold quite conservative Islamic views, despite the fact that many have studied in the In addition to the fact that Saudi Arabia is the site of Islam's birth, this conservative attitude can be attributed to the Saudi education

292 Zakaria, "The Saudi Trap"; Michaela Prokop, "Saudi Arabia: The Politics of Education," International Affairs (2003, no. 79). 293 Prokop. 294 "Quite a Step," The Economist (October 18,2003); Digby Lidstone, "Crassroots Reform," Middle East Economic Digest (October 17,2003). 295 "The Saudi Elections," APS Diplomat News Service (February 14,2005). 296 "Quite a Step." 297 Zakaria, "The Saudi Trap." system, which has inculcated citizens with the fundamentalism of ~ahhabism.'~~

Despite the fact that satellite television and the internet have begun to permeate Saudi culture in the face of strict government media controls, fundamentalist points of view

remain.299 Indeed, the Saudi government recently conducted a secret poll and found that

49 percent of Saudis support Osama bin Laden's ideas.)'' Furthermore, many Saudis despise the U.S. for its support of Israel, as well as for its military presence within the

Kingdom between the two ~ulf

Compared to citizens of the U.A.E., the Saudis are a much more religious people who are more distrustful of te~hnologicalmodernization. As a recent study on Arab opinion points out, Saudis emphasize religion much more in their lives than mi rat is.^"

For instance, while Saudis ranked "Religious FaitW9as the most important of a list of 12 values that should be taught to children, rated "Responsibility" most important.303Emiratis only placed "Religious Faith" gthon their list of 12 values. The religiously inspired, popular opposition to modernization found in Saudi Arabia is also evident in this poll. While 27 percent of Emiratis reported that they favored "maintaining tradition" over "changing with the times," in Saudi Arabia 39 percent of respondents stated that they favored tradition over change.)" These polls suggest a greater likelihood of support for modernization and development strategies in the U.A.E. than in Saudi

Arabia.

298 Ibid. "' Prokop; Neil MacFarqhaur, "A Bombing Shatters the Art of Saudi Denial," The New York Times (May IS, 2003). 300 Zakaria, "The Saudi Trap." 'O' Joel Brinkley, "Saudis Blame U.S. and Its Role in Iraq for Rise of Terror," The New York Times (October 14, 2004). 'O' James. J. Zogby, What Arabs Think : Values, Beliefs and Concerns (Zogby InternationalIThe Arab Thought Foundation, 2002). '03 Ibid. '04 Ibid. Beginning during the oil boom of the 1970s, the Saudi government embarked on a series of development plans.305These plans were designed to enhance the state's physical infrastructure under the assumption that this process would be a necessary prerequisite for economic diversificati~n.~~~However, these development attempts were ultimately marred by corruption and inefficiency. These deficiencies stemmed from the fact that the oil rents which accrued to the Saudi gove ent allowed it to promote the proliferation of illiberal business practices. These methods are a product of the state's encouragement of what Dary 1Champion refers to as "asabzjya capitalism."307 Asabiyya is an Arabic word meaning "group feeling" or "zealous partisanship."308 In the context of capitalism, this term signifies the presence of business processes which would be perceived as corrupt in the These included the widespread use of commissions that Westerners would consider bribes, as well as the proliferation of exclusive patronage net~orks.~

Asabzjya capitalism has allowed these networks to expand as the Saudi royal family has placed more and more of their kin on the state's payroll. At the beginning of the consolidation process that established Saud family rule over the tribes of Arabia, the

Saudis relied on the Hijazi people for the administration of their state.311This group, traditionally located in the western part of Arabia near Jeddah, had significantly more technical expertise than the Nadji people from the east, from which the Saudis were

305 Champion 10 -1 1 306 Abbas Abdelkarim, ed., Change and Development in the Gulf(New York: St. Martin's Press, Inc., 1999) 106. 307 Champion 11. 308 Champion 64. 309 Champion 1 1. 3'0 Ibid. 311 Champion 9 1-92. descended.312As oil rents increased state revenues in the 1970s however, the Saudis

could afford to utilize their less skilled Nadji kin in government and they ultimately drove

all of the Hijazis out of state offices.313They even went so far as to move the Saudi

political capital away from Jeddah to , the traditional home of the ~adjis.~~~This

process caused serious economic problems because the increasing role of members of the

extended Saudi family in government institutionalized the poor ethics and patronage of

asabiyyu ~apitalisrn.~'~

In this way, even though Saudi Arabia's rulers claimed to recognize during the

1970s that modem infrastructure was needed for economic di~ersification,~'~the

comption of asabiyya capitalism was so endemic that it led to massive failures in its creation. Development projects continued to be informed by political calculations as these efforts served to further patron-client relationships.317In addition, Saudi elites often traded inside information on development projects and received construction kickbacks that were up to 30 percent of the value of the constr~ction.~'~

A typical example of this kind of inefficiency and comption is the way government officials conducted business within the Saudi Real Estate Development Fund

(REDF) during the mid-1970s to the mid-1980s.~~~The stated mission of this fimd was to provide interest-free loans to Saudi citizens to enable them to purchase housing.320

However, misallocations of funds to wealthy applicants, multiple loans to families for the

31"bid. Ibid. 31' Ibid. 315 Champion 10 1. "'Abbas Abdelkarim, ed., Change and Development in the Gulf (New York: St. Martin's Press, Inc., 1999) 106. 'I7 Champion 78. "'Champion 93, 107. 319 Champion 102-103. 320 Ibid. same project, submissions of fraudulent reports, and the disappearance of large amounts

of cash characterized the operations of this fund.321Unlike the U.A.E., Saudi Arabia did

not institute proper regulations to govern the interactions between state and private

business during these development programs.322The overall result of this explosion of

asabiyya capitalism that oil wealth initiated in Saudi Arabia has been a development

program severely lacking in its ability to enhance Saudi Arabia's economic performance

and diversification.

Furthermore, the cormption of the asabiyya system led to the creation of large-

scale projects that were completely unnecessary, unlike Dubai's projects which were

strategically designed to boost tourism and the emirate's international image. One such

example is an expensive, modern opera house that the Saudi government built in Riyadh

during the late 1970s.~" Despite its costs, this opera house has to date never opened its

doors to the public. The very fact that planners chose to build an opera house reflects the

incoherence and waste of Saudi infrastructure development given the conservative sensibilities of Wahabbi culture which did not even permit cinemas as recently as the late

1990s.~~~Due to this widespread corruption and waste, there is a pervasive sentiment among members of the private sector that the infrastructure in Saudi Arabia is wholly inadequate. Indeed, even basic necessities such as electricity are in short supply and the result has been that many plants have had to acquire their own generators.325

As a result of these infrastructure failings, caused by the state's extensive corruption and patronage networks, economic diversification has been painhlly slow for

321 Ibid. 322 Rodney Wilson, Economic Developmenz in Saudi Arabia (London: Routledge Curzon, 2004) 137. 723 Champion 105. "' Ibid. "' Wilson 135. Saudi ~rabia.~~~The Saudi economy is still heavily dependent on the oil sector which today accounts for 40 percent of GDP. Although the country's GDP grew by 6.1 percent in 2004, compared with a 1.7 percent average annual rate between 1995 and 2002, this

shift can largely be attributed to rising oil prices and robust oil exports. Given that the state possesses about one quarter of the world's proven oil reserves and some of the lowest production costs, it is liltely that the oil sector will continue to dominate the Saudi economy. Indeed, Saudi Arabia today produces 10.5 to 1 1 million barrels per day and claims that it is capable of producing at even higher rates for up to 50 more years.327

Another major problem with the Saudi economy is high unemployment, which unofficial estimates place above 14 percent.328 Although increasing oil rents initially allowed the government to establish a massive distribution state, which by 1981 allowed per capita incomes to reach $28,600 per year in 2002 dollars, today per capita income has plummeted to less than $8,000 per year in 2002 dollars.329Despite the fact that the regime still derives 70 to 80 percent of its government revenues from oil exports, and that it maintains $23 billion in foreign exchange reserves and gold, which provide the state with a significant fiscal "cushion," population growth has forced the Saudi government to decrease its spending on its Growth in the Saudi population is so high that the youth population has nearly tripled since 1980.~" This growing, frequently unemployed youth population has created serious challenges for the government as bored youth have

-

326 Champion 79. '27 Energy Information Agency, Country Analysis Briefs: Saudi Arabia 328 Ibid. 329 Champion 9; Elaine Sciolino, "Bored Saudi Youth Take Wild Side to the Street," New York Times (February 20,2002). 310 Energy information Agency, Country Analysis Briefs: Saudi Arabia. 3" Ibid. often been swayed to disorderly behavior or militant fundamentalism, thus contributing to the regime9 instability.332

Indeed, the state's current political insecurity may ultimately prove harmhl for economic growth. As a result of the recent suicide bombings and bloody assaults by armed gunmen, multinational businesses operating inside Saudi Arabia are worried.333

Although a mass exodus of expatriates has not yet occurred, companies such as WSBC have started supplying their expatriate employees with flak jackets while others such as

BAE Systems have started offering retention bonuses.334Furthermore, some companies have begun to reduce their staffs and many family members have been moved outside the kingdom to safer ~ocations.~~'These shifts may help to explain why the Saudi government had to revise downward its estimate of the number of expatriates inside the country as a result of the fall 2004 census.336

To overcome its economic troubles, government officials in Saudi Arabia have offered a number of new strategies. To add diversity to its economy, they are pursuing expansion into petrochemicals such as polyethylene. In February 2001, SABIC, the

Middle East's largest non-oil industrial company, finished construction on the Yanbu petrochemical facility, the largest polyethylene plant in the Additionally, to increase business efficiency, the government is reportedly considering privatizing some

