Foreign Correspondent: Middle East

An exercise in economic laissez-faire

Dubai, U.A.E. This little "Pearl of the Gulf," as it is sometimes called, is a state within a state, which occupies a unique position among the third-world countries. Dubai practices a nearly laissez-faire economy insofar as there are no personal income taxes, no business profit taxes and minimal interference in the market system.

With hardly any natural resources to speak of, Dubai, once a small coastal town on the lower Arabian Gulf, in a matter of a few years, has transformed itself into a thriving metropolis. Dubai does have a little oil, which, however, plays only a minor role in what has been happening over here. Dubai was on its way up before the discovery of oil in 1969 and if and when the oil is depleted, little will really change around here.

It is free trade and free economy that have brought about a phenomenal and an almost explosive growth in this most unlikely of places, where, as soon as one is out of the city one sees a spread of sand as far as one's eyes can reach. It is unbelievable.

It is also saddening. For one is almost certain to ask: will it last? A public relations brochure issued by the city hall states: "…Dubai provides an excellent example of enlightened direct rule where individual and property rights are protected by law and by the character of the Ruler himself." (Italics mine)

One may conclude that this little "miracle" that Dubai has managed to achieve is perhaps just a matter of historical accident or convenience or both. What will guarantee its continuity? Surrounded by a world hostile to the concept of freedom, and lacking a sound libertarian philosophy, it is indeed extremely hard to evaluate the future of this land.

It was in 1971 that Dubai and six other sheikhdoms flanking the desert just northeast of Saudi Arabia decided to form a federation called the United Arab Emirates in order to have a stable, organized, and unified government with a common foreign policy and defense system. With the exception of Abu Dhabi, the other six Emirates occupy very small territories. Dubai follows Abu Dhabi in terms of economic activity and has traditionally been more of a glamorous place for merchants and traders from abroad. Because of its free market it has also come to be dubbed a "smuggler's paradise" for those who have been smuggling precious metals and other goods into and out of India, Pakistan, and other countries with restricted import policies.

Until the British influence arrived in the early 19th century, the lower Gulf area was often termed "the Pirate Coast" for attacks on shipping vessels and acts of piracy that originated from this area. Since then the British power in the region grew, supported by truces with the local tribes. Even though the United Arab Emirates is now an independent state, the British influence continues to be felt in the way of life, economic activity, and even in the government where several Britishers act as advisers.

Dubai has a population of nearly 150,000, of which nearly 60 percent are foreigners including Americans, Britishers, Europeans, Indians, Iranians, Lebanese, Pakistanis and Palestinians. Attracted by the prosperity, job opportunities and liberal trade conditions, people have flocked into this place from all over the world and there has been a continuous flow of capital as evidenced by the number of new banks that have been opening here and their ever-increasing assets.

To start a business here requires either a financial guarantee of Dirhams 100,000 (about U.S. $25,000) or a guarantee from a Dubai citizen possessing real estate to the value of at least Dirhams 100,000. The government encourages new entrants to take up a prominent local citizen as a partner or a participant in any business venture. Though the prospects for major industries are low, a number of small and medium scale industries are either already in operation or in the process of forming. The one inescapable sight for every visitor to Dubai is the booming construction industry. The Ruler of Dubai, Sheikh Rashid Bin Said-al-Maktoum, is probably the biggest investor in this industry.

Dubai has one of the most modernly equipped airports and one of the best port facilities in the Middle-East. A vast dry-dock complex is under construction.

Since there are few restrictions on banking, several foreign banks have opened offices and branches in Dubai as well as in the other Emirates. There are no exchange controls and one will notice numerous private money exchangers on the streets, frequently offering better rates than the banks. The local currency, however, has been pegged to the U.S. dollar at approximately Dirham 4 = one U.S. dollar, by the U.A.E. Currency Board. Nor are there any restrictions on the free flow of precious metals and stones.

The very few taxes levied by the government are: 3 percent on most imported goods, with 30 percent on alcoholic beverages, 10 percent on the rent paid for commercial property by the tenant, 5 percent on the rent paid for residential property by the tenant, and 5 percent municipal tax charged in hotels and restaurants. Free medical service, road construction, educational projects and several other services are paid for by the nominal taxes collected by the government as well as from the personal income of the Ruler.

On the political front, no political parties exist. The closest classification of the existing system would be a sort of "tribal democracy" with the ultimate authority being in the hands of the leader of the tribe. This position is occupied by the present Ruler, whose administration likes to emphasize the tolerant nature of his rule, which one can certainly appreciate when one looks around at falling democracies and diminishing freedoms.

Nevertheless, the publication of independent, editorialized newspapers is discouraged. Those that are published are issued by the government. The one that comes closest to resembling an independent newspaper is a stapled, loose-leaf bulletin with news directly from the wire services, in addition to the regular advertisements and other information of local interest.

The judiciary functions through an Islamic Court as well as through a recently established Civil Court, which covers statutes that are not covered by the Islamic Law. When neither is appropriate in a particular case then decisions are based upon precedents set in other countries and "in line with natural justice."

As far as social freedoms are concerned, officially only foreign nationals are permitted to purchase alcoholic beverages from the stores, after obtaining a license. These restrictions do not apply in such public places as hotels, bars, and restaurants except that the owners of these places must obtain a license first in order to serve alcohol. Sale of pornographic literature and nudity in movies is prohibited. However, the government is contemplating construction of a massive complex for entertainment, including casinos.

In short, Dubai is no libertarian paradise but its climate of economic laissez-faire offers several interesting economic advantages.