332 Sciolino; Reed, "Shaking the Timbers of the House of Saud." 33"tanley Reed, "Oil Anxiety Hits a Slippery Slope," Business Week (June 14,2004); Reed, "Shaking the Timbers of the House of Saud." "'Nield, Richard, "Taking the Flak," Middle East Economic Digesl (September 17,2004). "'Stanley Reed, 'Oil Anxiety Hits a Slippery Slope," Business Week (June 14,2004); Reed, "Shaking the Timbers of the House of Saud"; Digby Lidstone, "Hitting Home," Mdde East Economic Digest (June 4, 2004). '" 6. K. Abdul Ghafour, "Census Finds Expat Numbers Below Estimate," Arab News (November 26, 2004). 337 Energy Information Agency, Country Analysis Briefs: Saudi Arabia. aspects of Saudi Aramco, a company which has a monopoly on Saudi upstream oil operations and which presently manages 98 percent of the country's oil reserves."' It has also approved privatization measures such as the sale of the government's shares of the National Company for Cooperative Insurance (NCCI), although a time frame for this move has not yet been established.339Furthermore, government officials have reportedly considered taxation on business and individual incomes, among both citizens and expatriates, as well as a value-added tax, in order to supplement the government's oil revenues. However, progress toward taxation has been slow, most likely as a result of the state's massive oil revenues, which have created disincentives toward the swift seeking out of alternative sources of state revenue.340

Saudi Arabia's development results are thus starkly different from Dubai's. On top of the fact that Dubai's economy is significantly more diversified, it has also received significantly more FDI than Saudi Arabia. While Dubai's FDI in 2003 was equal to 10 percent of its GDP, Saudi Arabia's was only 0.1 percent of its GDP.~~'In addition,

Dubai offers a much more stable political environment. Indeed, many of the expatriate family members of business people that were moved out of Saudi Arabia were relocated to ~ubai.)'~Furthermore, Dubai's state-business relations are much less corrupt than those of Saudi Arabia. Although corruption and patronage networks undoubtedly exist in

~ubai,~~~they are not as widespread and endemic as in Saudi Arabia. Indeed,

338 Ibid. "'Digby Lidstone, "Hitting Home," Middle East Economic Digest (June 4, 2004); Laith Abou-Ragheb, "NCCI Gears up for More Competition," Arab News (March 17,2005). 340 "Majlis Muscles out Expat Tax Plan," Middle East Economic Digest (January 17, 2003). 341 Statistical Yearbook - Emirate of Dubai (2003); World Bank; "Dubai, FDI Grows," AME Znz (March 23,2005); United Nations Conference on Trade and Development, http://www.unctad.org/Templates/Page.asp?intltemID=1923&lang '42 Reed, "Oil Anxiety Hits a Slippery Slope." 741 Samir Salama, "'Most Ministers and Officials Abuse Their Office,"' GulJNews (September 3,2005). Transparency International, an international organization that monitors public corruption,

recently published a survey of 145 countries in which the U.A.E. was ranked the 29thleast

compt state.344This is a relatively strong performance given that the United States was

ranked 1 7th.345Furthermore, some scholars have argued that Dubai's corruption is

actually less than the U.A.E. as a whole and that its recent performance is primarily

responsible for the country's high rating in Transparency International's report.346In

contrast with this situation, Saudi Arabia ranked 7 1" in the same survey, thus indicating

the existence of a much more significant corruption problem within its borders.347

Beyond corruption and the lack of a diminishing oil incentive, factions within the

Saudi Kingdom that are resistant to modernization have contributed to the Saudi ruling

family's lack of political commitment to development. As described above, these forces

manifest themselves in two areas - the Wahhabi religious establishment and large

segments of the Saudi populace. These groups present serious obstacles to modernization

because if the Saudi government goes too far in embracing modernization and increasing

its links with the Westernized, global economy, it may face a domestic backlash. If the

Wahabbis were to turn on the government, they could expose the corruption and decadence of the ruling family, thus undermining its political legitimacy. 348 Similarly, religiously inspired anger from the Saudi people could result in greater internal Saudi

344 Transparency International, Transparency International Corruption Perceptions Index 2004. h~p://www.transparency.org/cpil2004/cpi2004.en.html#cpi2004 345 Ibid. 346 Eman A1 Baik, "Academics Call for Steps to 'Contain Corruption in UAE,"' Khaleej Times (March 29, 2005); Davidson 222-223. 347 Transparency International. 348 Reportedly, the royal family is now 30,000 members strong. Beyond corruption in state-business relations, all of these people receive massive benefits fiom the state such as free air travel anywhere in the world and extravagant monthly living stipends. Furthermore, anecdotal evidence suggests that members of the House of Saud fi-equently indulge in gambling, alcohol, and prostihtion, all activities that are expressly prohibited by Wahabbism. For more infomation, see Zakaria, 'The Saudi Trap" and Robert Baer, "The Fall of the House of Saud," The Atlantic Month& (May 2003). strife. Precedents for such violence have been set, as the late 1920's lkhwan revolt over the introduction of Western technology such as radios and telephones illustrate^."^

These factors have therefore contributed to Saudi Arabia's lack of political will for modernization.

In contrast, Dubai9s government does not face the same domestic religious constraints. Although ruling elites certainly use religious rhetoric and imagery to legitimize their mle,350they do not have a symbiotic relationship with religious institutions as the Saudis do. Instead, religious institutions in the U.A.E. are subservient to the state. As discussed in the third chapter, the state monitors and regulates nearly all of the mosques within its borders. In this manner, the government controls the country's religious establishment and does not depend on it for support in the way that the Saudis do. Indeed, the example of officials in Dubai ordering the mosque to turn off its calls to prayer illustrates the degree of authority that the government exercises over its

Islamic institutions. In addition, as mentioned previously, the people of Dubai are in general less religious than the Saudis and more open to change. There is a much lower likelihood therefore that they will rise up as the government pursues modernization strategies.

The result of Dubai's dwindling oil revenue incentive, its lack of corruption compared to Saudi Arabia, and its greater freedom from religious constraints has been that its leaders have had a much stronger ability to embrace globalization. Spurred on by the need to seek out new sources of revenue, Dubai's leaders have enhanced state infrastructure, taken advantage of recent global economic opportunities, and diversified

'49 Yergin 285-286. 350 Davidson 77-78. their economy. Although Dubai's leaders and people may still function with a rentier

mentality, they have so far escaped the oil curse. In contrast, Saudi Arabia's leaders have

not felt the same need to develop given their massive oil wealth. Their attempts at

development have been half-hearted due to widespread corruption in their political

economy and an unwillingness to alienate religiously motivated forces that might

endanger regime survival. The consequence of these two radically different development

trajectories is that Dubai has reached a relatively high level of economic development

while Saudi Arabia has experienced low growth, continued oil-dependencies, and

unemployment. These outcomes have likely contributed to its substantial political

instability since the Saudi people suffer from a lack of economic security, in contrast with

Dubai's citizens.

Qatar

Although the preceding analysis of Saudi Arabia and Dubai's divergent development paths may appear straightforward, a skeptic would argue that it is inadequate because it ignores one key variable - the fact that Saudi Arabia is a much bigger country in terms of both geography and population. While Saudi Arabia's land mass is approximately the size of one fifth of the United States, Dubai's land mass is about the same size as Rhode ~sland's.~~'Indeed, the entire U.A.E. is no larger geographically than the state of ~aine.~'~1n addition, while Saudi Arabia has about 16 milllion citizens, Dubai's population is estimated to be below 90,000, while the U.A.E. as

35 Central Intelligence Agency, United States Government. The World Factbook 2005: Saudi Arabia. hkp://www.cia.gov/cia/publications/factbooWgeos/sa.h;Ministry of Information and Culture, United Arab Emirates; Andy Bowers, "How Big Is Rhode Island?" Slate (November 5,2003) http://slate.msn.com/id/2090806/ 352 Central Intelligence Agency, United Arab Emirates. a whole is under one million.3s3 For this reason, it is logical to hypothesize that it is much easier for a government to implement elaborate development plans, to maintain political stability, and to achieve high standards of living in a small state than it is in a relatively big one.354

To control for Dubai's small size, it will be useful to evaluate Qatar's development. With a national population under 300,000 and a land mass roughly equivalent to that of Connecticut, Qatar resembles Dubai much more closely in size than

Saudi It also still shares many of Saudi Arabia's characteristics such as it Arab ethnicity, its Islamic religion, and its monarchic political structure. In addition, Qatar has significant oil and natural gas reserves.3s6 As a result of these shared features, Qatar's development will be useful for a comparison since it will help to draw out the factors which have led to Dubai's own outcome.

In keeping with the theme of this chapter, the argument presented here is that

Qatar's development results are defined by the extent of its leaders' political will to modernize, as well as the availability of the resources required to achieve their development objectives. This study will first examine the reign of Shaykh Khalifa fkom

1972 to 1995. During this period, numerous attempts at economic development occurred.

Although these projects produced some limited successes, they did not produce serious

i57 Ibid; Ghafour; Ministry of Information and Culture, United Arab Emirates; Personal Interviews January 2005. 354 '6Small but Perfectly Formed," The Economist (January 3, 1998). In this article, Kenichi Ohmae, a Japanese management analyst, argues that small countries have the potential to grow faster than big ones. I-3e claims that, "What matters is leadership and vision. A country with more than about 10m-15m people, and especially one with a centrally controlled economy, faces management complexities. And, like a big company, it may simply be too large to be nimble." 355 "Tourism Dreams for Little Persian Gulf State," CNIf.com (February 1,2005). 356 Energy Information Agency, United States Government, Country Analysis Briefs: Qatar (February 2005). http://www.eia.doe.gov/emeu/cabs/qatar.html economic modernization or diversification. These programs failed because Qatar's leadership demonstrated a lack of commitment to development. Following the accession of Khalifa's son Hamad in 1995, Qatar embarked on a strategy that much more closely resembles Dubai's. Since then, the government has strengthened infrastructure and has initiated construction on attractions designed to boost tourism, in an effort to build up the state's linkages with the global economy. This comparison is relevant because the preliminary results of Qatar's new development strategy appear to indicate that strong development is possible in spite of the potential political and economic distortions caused by its hydrocarbon resources. In addition, the contrast between Khalifa and Hamad's dedication to economic modernization and globalization has played a major role in determining the state's development outcome.

Like Dubai, Qatar also entered into a series of Trucial agreements with the British in the late 1800s.~~~AS with the emirates, the treaties stipulated that in exchange for

British protection, the monarchy would agree not to assume relations with any other powers, nor to give up concession rights without British permission.358This relationship between Qatar and Britain ultimately cemented the rule of the Al-Thani monarchy which had been governing the state since the 1 860s.'j9 From approximately 1970 to 1995 however, Qatar experienced a substantial amount of internal unrest among members of this ruling tribe. In 1972, ShamKhalifa acceded to the throne by deposing his first cousin Ahmad in a contentious Similarly, Khalifa's own son Hamad came to

357 Crystal 115. 358 Ibid. 359 Crystal 28-29. 360 Jill Crystal, Oil and Politics in the C;ulJ:.Rulers and filerchants in Kuwuil and Qatar (Cambridge: Cambridge University Press, 1990) 156. power following a coup in 1995.~~'However, Hamad's rule appears to be firmly entrenched today.362

Since Qatar is such a small state, it suffers from many of the same vulnerabilities and security concerns as Dubai. In particular, its leadership worries about potential aggression from Saudi Arabia, its much larger neighbor.363To alleviate these anxieties,

Qatar's leaders have established a close relationship with the United States, hoping that the superpower will protect them as Britain did previously.364The relationship has become so strong that in 2002 Qatar's government signed a defense accord with the U.S. to strengthen military cooperation as the U.S. prepared for war against ~ra~.~"The result of this agreement has been a long-term increase in the number of U.S. troops stationed within its borders. This prolonged presence is due to the fact that Qatari leaders and the

Bush administration agreed to upgrade Qatar's Al-Udeid air base into the largest such

American base in the ~~lf.~~~The base is so significant that in January 2005, Saddam

Hussein was reportedly scheduled to be transferred there from ~ra~.~~~

Under the leadership of Shaykh Hamad, Qatar has pursued a number of incremental political reforms. In 1996, he ended media censorship and authorized state subsidization of the Al-Jazeera satellite channel.368In 1999, the country's first municipal elections were held and in 2003, voters approved a permanent constitution by

361 "Qatar - Economic Liberalisation and Impact," APS Diplomat Fate of the Arabian Peninsula (February 4,2002). 3 62 J.E. Peterson, "The Next Generation in the Gulf," The Washington Quarterly (Autumn 2001). "' Faisal Bodi, "The Price of a Protection Racket," The Guardian (March 22, 2005). "'Ibid. 365 "Qatar - Deepening Military Co-operation," APS Diplomat Strutegic Balance in the Mia'de East (February 10,2003). 366 Ibid. 3 67 "Saddam to Be Moved to Qatar U.S. Base," UPINews Track (January 17,2005). 168 Angus Hindley, "'Symbol of Change," Middle East Economic Digest (November 19,2004); "Qatar- Based Al-Jazeera Television Considers Privatization," The Associated Press (January 30, 2005). Under the terms of this constitution, male and female voters will elect 30

members of a 45-member parliament and the rest will be appointed by the monarch.

Although a timeframe has not yet been established, these elections are expected to occur

in the second half of 2005 or early 2006.~~'Despite the fact that the government has

moved quickly in implementing these reforms, it has not been spurred to do so by strong

popular demand.371

Instead, the people of Qatar are generally satisfied with their current situation.

Presently, there is no domestic opposition Large, violent, discontented

sections of society simply do not exist as they do in Saudi ~rabia.~~~This situation likely

has a lot to do with the fact that annual per capita incomes for Qatari citizens have exceeded $29,000 for the past four years and are the highest in the ~~lf,~~~Still, imams are quite vocal in their distaste for the U.S. military presence inside the country and there are reports that a majority of Qataris identify with Islamic fundamentalist sentiments.375

However, after the March 2005 terror attack in Doha, which occurred near a school, anecdotal evidence has indicated that citizen sympathy for such movements will likely decrease.376

Regarding Qatar's initial attempts at development, it is clear that Shaykh Khalifa was not as intent on achieving modernization and integration with the world economy as his son Hamad is. Still, he created more infrastructure than his predecessor, even if some

369 Hindley, "Symbol of Change." 370 '6Qatar: Emir Says Elections Are Being Prepared," Mew York Times (March 4,2005). 171 Hindley, "Symbol of Change." 372 Ibid. 373 Hindley, "Symbol of Change." 374 Tom Everett-Heath, "Surplus, Surplus, Surplus," Middle East Economic Digest (October, 17 2003). For more information see Table C. in the Appendix. 375 Bodi; Jim Krane, "Qatar Blast Shows Terror Cells in Friendliest Corners of the Arab World," The Associated Pvess (March 20,2005). 3 76 Krane, "Qatar Blast Shows Terror Cells in Friendliest Comers of the Arab World." of his projects failed. 377 One of his first oil-funded development programs was the creation of the West Bay, a suburb of Doha designed to redistribute He continued by building a refinery, a gas facility, a salt factory, a bag plant, a plastic factory, and a fertilizer plant, all of which were state owned.379 Following the increases in government revenues after the oil price spikes of 1973, he pursued diversification in two other areas -petrochemicals and However, neither of these efforts was very successful. The petrochemical company only began operating in 1981, just as falling oil prices prompted decreases in government funding.381Similarly, the steel mill, which opened in 1978, could only manufacture steel at three times the current market price.3s2

The result of Khalifa's development scheme was that by the early 1990s, oil was the only highly developed The primary reason that he did not succeed in diversifying his economy was that he was not sufficiently dedicated to the AS his development results illustrate, many of his attempts were merely designed to function as downstream operations within the oil industry. Furthermore, he was weary of taking on debt to fund development and feared that inflows of foreign investment would be destabilizing.385As a result, international bankers and diplomats cheered when Shaykh

377 Crystal 156. 378 Crystal 149. 3 79 Crystal 158. 380 Crystal 159. '" Ibid. 382 Ibid. '83 Ibid. 7x4 "Qatar - Economic Liberalisation and Impact." __ 385 Hassan Haidar, "New Emir Deposed Father for Stifling Qatar's Economic Growth," Agence France Presse (July 1 1, 1995). Hamad deposed his father in 1995, because they recognized that he would steer Qatar

toward much deeper integration with the global economy.386

In this way, the internationally-oriented strategy that Hamad7sadministration is

now pursuing is quite similar to Dubai's. Indeed, his current Economy & Commerce

Minister has stated that the program's goal is to make Qatar "part of the global

economy."387 To reach this aim, the government has committed to robust spending on

physical infrastructure projects and tourist ama~tions.~~'In 2004, Wamad authorized

spending $900 million over the course of the next six years in a variety of areas including

roads and sewerage.389One of the largest new construction projects underway is a $2

billion international airport, which is being managed by ~ecbtel.~~~To promote tourism,

the government awarded $700 million dollars worth of contracts in 2003 to develop a

series of attractions including a Museum of Islamic Arts, the Qatar National Library, and

a medical complex designed for use in the upcoming 2006 Asian Games, to be hosted by

In addition, the government is supporting construction on a massive, man-

made, island real estate development known as the The state has also begun to establish the country as an international conference center, as the 2001 WTO Ministerial

Conference in Doha illustrates.393

Like the Maktoum family's development strategy, I-Iamad's program ultimately seeks to leverage these assets into greater economic diversification by attracting foreign

386 Lachlan Carmichael, "Qatar Coup Sends Positive Economic Signals," Agence France Presse (June 29, 1995). 387 Hindley, "Symbol of Change." 388 Angus Hindley, "Fast Track: Qatar's Economy Is Booming," Middle East Economic Digest: (March 12, 2004). 389 Hindley, "Fast Track." 390 "The More the Merrier," Middle East Economic Digest (January 16,2004). 391 "The More the Merrier"; h~://www.dohasiangames.or~enl 39"'~ Pearl of a Project," Middle East Economic Digest (November 19, 2004). i93 " Qatar - Economic Liberalisation and Impact." investment.394To this end, he has promulgated a new FDI law which allows foreigners to own up to 100 percent equity in manufacturing, desalination plants, mining, education, health care, and tourism.395Foreigners are also allowed to lease land for up to 50 years.396

Beyond building infrastructure and attracting foreign investment, Shaykh Hamad has also introduced a significant number of privatization measures. So far, the government has moved to partially privatize several state industries such as Qatar

Telecom and Qatar Electricity & Water In addition, government officials have drawn up plans to partially privatize the Qatar National Hotels Company and the

Qatar Steel Company, as well as some public services such as municipal cleaning, education, and health~are.~~~

To fund this development program, Hamad took a number of risks in the mid-

1990s. Recognizing that oil reserves would likely dry up by 2020, and that the country possesses the world's third largest natural gas reserves, the state invested substantial amounts of money in developing new liquefied natural gas (LNG) export technologies.399

The result of this investment was that the government took on a large amount of foreign debt during this period.400When oil prices dropped in the late 1990s, the state's financial situation became extremely uncertain since it still depended on oil exports for revenue.401

Fortunately for the government, rising oil prices and the expansion of natural gas exports

394 Hindley, "Fast Track." 795 Moin A Siddiqi, "Qatar: The Tiny Emirate of Qatar, Is on Track to Become the Gulf's New Super- Energy Power," The Middle East (March 2003). 396 "~atar- Economic Liberalisation and Impact." "'Siddiqi. '98 Ibid. 399 6' Tourism Dreams for Little Persian Gulf State7'; "Turning Pain into Gain," Middle East Economic Digest (November 19, 2004); Energy Information Agency, Country Analysis Briefs: Qatar. 400 Energy Information Agency, Country Analysis Briefs: Qatar. 401 "Turning Pain into Gain." have since resulted in budget surpluses which have stabilized public finances.402By late

2004, the state's debt was less than 50 percent of GDP, compared with 80 to 85 percent

of GDP in the late 1990s.~'~Furthermore, in 2000, the government used its surpluses to

set up a stabilization fund which will act as a cushion against future oil price drops.404

The result of this gamble, in which Hamad generated revenue for his development

projects through the state's investments in LNG, is that the groundwork has been laid for

serious economic diversification. Although oil and gas still make up about one half of

GDP, non-oil and gas GDP has increased in recent years.405Indeed, in 2004 it grew by

an estimated 10.8 percent in nominal terms with the manufacturing, electricity, water, and

construction sector all experiencing nominal growth of approximtely 16 to 25 percent.406

Furthermore, Hamad's attempts to diversify into tourism appear to be paying off as

occupancy rates in Doha's hotels have jumped from 12 percent in 2002 to 69.9 percent in

2003, while remaining high in 2004.~'~Tourism analysts are also optimistic about the future, with one recent UK tourism report predicting that Qatar will be a mainstream destination by 2024.'08 Overall, his policies have allowed per capita incomes in Qatar to remain high, unlike in Saudi Arabia where they have fallen dramatically.409In this way, although the hydrocarbon sector still dominates, Qatar's economy bas taken positive steps toward promoting other industries that will be more sustainable in the long term.

402 Everett-Heath. 403 iiTurning Pain into Gain." 404 Ibid. 40.5 Yahoo International Finance Center, Qatar Country Fact Sheet, 2005 http://biz.yahoo.comlifc/qa.html; "Doha Puts in Another Strong Performance," Middle East Economic Digest (January 28,2005). 406 "Doha Puts in Another Strong Performance." 407 "Moving Up the Agenda," Middle East Ecorzomic Digest (March 12,2004). 408 Ibid. 409 Energy Information Agency, Country Analysis Briefs: Qatar. Qatar's leadership also has several new ideas for future development. The first is

the establishment of a financial center, known as the Qatar Financial Centre (QFC).

Qatari leaders hope that they will be able to build on their A+ Standard & Poor

investment grade government bond rating, as well as their reputation for low corruption,

to establish their country as a regional capital market.410To meet this goal, government

planners are being advised by the western consulting firm Deloitte & ~ouche."~Another

way in which Qatar's leaders hope to achieve diversification is by establishing free trade

zones. Currently, the Ministry of Economy & Commerce is drafting a law which will

authorize the creation of these Finally, government officials in Qatar have been

negotiating a free trade agreement with the United States. They expect that such an agreement will provide industries in Qatar with a protected, tax-free export market, and in so doing, expand its trade links with the world economy.413

In general, Qatar's present development trajectory appears to be emulating

Dubai's. It is obvious that Qatar's leaders are following Dubai's example given that

Dubai was the first Gulf city to prove that airports in the Arabian Desert and ostentatious, man-made, island real estate developments could attract tourists. Echoes of Dubai's strategy are also apparent in the government's plans to make Qatar a regional center for business. Although Shaykh Khalifa had not been leading Qatar's economy in this direction, Shaykh Hamad appears dedicated to increasing his country's linkages with the international economy. Even though Qatar has surpassed Dubai in terms of per capita income, so far it has not reached the same degree of economic diversification, given the

410 "Financial Centre Unveiled," Middle East Economic Digest (January 14,2005); Qatar was ranked 3gth in the Transparency International Corruption Perceptions Index described previously in this chapter. 411 lbid. 412 Ibid. 41' Ibid. prominent role that hydrocarbon exports continue to play in its economy. Still, some

analysts claim that Qatar could reach Dubai's current level of development within a

decade.414

One significant difference between Qatar and Dubai's development strategy is

that Qatari leaders have much more openly embraced the U.S. military. Although Dubai

allows U.S. naval forces to dock at its Jebel Ali seaport for fuel, supplies, and leave time,

in general, it keeps the presence of U.S. troops within its borders to a While

there is currently no active, domestic opposition movement in Qatar, the example of U.S.

military personnel in Saudi Arabia demonstrates that a large foreign military presence can

infuriate a state's population. Indeed, before and during the 2003 invasion of Iraq, mosques in Qatar openly denounced the war as a "'Judaeo-Christian crusade."'416

Although the perpetrator of Qatar's first terror bombing in March 2005 was an Egyptian, it is possible that he was aided by disaffected ~ataris.~'~Regardless, the potential for further terror attacks is high. This situation illustrates the pitfalls of the government's decision to host U.S. military forces within its borders. Having chosen to avoid such overt support for the U.S. military, Dubai's leaders have likely not placed their state and economy in the same amount of danger as Qatar.

Overall, the preliminary development results of Shaykh Harnad's development strategy are important to the present study of Dubai in several ways. First, the fact that

414 "Qatar - Economic Liberalisation and Impact"; Joseph B. Treaster, "Is Qatar the Next Dubai?The New York Times (December 5,2004). 415 Johnson, Chalmers, The Sorrows ofEmpire (New York: Metropolitan Books, 2004) 249-250. The U.S. currently maintains only about 75 soldiers in the U.A.E. in contrast with Qatar, which hosts about 3,000 U.S. troops. For more information see United States Government, "Worldwide Manpower Distribution by Geographical Area," Directorate for Information Operations and Repo~s,Department of Defense (September 30,2003). 416 Bodi 417 Krane, "Qatar Blast Shows Terror Cells in Friendliest Corners of the Arab World." Qatar's present leadership seelts to largely replicate Dubai's development demonstrates

that policy makers in the Gulf perceive Dubai's strategy to be effective. Second, if economic diversification and modernization comparable to Dubai are eventually achieved, this outcome will demonstrate that although an incentive of diminishing hydrocarbon revenues may be sufficient for development, it is not necessary. Finally, the contrast between Shaykh Khalifa' and Shaykh Mamad's dedication to development confirms the central argument of this chapter - that the achievement of development goals is contingent on the will of a particular's country's leadership. The preceding comparison demonstrates that this observation is as true of the Al-Thani family as it is of the Maktoums.

Brunei

Moving away from Qatar's substantial first steps toward economic diversification, it will be useful to look at a small state which has had a very different development trajectory - Brunei. This country is useful to the present study of Dubai because it shares many of the emirate's qualities. Brunei is also an Islamic, authoritarian monarchy.

However, one major difference is that the state possesses much greater hydrocarbon wealth and consequently, its government has not yet felt the need to seek out new sources of revenue. The state also provides a pertinent comparison because although it is not an

Arab country, it is similar in size to Dubai. Indeed, its land mass is approximately the size of Delaware and its population is under 400,000."~ Although it has experienced sustained political stability, its development outcome resembles Saudi Arabia's in many

418 Central Intelligence Agency, United States Government. The World Factbook 2005: Brunei. http://www.cia.gov/cia/publications/factbooWgeos/bx.~tml ways, given that its economy is not diversified away from resource exportation and that

its rulers lead extravagant lifestyles while promoting conservative Islamic values to their

citizens. Brunei's development therefore will be valuable for a comparison with Dubai

because it presents a case in which a small state with political stability and substantial

resource wealth has failed to diversifl.

To explain why Brunei's development attempts have not led to economic

diversification, it will be necessary to return to the main idea of this chapter - that in

resource-rich developing countries, a state's leadership has a great deal of autonomy in

determining its development results. Above all, the absence of any diminishing oil incentive comparable to Dubai9s has contributed to its leaders' lack of political will for economic modernization. Without this incentive, development strategies have not taken on the same sense of urgency that they have in Dubai. They have instead suffered from a lack of policy cohesion and risk taking, while a substantial amount of funds have been squandered by the royal family. Although preliminary results from Qatar appear to demonstrate that massive resource wealth will not necessarily impede development,

Brunei's development confirms that this wealth can still be sufficient for such an outcome.

Like Dubai and Qatar, Brunei's history has been permanently impacted by its relationship with the British. In 1888, the British established Brunei as a protectorate.419

Following Britain's imperial decline in the aftermath of World War 11, the state was slowly granted independence. During the first stage of independence, Brunei's new

Constitution in 1959 confirmed the ruling family's right to govern the state's internal

419 Damien Kingsbury, South-Eust Asia: A Polificul Profile (Oxford: Oxford University Press, 2001) 293- 295. affairs.420Throughout this period, the British pressured Brunei to join the nascent

Malaysian federation and to hold elections for a Legislative Council."' The state's first elections were held in 1962 and they resulted in a credible victory for the Partai Rakyat

Brunei (PRB), an opposition party which opposed federation and supported immediate and complete independence. With British support, the Sultan responded by declaring a state of emergency, banning the PRB, and suspending the ~onstitution.~~~The PRB in turn launched an armed revolt which was quickly put down with the help of the

Until 2004, the ruling family governed Brunei under this 'state of emergency,' even though it ultimately decided against joining and achieved fbll independence from Britain in 1984.~~~

As Bmei's monarch, Sultan Hassanal Bolkiah maintains absolute power. He serves as the state's prime minister, defense minister, finance minister, head of the armed forces, and the state's 'guardian of slam.'^^^ The Sultan's dictatorial style of rule is evident in the intimidating powers of arrest granted to his internal security forces, as well as the state's strict control of the media.426 Observers consider his authoritarian government to be above the law since its members are free from any prosecution and civil

The regime does not derive its political legitimacy from the state's Constitution, which was severely marginalized during the state of emergency. Instead, legitimacy

-

420 Mark Cleary and Shuang Yann Wong, Oil, Economic Development and DiversEfication in Brunei Darussalam (London: St. Martin's Press, 1994) 25-26. 421 "Brunei: Country Profile," Asia & PaciJic Review of World Information (October 9,2002). 422 Kingsbury 295-296. 423 Ibid. 424 Ibid; "Brunei: Country Profile"; John Burton, "Sultan Brings back Election in Brunei," Financial Times (September 30,2004). 425 Joshua Kurlantzick, "Brunei Dispatch: Paradise Spent," The New Republic (May 21, 2001); Burton. 426 Ibid. 427 Roger Kershaw, Monarchy in Southeast Asia (London: Routledge, 2001) 122-123. stems from the state's ruling ideology of Negara Melayu Islam Beraja. 428 Also known as

MIB, or 'A Malay, Islamic, Monarchy,' this ideology stresses the country's Malay ethnic

culture and identity, its Islamic religious character, and its tradition of monarchy.429As

an expression of cultural nationalism, MIB is emphasized in practice in the fact that the

government uses Malay as its administrative language and that it has endorsed Islam as

the state's religion while recognizing the Sultan as the state's supreme executive

authority."' The role of Islam within this ideology is imporla because it is the product of a bargain similar to the one made between the Saudis and the Wahabbi in which the

religious establishment's political support was exchanged for the state's promotion of their religion.431Although this dominant ideology certainly has roots in the country's history and traditions, in fact it is not truly a logical product of the past as much as it is a modern formula projected backward by the government in order to gain legitimacy.432

Despite the fact that the regime has been defined since independence by its authoritarian tendencies, the government has recently begun to promulgate some small reforms. In September 2004, the Sultan convened his appointed Legislative Council for the first time since 1984 when it was suspended. The following week, he signed a new constitution which calls for the establishment of a parliament with 15 elected officials

428 Kershaw 124-126. 429 The same ruling family has been in power in Brunei for the last six centuries. For more information, see Kershaw; Central Intelligence Agency, Brunei. 430 Cleary and Wong 26. 43 1 Kershaw 124-126. 472 Ibid; Cleary 130- 13 1 and 30 appointed by the Analysts argue that the government has implemented

these reforms in the hopes that they will preempt future dissent from citizens.434

Although nationals are not currently hostile to the government, and in fact appear

quite content as a result of the state's massive welfare system,435two factors make the existence of future unrest possible. The first is the recent fall in living standards.

Although CNI per capita is relatively high for the region, it has declined steadily in real terms from its peak in 1980 of $38,299 in 2003 dollars."' By comparison, GNI per capita in 2003 was estimated to be only $20,360."~ In addition, since the population has expanded faster than the economy, unemploynnent is currently as high as 6 to 10 percent.438Indeed, there are reports that there are now unemployed citizens begging in the street^,"^ a sight presently unimaginable for citizens of Dubai. If meaningful economic development is not achieved, it is likely that these trends will escalate, causing new tensions between the government and its citizens to emerge.

The second possible basis for dissent is fundamentalist Islam. Recent increases in global communication flows have allowed citizens to circumvent media censorship in order to learn about the excesses of their rulers.440These forces have likely contributed to the Islamic discontent that has been on the rise since the early 1990s.~~'Indeed, an

Islamic preacher on the state-owned Radio Television Brunei recently used his sermon to

4'?gnatiu~ Stephen, "Brunei Sultan Paves Way for Polls," The Straits Times (Singapore) (September 30, 2004); Bandar Seri Begawan, "Oil-Rich Brunei Convenes Legislature for First Time in 20 Years," The Associated Press (September 25,2004). 434 Burton. 415 Kershaw 118, Kingsbury 297. 436 Cleary and Wong 78; United Nations Statistics Division, National Accounts Main Aggregate Database http://unstats.un.org/unsdlsnaama~dnllist.asp 437 United Nations Statistics Division. Greg Sheridan, "Brunei Foots the Bill for Princely Excesses," The Australiun (September 25,2000); Kurlantzick. 439 Kurlant~ick. "'Cleary and Wong 129-130. 44' Ibid. argue that the 2004 tsunami was punishment for Bmneian decadence, although he did not

explicitly say whether he meant among the state's rulers or citi~ens.~"Regardless, this

rising tendency toward Islamic fundamentalism has apparently worried the government

enough that they have begun restricting Islamic groups, such as the Jama9ahAl-Arquam

movement, which was banned in 1991 .443

Brunei's attempts at development, which have been ongoing since the 196Os,

have consistently demonstrated a dearth of policy cohesion that reflects the government's

lack of commitment to the process. Although progress has been slow, early plans which

focused primarily on building up infrastructure to facilitate diversification did achieve

some successes. For example, in the 1960s and 1970s, the state significantly improved

its roads, telecommunications, schools and hospitals. In addition, in 1975 the

government established Royal Brunei Airlines, the country's national airline.444Still,

none of these plans have contributed significantly to the diversification of the economy.445

This result is largely due to development planners' lack of administrative cohesion. From the 1960s to the present, the government's approach to development has been plagued by incoherence and a lack of organization. One major difficulty was that until 1973, development expenditures frequently fell short of their targets. Some analysts have argued that this problem was a product of the fact that the Treasury was in charge of disbursing development funds.446since its goal was to maintain fiscal discipline rather

442 "Brunei Friday Sermon Sees Tsunami as Sign to Temper "Worldly Pleasure," BBC Monitoring International Reports (March 11,2005). 44"bid. 444 Cleary and Wong 29. 445 Cleary and Wong 83. 446 Cleary and Wong 91. than promote development, it often opted to spend less money rather than more. Another

similar problem has been that although Brunei has enormous fiscal surpluses due to its oil

revenues, these funds have been badsed in bonds, gold, and real estate instead of being

invested in development projects.447In this manner, Brunei's massive reserves have been

undemtilized. Furthermore, the organs of development administration are apparently so

muddled and opaque that few planners are even fully aware of what resources are

available to them.448For example, the director of the Finance Ministry's Department of

Economic Planning and Development has said that, "I myself don't know how much we

have or how much we have

Another reason that Brunei's development plans have not taken off is that there

has been a general aversion to risk-taking among development planners.450In addition to

the government's overall reluctance to invest its financial reserves in development, it has

also been extremely cautious in funding real estate projects. In contrast with Dubai,

whose leaders have boosted tourism by building public, luxury attractions, Brunei's authorities have failed to create similar attractions, even though development policy since

2001 has been to promote tourism.451Although it did build a national stadium and an enormous palace for the Sultan in a display of national pride prior to independence in the early 1980s, the government has only encouraged the creation of luxury real estate developments for the country's elites.452These properties are hidden from public view and are guarded by British ghurkhas, who provide a significant amount of security for the

447 Cleary and Wong 99-100. 448 Wayne Arnold, "How to Say Now to a Sultan; Brunei and Its Leader Try Economic Discipline," New York Times (March 6, 200 1). 449 Ibid. 450 Cleary and Wong 93. 45' "Brunei: Country Profile." 452 Cleary and Wong 30; Kershaw 132. country.453In this way, although establishing costly, man-made islands is not necessarily

the best way for a state to promote its tourism industry, it is clear that Brunei has suffered

from a hesitancy to develop attractions.

Another significant impediment to development has been that the royal family has

squandered a considerable amount of its wealth. In addition to the Sultan's opulent

palace, the family has acquired hotels in London and Los Angeles as well as at least 350

~olls-~o~ces.~~~Sultan Hassanal's brother Jefii is said to have paid Joe Montana and

Herschel Walker thousands of dollars to teach his son how to play football.455Moreover,

Jefri was forced to resign from his position as chairman of the Brunei Investment Agency

in 2000 after he reportedly pilfered up to $25 billion in government Clearly, the

family's cormption and wasteful spending has been a drag on development since these

funds could have been put to work in the service of the country's development program.

As a result of the government of Brunei's clear lack of political will for

diversification and modernization, its economy is still heavily dependent on hydrocarbon

exports. In 2002, they accounted for over 90 percent of exports and 40 percent of

GDP.~" Indeed, despite the government's efforts at diversification its industrial,

agriculture, and tourism sectors are still extremely underdeveloped.458In this manner,

although Brunei's strategy has been purportedly influenced by Singapore's top-down

451 Kershaw 132. 454 Kurlantzick; hold. 455 Kurlantzick. 456 Sheridan; Florence Chong, "'Reality Bites in Brunei - It's Not All Oil and Skittles Any More," The Asutralian (July 19, 2000). 457 "Brunei: 'Review," Asia and PaciJic Review of World Information (October 9,2002). 458 Cleary and Wong 99, 101 - 105, 140; '"Brunei: Country Profile." approach to development,"59the state has not followed a similar path since it has failed to

achieve diversification and greater links with the global economy.

Belatedly, government officials have acknowledged that there have been

substantial problems with their development tactics. In 2000, a report issued by Brunei's

Economic Council admitted that the current system is not sustainable.460Although most

citizens are employed by the state, this situation cannot continue indefinitely since oil

reserves are expected to be exhausted by 202.5.~" As a result, government officials are

now proposing that the private sector should play a larger role in the economy.462To this end, officials claim that the state will soon privatize several utilities, institute fees for health care and education, and introduce income taxes.463To further encourage diversification and private sector growth, the government plans to break into new heavy industries such as aluminum smelting, plastics, and textiles.464In addition, it hopes to expand its shipping capabilities by building a new port.465Furthermore, government planners have stated their intention to turn Brunei into a regional financial center.466

Ultimately, the government hopes that these efforts to diversify will serve to draw in

FBT.~~~Brunei's current strategy therefore, as articulated by government spokespeople, is not that different from Dubai's, since it seeks to reap the benefits of greater integration with the international economy.

459 Cleary and Wong 63. 460 Sheila McNulty, "Economic Rethink as Big-Spending Brunei Gets Down to Its Last Dollars," Financial Times (March 28, 2000). 461 L'Brunei'~Brawling Brothers," The Economist (March I 1,2000); Kurlantzick. 462 Arnold; McNulty. 461 Ranjan Roy, "Newly Pragmatic Brunei Rethinks Oil Gravy Train for Its People," The Associated Press (August 6,2000). 464 "Economic Diversification Strategy," Busine,~Times (November 17,2000). 465 "Brunei to Find Prospective Partner to Develop US$1.5 Bln Port," Malaysia Economic News (December 15,2004); Energy Information Agency, United States Government, Country Analysis Briefs: Brunei (August 2004). http://www.eia.doe.gov/emeu/cabs/brunei.html 466 "We Will Live up to International Expectations," The Asian Bunker Journal (March 15, 2004). 467 "Brunei Keen to Attract Foreign Direct Investments," hiialaysirx Economic News (March 10,2005). Nevertheless, there is not much reason to be optimistic about Bmei's prospects

for development in the short term. Although the components of its current development

scheme appear in many way's to resemble Dubai9s,there are substantial problems with

the state's approach. To begin with, there is a problem of sequencing. While Dubai's

planners developed its heavy industries during the 1960s and 1970s, and followed them

with tourism and finance in the 1980s and 1990s, it appears that Brunei's officials want to

establish all of these industries simultaneously. This approach was not taken by Dubai9s

planners, who only introduced tourism and finance after carefully establishing a base of

heavy industry and shipping. In addition, Brunei's track record of incoherence in

development administration as well as its leaders' aversion to risk-taking does not bode

well for future attempts at modernization. Unlike Qatar, there has not been a shift to a

new, strongly pro-globalization leader. There is reason to doubt therefore that in the

future development will proceed much differently than it has in the past.

Furthermore, the proposal to establish income taxes could prove to severely

destabilize the state's political economy. As these taxes are levied, it is possible that citizens will in turn demand a greater voice in politics, thus challenging the royal family's system of absolute rule. This issue has been avoided by Dubai's leaders who have located new forms of rent in order to placate their citizens with welfare benefits and in so doing, maintain their control over the state apparatus,

Brunei's development is useful to the present study of Dubai because it is clear that its less urgent diminishing oil incentive has limited its leadership's dedication to global economic integration. Although it is too soon to say whether the state's current approach will yield greater international competitiveness or instead perpetuate its hydrocarbon export dependency, so far its substantial resource wealth has held back its

diversification in comparison with Dubai. In some ways, Brunei's development outcome

is not that different from Abu Dhabi's, since it too has opted to turn its massive resource

wealth into financial reserves rather than development projects. It is entirely possible

therefore that without its early diminishing oil incentive, Dubai might have more closely

resembled its fellow emirate, or perhaps even Brunei. This statement cannot be made

with any certainty however given the fact that Dubai had already begun its process of

economic modernization before its influx of oil rents starting in 1969.

Overall, the case of Brunei highlights once more the development theme that has

linked the cases discussed in this chapter - that state leaders have the agency to take

advantage of opportunities stemming from greater integration with the global economy,

especially in hydrocarbon-rich states, As always, this assertion is qualified with the statement that they must possess the resources necessary for the implementation of this course of action. It is important to note that these resources are not simply financial, as in the case of Dubai and its oil revenues; these resources are also political. In the two principle cases offered here in which development appears to be moving forward - Dubai and Qatar - authoritarianism has been present. While it is entirely possible that a democratic majority could provide an elected leader with the support necessary to embark on a similarly aggressive development scheme, it is not clear that a leader could enact such a program in the face of a majority staunchly opposed to such a development path.

In this way, it is probable that the pace of Dubai's development, and perhaps Qatar's as well, can be attributed in part to the authoritarian nature of the regimes, which do not necessarily require broad popular support for the enactment of their policies. This relationship between authoritarianism and development will be explored in greater detail in the Conclusion, which will address the weaknesses of Dubai's strategy and also analyze whether or not Dubai's method of achieving sustained growth and stability can be considered a development model. Conclusion

Dubai has presented a puzzle because its development results are unusual in comparison with the other Arab monarchies of the Persian Gulf. Contrary to expectations based on local trends, as well as the regional development literature, Dubai has achieved a diversified economy and a high degree of political stability. This thesis attributes these results above all to its leaders' willingness to take advantage of opportunities associated with increased integration with the global economy. This process has been facilitated by several factors, most notably Dubai's incentive of dwindling oil wealth, the cohesion of its ruling elites in their response to this revenue problem, and their correlated ability to deliver high living standards to their citizens. l'hese factors clearly emphasize the role of the state's leadership in shaping its development outcome. As the fourth chapter has demonstrated, the commitment of a state's leadership to economic modernization is a key determinant of whether or not it reaches higher levels of development. As that chapter made evident, the state must also possess the resources necessary to implement this type of globally-oriented development. For Dubai, its diminishing though not insignificant oil revenues have served as its fiscal base. Politically, it has used its authoritarianism to satisfy its tiny citizen population with welfare benefits while importing a huge supply of foreign labor in an effort to help establish new sources of rent.

These newfound income streams, derived primarily from land and office park leases, currently appear capable of perpetuating the state's substantial subsidies, services, and government employment opportunities for citizens. As a result of these extensive benefits and privileges, Dubai's nationals have an incentive to remain loyal to the state. Their political acquiescence therefore appears secure. This domestic submission should foster both continued political stability and regime survival. The persistence of internal stability should also further contribute to Dubai's economic dynamism by maintaining the political conditions necessary for hture growth and development.

Although this study has demonstrated that there is a high likelihood that Dubai's economic situation and political stability appear set to continue for the time-being, there are several weaknesses in its development outcome which must be addressed. A review of these shortcomings and vulnerabilities will allow for an assessment of whether or not

Dubai can be considered a development model on two levels - both in the short run and in the long run. Regarding short-term policy choices, there is much that development planners in the Middle East and beyond can learn fiom Dubai. In particular, Dubai's development demonstrates that increasing integration with the global economy, especially for a small country, will be necessary for sustained growth and stability.

Furthermore, policy makers should be aware that the leadership of Dubai's willingness to rely on outside experts in the formulation of their middle-out' strategy has contributed enormously to the state's development results. Over the long term however, the shortcomings of the emirate's political system demonstrate that greater democracy will be needed if development planners hope to achieve sustainable growth and development.

Economically, one of Dubai's biggest weaknesses is the low percentage of nationals working in the private sector. Although the Statistics Centre of the Dubai

Municipality reported in 2003 that nationals made up 2.4 percent of the private sector workforce, unofficial estimates put this figure at less than I percent.468In either case, the percentage of nationals working in the private sector is low compared to their share of the

468 Personal Interviews January 2005; Ahmed. total population, widely considered to be approximately 8 percent.469This small number

of citizens in the private sector relative to their population implies that the rentier

mentality created by the state's immense welfare system may have truly caused a break in

the work-reward causation, thus making nationals unproductive and dependent on the

state. It also implies that Dubai9s education system has failed to compensate for this

common rentier economy

A related problem in Dubai is the high volume of road traffic which typically

causes serious slowdowns in circulation during the work week.471Although it may just

be an inconvenience for most citizens, this congestion is a real problem for people who

are actually part of the workforce. Many analysts argue that the traffic situation will soon

hold back growth since it can diminish the speed of business The cause of these

traffic snarls is the large influx of labor each day from the neighboring emirate of

Sharjah, where housing is cheaper. Reputedly this problem could easily be fixed with more roads but Dubai7s authorities have refused to finish construction on them.473 If these roads were completed, traffic could flow without difficulty to Sharjah, thus causing property values there to rise while simultaneously going down in ~ubai.~~~If is likely that Dubai9s rulers do not want this situation to occur because if prices were to go down, so would their income streams. This state of affairs suggests failures of accountability on

469 Ibid; The Dubai Municipality has not released any statistics on the ratio of nationals to expatriates in the city's population since 1993. For more information, see "The Changing Demographics of the UAE," HSBC Bank Middle East Limited (December 2004). http://~48.e.akamai.net/7/248/3622/e04447085607aa~www.middleeast.img.hsbc.com~public/meregional/c ommon/pdf/en/economic~buI1etin/eco-bull-04-eng-demo.pdf 470 Personal Interviews January 2005. 471 Personal Interviews January 2005. 472 Tarek Atia, "Everybody's a Winner," Yale Global Online (February 9,2005), Personal Interviews January 2005. 473 Personal Interviews January 2005. 474 Ibid. the part of Dubai's authorities and overarching wehess at the federal level.

Congestions problems are not likely to be alleviated soon because while planning for

underground and light rail systems has begun, the projected start date for construction is

not until October 2005 .475

There have also been problems in the development of Dubai7s extravagant tourist attractions. Beyond technical setbacks that have been kept out of the press, there are more serious financial concerns with many of these projects. In particular, the Burj A1

Arab is losing money .476This fact should not be surprising given the exorbitant lengths it has gone to maintain its self-attributed "seven star" status.477The hotel also has had low occupancy rates since it opened in 1999.~~'hdeed, rack rates have dropped from just under $2000 in 1999 to under $1000 in April 2005.4~~Another example is the Palm

Islands development. Due to decreased demand, lease prices for the second Palm are reportedly lower than the first."' In addition, many people question the resale value of these pr0~erties.4'~Supposedly, Dubai9sleaders have been fully aware that these losses would occur but have allowed these projects to proceed anyway as they are considered to generate positive externalitie~.~'~In particular, although the developments may be losing money individually, they have served as powerful marketing tools since they have created internationally recognized symbols for the state. Still, continued financial losses may become a drain on the state's finances after oil runs out.

475 ", United Arab Emirates," Railway-Technology web site. http://www.railway- technology.com/projects/dubai-metro/ 476 Personal Interviews January 2005. 477 Ibid. 478 Tom Owen, "Dubai: Reality or Mirage?" The Middle Ea,st (April 2002). 479 Ibid; Expedia.com, rates for the Burj A1 Arab on April 6, 2005. http://www.expedia.com/Default.asp?CCheck=I& 480 Personal Interviews January 2005. Ibid. Ibid. Finally, there is a criminal underside to the city's economy which is reportedly

alive and well. The state has historically had a reputation for smuggling and money

laundering and all signs indicate that this underground economy still exists today.483

Indeed, Dubai has been identified as a key transfer point for A. Q. Khan's atomic black

market.484In addition, the U.S. government claims that funds for the 911 1 hijackers were

funneled through Dubai and that 11 of the hijackers passed through the city immediately

before entering the U.S. in mid-2001 Furthermore, many of today's visitors are not

tourists, but Eastern European prostitutes and Indian, Russian, and Iranian mobsters.486

Although Dubai has toughened corruption and money-laundering laws and enforcement in recent years,487organized crime is still an issue that threatens Dubai7sbusiness climate and prospects for future growth.

In addition to economic concerns, Dubai appears to be extremely vulnerable to terrorist attacks. Although the likelihood of a strong domestic opposition movement forming is extremely low, due to elaborate government controls as well as the general contentment of the U.A.E.'s small citizen population, Dubai is quite susceptible to terrorism. Currently, the U.A.E. is the only Gulf monarchy that has not experienced a terrorist strike.488A S the recent bombing in Qatar demonstrated, terrorists are now going after 'soft targets' as well as harder ones such as Americans in Iraq or security forces in

Saudi Arabia. Indeed, authorities in Dubai have already successfblly foiled several attempts in recent years, including one in which explosives were placed in a popular

483 Gary Milhollin and Kelly Motz, "Nukes 'R' Us," The New York Times (March 4,2004). 484 Milhollin and Motz. 485 'LHijackers'Got Cash &om UAE,"' APS Diplornut Recorder (December 14,2002); "Dubai Connection," The Associated Press (September 5,2004). 486 Ibid; Owen; United States Government, United Arab Emirates - 1999 Country Report on Human Rights Practices, (February 25,2000). 487 Davidson 222-223. 488 Krane, "Qatar Blast Shows Terror Cells in Friendliest Corners of the Arab World." The government is clearly worried about the prospect of future attempts as

recent police hijacking and hostage drills at the Dubai Drydocks indicate."' Such an

attack or series of attacks could prove devastating to Dubai's economy. Beyond

destroying infrastructure, it could deeply stain Dubai's image as an oasis of security in

the Gulf. Perceived instability could thus cause an outflow of capital similar to the

situations in Kuwait and Bahrain in the early 1990s, which contributed to Dubai's own

rise as a regional business center.

Although some analysts argue that Dubai is not a likely target due to the fact that

non-state actors such as A1 Qaeda or A. Q. Khan would not want to disrupt such a key

distribution center, there are many reasons why Dubai could become a target for terror

attacks.491To begin with, Dubai and the U.A.E.'s close relationship with the U.S. is a

motivating factor. In addition to the fact that Islamist web sites have blasted the U.A.E9s

government for allowing U.S. military ships to dock in Dubai, a surprisingly little known

fact is that two of the 911 1 hijackers were mir rat is.^^^ Furthermore, it is not hard to

imagine the government of Dubai's permissiveness for Western lifestyles being seen as

offensive. Indeed, although liberal in comparison to citizens of other Arab countries,

many nationals in Dubai are reportedly less liberal socially than their rulers. In fact,

many blame the government's rapid embrace of globalization for the erosion of their

traditional culture.493 Fundamentalist anger could therefore be caused by anything from

the general prevalence of alcohol and scantily-clad women in the emirate to a more specific grievance, such as the government's ban on calls to prayer at the Jumeirah

489 Personal Interviews January 2005; Davidson 79-80. 490 Diaa Hadid, "Hostage Drill at Dubai Drydocks Triggers Fear," GuYNews (March 29,2005). 491 Personal Interviews January 2005. 492 Bodi; Peterson, "The United Arab Emirates: Economic Vibrancy and U.S. Interests." 493 Ibid. mosque. In addition, while organized dissent fiom working class expatriates is not

tolerated, as mass government deportations following the 1992 riots in Dubai and A1 Ain

demonstrate, it is possible that these workers could become resentful enough about their

conditions in Dubai to launch an attack.494Like potentially discontented citizens of

Dubai, they might also be motivated by religious beliefs. Overall, no matter how many

plots the government foils, the danger of terrorism is high because even one spectacular

attack could negatively impact Dubai's image.

Despite Dubai's weaknesses, its example is instructive for development planners

who are pursuing policies designed to expand growth and raise living standards in the

short term. Policy makers can take away from Dubai's development path the fact that

there are significant opportunities associated with greater integration into the global economy. These advantages include increases in tourism, trade, and efficiency as a result of foreign direct investment and competition in the global marketplace. Although greater links with the world economy can certainly create new vulnerabilities, especially in small states that are extremely susceptible to global economic do~nturns,4~~these increased trade and communication links can contribute to the establishment of an economy that is more diversified and sustainable. Furthermore, these new economic opportunities can boost government revenues, thereby creating opportunities to raise standards of living through increased state spending on infrastructure, education, and healthcare.

494 Ibid; Davidson 269; Rugh. In Kuwait, Bangladeshi workers recently attacked their country's embassy in protest over working conditions so it conceivable that similar situations could develop within the U.A.E. For more information, see Ali Taqi, "Bangladeshi Workers Ransack their Mission," GulfNews (April 25, 2005). 495 Paul Sutton and Anthony Payne, "Lilliput under Threat: the Security Problems of Small Island and Enclave Developing States," Political Studies (December 1993). The other major lesson for policy makers in developing states is that although

government direction in development is often a positive force, it is important that it does

not become too domineering. As discussed in the third chapter, many analysts consider

Dubai's method to be "middle-~ut.'~~~~Dubai9s ambitious government initiatives have typically been advised by tearns of outside experts, often from Western consulting firms such as ~ckinse~.~'~These advisers have helped the government to promote new projects and industries while allowing the private sector to compete over the implementation of these ventures.498 Furthermore, the government's encouragement of free trade zones in which foreign-owned corporations can operate free from currency restrictions and taxes also highlights this concept. Inside these zones, the government has established appropriate regulatory frameworks to safeguad intellectual assets while also creating an environment that is attractive for private business.49g In this manner, the state's development approach has demonstrated a healthy balance between government intervention and liberal economics.

To evaluate whether or not Dubai can be viewed as a development model in the long term, it is important to first reconsider Dubai's small size. Given its small land mass and tiny total population, its development strategy cannot be easily replicated by most states, which are typically much larger and face substantially different challenges of organization and management.500It would be very hard, for instance, to imagine a country the size of Iran importing nearly 99 percent of its workforce. In addition, one reason that Dubai's leadership has been able to sustain political stability despite serious

496 Sampler and Eigner 57, 60. 497 Personal interviews January 2005. 498 Ibid; Sampler and Eigner 57-61. 499 Sampler and Eigner 108- 109. 500 "Small but Perfectly Formed." annual drops in oil revenues during the past two decades, is that unlike Saudi Arabia, its

population is so small that it did not have to cut back on the state's welfare system.

Instead, government officials were able to continue to augment living standards, thus

pleasing citizens and reducing any ill will that they might harbor over other government

policies, such as its close military relationship with the United States.

To analyze the long term efficacy of its regime type, it is important to look at the

state's authoritarianism. Even though autocracy is not currently perceived as a legitimate

form of government in contemporary, informal American discourse, there is a large body

of political science literature which regards liberal authoritarianism, such as Dubai's, as

superior to democracy for developing countries. In particular, Fareed Zakaria supports

this viewpoint when he argues that strong development starts with economic

liberalization and the establishment of the rule of law. He claims that only after these two pillars are firmly entrenched should democratization begin. He states that this sequence is best because development data demonstrate that democracy cannot survive over the long term when per capita incomes are below $6,000, often as a result of destabilizing ethnic violence. He argues that as economic liberalization and constitutionalism augment living standards, the emerging business class that this dynamic produces will develop power independent of the state. Ultimately, this class will demand greater involvement in the political process and as the state negotiates with this newly empowered segment of society, liberalizing political reforms will be introduced. In his view, the result will ultimately be a transition to representative democracy that will be more smooth and sustainable than the alternative, which is holding elections before a

bourgeois class and the rule of law are established.

Nevertheless, authoritarianism, even if it is "liberal,' cannot provide for

sustainable development in the same way that democracy can. Although Dubai and the

U.A.E. currently appear to be governed by benevolent autocrats who have created a

liberal social environment in contrast with regional police states such as Saudi Arabia, the

problem with autocracy is that there is no guarmtee that rulers will remain benign. While

many analysts inside Dubai feel that there is little danger of such a shift occurring, as a

result of the subservience of Dubai's ruling elites to the larger royal family structure,502 it

is not hard to envision a regional scenario in which a foreign threat, say from Iran,

prompts a domestic response that is tyrannical.503Such a scenario could cause serious, long-term economic setbacks for Dubai by scaring away tourists and investors. This situation could in turn also prove politically destabilizing if a prolonged shift to authoritarianism were to cause a decrease in government rents, thus politicizing the state's citizenry.

In a scholarly critique of authoritarianism, Mancur Olson goes further by arguing that the shift from benevolent autocracy to despotism is actually inevitable sooner or later. He contends that before despots were dominant over particular territories, they were simply roving bandits. As a bandit, this type of individual would be motivated by

Fareed Zakaria, The Future of Freedom: Illiberal Democracy at Home andAbroad (New York: W. W. Norton & Company, Inc., 2003) 55-56, 69-72,96, 113. See also Fareed Zakaria, "Islam, Democracy, and Constitutional Liberalism," Political Science Quarterly (Spring 2004). 502 Personal Interviews January 2005. 503 The U.A.E. has historically had strained relations with Iran as a result of territorial disputes over three islands - Abu Musa, the Greater Tunbs, and the Lesser Tunbs. Iran seized these islands which had previously belonged to Sharjah and R'as al-Kbaiman when the British withdrew hom the region in 1971. Since then the U.A.E. has consistently demanded that they be rehuned and the issue has caused serious tensions for the federation's relationship with its larger neighbor. For more information, see Foley. the fact that in stealing he "obtains such a narrow or minute share of any loss or gain to

society that he ignores the damage his thievery does to society."5o4 0lson ultimately

argues that most of human history demonstrates that all authoritarian governments, even

liberal ones, will eventually end up in the hands of an autocrat driven by the same

motivations as a roving bandit.505In this manner, he suggests that the shift from

benevolence to despotism in an autocratic regime is ultimately unavoidable.

Following this line of reasoning, Morton Halperin, Joseph T. Siegle, and Michael

M. Weinstein claim that democracy as a regime type is preferable to authoritarianism for development. They argue that evidence over the past 50 years demonstrates that in fact democratic institutions are better for developing countries. They cite statistics such as developing democracies9 consistently higher performance on the United Nations

Development Programme Human Development Index from 1975-2000 to prove this point.506They also claim that autocracies are generally more dangerous to international peace and stability than democracies. They therefore argue that democracy promotion is tied to strengthening international security, which provides an adequately stable environment for trade and development to occur.507

Due to its authoritarian regime type, Dubai cannot therefore be viewed as a model for development over the long term. Although commentators such as Thomas Friedman frequently hold up the emirate as a beacon of light shining out of the Middle l~ast,~~~in

504 Mancur Olson, Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships (New York: Basic Books, 2000) 6. 505 Olson 26-27. 506 Morton H. Halpern, Joseph T. Siegle, and Michael M. Weinstein, The Democracy Advantage: how Democracies Promote Prosperity and Peace (New York: Routledge, 2005) 41. 507 Halpern, Siegle, and Weinstein 132-133. 508 Thomas Friedman, "The Tipping Points," The New York Times (February 27,2005). In this article he argues that, "The issue for the Palestinians is no longer about how they resist Israeli occupation in Gaza, but whether they build a decent mini-state there - a Dubai on the Mediterranean." For other examples see truth it cannot be conceived of as a commendable development model due to the high

likelihood that its leaders, as in all autocracies, will ultimately succumb to 'roving bandit9

incentives which will arrest the state's development. Such an outcome would be

comparable to what has happened in Brunei, where the state's dingfamily has

effectively appropriated much of the country's wealth and stashed it abroad in foreign

accounts and property holdings. In this manner, a concerted attempt on the part of a

developing state to emulate Dubai's liberal authoritarian political system is quite risky,

given the dangers inherent in autocratic governance.

Consequently, although Dubai has so far taken positive steps to provide economic

and political stability for its society, it must ultimately allow its citizens more

opportunities to participate in the political arena. Greater representation and

accountability in government will be a prerequisite for sustained stability in the long run.

Despite the fact that Freedom House currently ranks the U.A.E. as "not free" in terms of

political rights and civil liberties,50gthe emergence of more democracy in the country is

not necessarily unlikely. Before the founding of the federation, greater democracy had

been envisioned for what ultimately became the country' s consultative organ for legislation, the Federal National 1n addition, the Constitution formally adopted by the government in 1996 commits the federation to movement "'towards a complete representative democratic rule."'" Another aspect is that after Saudi Arabia's recent municipal elections, the U.A.E. is now the only country in the Gulf region that

"Drowning Freedom in Oil," The New York Times (August 25,2002) and "'The Battle of the Pump" The New York Times (October 7,2004). 509 Freedom House, 2003 Country and Territory Reports: United Arab Emirates. hMp:llwww.6eedornhouse.org/researcW~eew~ 510 A1 Abed and Hellyer 124, 126, 137. 5'1 A1 Abed and Hellyer 1 5 1. offers its citizens no elections.512Furthermore, the presence of many expatriate Iraqis

voting in their own elections on U.A.E. soil has reportedly been an embarrassment for the

regime.513

As a result of these factors, it is not surprising that elites in the U.A.E., such as

business people, diplomats, and academics, are agitating for increased political

participation.514Still, there is currently no evidence of overwhelming support for

democratization in the country given the persistence of tribal politics and traditions.

Since leaders are viewed by citizens as paternalistic father figures who lead the

community in a manner consistent with their past, citizens have a high degree of

attachment to these leaders.515In this manner, although long-term steps toward

democratization are possible, a rapid transition to Westem-style democracy is highly

unlikely in the short term.

The main reason that swift democratization is improbable is that the state is still defined by its rentier structures. Although the state's leadership has succeeded in maintaining sustained political stability and high living standards for its citizens, this persistence of rents has allowed the country to modernize technologically without many of the political demands that often accompany such changes. Since citizens of Dubai are so well taken care of by the government's social welfare system, they lack significant incentives - particularly from the process of taxation - to demand greater political rights.

The faint democratic ripples that are currently being felt from Dubai9s elites may ultimately find a broader base of support as the region shifts toward greater democratic

512 Samir Salama, "Nationals Push for Polls to Elect FNC Members," GulfNews (February 23, 2005) Ibid. 5 14 A1 Abed and tlellyer 158; Salama, '"Nationals Push for Polls to Elect FNG Members"; Abdul Hamid Ahmad, "The How, When and Why of UAE Democracy," Gulf News (March 4,2005). 5 15 Peterson, "The Next Generation in the Gulf'; Rugh. participation and as the technology of globalization continues to spread new ideas and

information to Dubai's citizens. But such a shift is unlikely to occur soon.

In the end, any eventual movement toward democracy in Dubai will likely be

triggered by the forces of globalization which have so far defined its overall

development. As Dubai's leadership has implemented internationally-oriented strategies

designed to attract foreign businesses, investors, and tourists in order to establish new

forms of economic rent, it has in the process dramatically increased the living standards

of its citizens. In so doing, it has also created a huge bifurcation between citizens and the

emirate's immense expatriate workforce. While citizens, who are a minority in Dubai's

overall population, have at their disposal an array of legal rights, educational

opportunities, healthcare benefits, and state employment prospects, the emirate's majority

population of south Asian laborers do not share this high standard of living. Toiling

under oppressive working conditions with barely any rights once contracts are signed, these workers are exploited by the Maktoum family. In this sense, Dubai's leaders have already become roving bandits since they can quickly replenish their transient labor supply when necessary. This utilization of mass movements of labor is simply another way in which globalization has characterized Dubai's development.

Recently, Dubai's development results have become attractive to other authoritarian, modernizing Arab regimes. The desire to emulate Dubai's ostentatious and globally-oriented approach to development is evident in the fact that Bahrain, Qatar, and even Abu Dhabi are building their own man-made islands designed to serve as luxury tourist destination^.^'^ These attempts at imitation most likely sterns from the fact that

516 "Future's SO bright for Abu Dhabi"; "A Pearl of a Project"; "'Rising Pearl' - World Class Concept in Living."

118 Dubai has demonstrated to these regimes that a significant degree of state involvement in development planning can create prolonged economic growth without any accompanying political turbulence. This concept is appealing to many authoritarian Arab leaders who desire strong states and are weary of the dangers that free markets pose both in terms of tumultuous business cycles, as well as destabilizing information flows. Beyond its glaring lack of domestic, Islamically-inspired opposition movements, Dubai's government has also not compromised any of its authority in its pursuit of higher levels of development. By transforming the emirate into a regional hub for tourism and business, the ruling family has instead perpetuated its control over the state apparatus by locating new sources of rent. In so doing, its members have secured the survival of their regime for the foreseeable future and have made Dubai's liberal authoritarianism attractive to its peers, who have until now followed different development paths.

Ultimately, one can hope that Dubai's leaders will recognize the historical tendency of authoritarian regimes to turn tyrannical, so that they might avoid such pitfalls through greater democratization. If they do so, Dubai's political and economic development will truly be an outstanding example for other state leaders who are seeking to achieve sustainable development over the long term in their own countries. Appendix

Table A. WORLD AND REGIONALDI STRIBUTION OF FDI INFLOWS (PERCENT SHARES~"~~

1987- 1993 1994 1995 1996 1997 1998 9zSl8 Total FDI 173.5 219.4 253.5 328.9 358.9 464.3 643.9 Inflows (Billions of Dollars) Developed 78.7 60.1 57.7 63.3 58.8 58.8 71.5 Countries EU 41.9 35 30.6 35.1 30.4 27.2 35.7

USA 26.6 19.8 17.8 17.9 21.3 23.5 30

Other 10.2 5.3 9.3 10.3 7.1 8.1 5.8

Developing 21.3 39.9 42.3 36.7 41.2 41.2 28.5 c"...-.!--:-.. bV UII CP lG3 EastAsia 10.6 22.3 23.7 19.7 21.2 17.9 10.7 and Pacific Europe and 1.0 4.6 2.8 4.9 4.2 4.6 4.0 Central Asia Latin 7.2 9.2 12.4 10 12.8 14.7 11.6 America and Caribbean South Asia 0.2 0.5 0.6 0.9 1 .O 1 .O 0.6

Sub- 1 .O 0.9 1.3 1.2 1.3 1.4 0.7 Saharan Africa Arab 1.3 2.4 1.5 0 0.7 1.6 0.9 countries

517 Toby Dodge and Richard Higgot, eds., Globalization and the Middle East: Islam, Economy, Society cmd Politics (London: Royal Institute of International Affairs, 2002) UNCTAD, World Investment Report ( 1999) 99. 518 Annual average from Dodge and Higgot, Ibid. Table B. 2003 FDI r~ ARABG ULF STATES AS A PERCENT OF

Bahrain Kuwait Oman Qatar Saudi U.A.E. Dubai Arabia Percent 6.7 0.2 0.7 2.3 0.1 6.0 10.0 of GDP

Table 6. 1980 TO 2003 GROSSN ATIONAL INCOME PER CAPITA IN ARAB GULF STATES'^^ Bahrain I Kuwait I Oman Qatar 1 I U.A.E.

519 Statistical Yearbook - Emirate of Dubai(2003); World Bank; "Dubai, FDI Grows"; United Nations Conference on Trade and Development, http://www.unctad.org/Templates/Page.asp?intItemlD=1923&lang=1 520 United Nations Statistics Division. Table D. 2000-2002 DUBAINON-OIL E XPORTS 521

2000 2006 2002 Exports 1,489 1,610 1,738 (Millions of Dollars) Percent of GDP 87.7 89.5 90.2

Table E. 2000-2004 DUBAI NON-OILGDP~~~

2000 2006 2002 2003 -2004 (Millions of 15,251 16,610 17,935 19,366 24,932 Dollars) Percent of 89.8 92.3 93.0 93.4 94.3 GDP

5" 5" Statistical Yearbook - Emirate of Dubai (2003); 2000-2001 data from the Dubai Ports, Customs and Free Zone Corporation, Sampler and Eigner 185; 2002 data from Ministry of Information and Culture, United Arab Emirates 9 1. 522 Statistical Yearbook - Emirate of Dubai (2003); P.V. Vivekanand, "Dubai Records Highest GDP Growth in the World," Axcess News Network (January 4,2005). Figure A. 2004 GOVERNMENT OF DUBAI DEVELOPMENT MODEL^^)

523 Omar Bin Sulaiman, CEO Dubai Internet City, "Knowledge fokDemlopmW derence(March 15- 16,2004). http://lnweb 18.worldbank.org~mnalmena.nsflAttachm-/K4B Dubai+Vision/$File/Presentation 10-new.pdf Picture A. BUM AL ARAB HOTEL AT NIGHT'^^

cPicture B. BURJAL ARAB AT A DISTANCE^^^

524 Emirates Group Career Center web site, 2005. http://www.emiratesgroupcar~.co~Wq1orelGallery/B~-AlAlArab.~p 525 Burj A1 Arab web site, 2005. www.cltiki-warab.de/ Picture C. PALM ISLANDS AERIAL ~&W526 , . 1 ,

+, +, ."" . . ..

f,r-.- - .. I.*.(OSF ' . .* r r.. :,.Y- '..:.'-:.-* hi.::i". ..<

tJg.lm*Ell@'.'hr- m-.=-fi@ =my 526 The Emirates Network Guide, 2005. http Bibliography

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