Generation Dubai: Exit, Voice, and Loyalty

Democracy

“History, and for that matter democracy, are not necessarily evolving along a continuum of benign progress. Regressions are frequent.”

p. 30

“Today, almost two decades after the protests and freedom revolutions of 1989, it is unclear whether it is the citizens of Eastern Germany or the students of Beijing that are better off. The West’s blind faith in democracy and freedom could well be the source of its unmaking.”

p. 33

“Following the fall of the Soviet Union in 1991, Russia was a high-profile victim of a mania for uncontrolled liberalization and democracy. Shock therapy, orchestrated by a group of eminent Harvard economists, in particular Jeffrey Sachs, who now prominently champions the fight against Third World poverty, had disastrous consequences for Russia. Impatiently and ignorant of Russia’s specific circumstances as well as the dangers of liberalizing financial markets too quickly in the absence of a liberalized real economy, advisors and advisees were obsessed with the pursuit of making history. To secure multi-billion dollar transfers from the West, the case was powerfully made that Russia’s democratic future and Western security were one and the same.”

p. 34

Euro

“In Continental Europe, designs for monetary and political integration dominated the national agenda ever since the 1992 Treaty of Maastricht outlined the terms and conditions for the creation of a monetary union and a new currency, the Euro. The timing and contents of the Maastricht Treaty were also influenced by politicians’ – not citizens’ – fear of a rising and possibly dominating reunified Germany that might alter Europe’s balance of power.”

p. 34

“In particular Margaret Thatcher, at the time Britain’s towering prime minister championing the virtues of a smaller state and a deregulated market…were trapped in anti-German feelings as confirmed by the ‘seminar she held with several well-known experts on Germany. They had to explain to the Prime Minister that the countries of Eastern Europe actually wanted German investment and that this did not necessarily equate to subjugation.’ Her private secretary’s memo of the seminar alleged that abiding characteristics of the Germans, in alphabetical order included ‘aggressiveness, assertiveness, bullying, egotism, inferior complex, sentimentality.’”

p. 34

“As German unification was about to challenge the balance of power amongst Europe’s leading economies, the European integration process was less concerned with economic growth and job creation than with the distribution and management of political powers amongst its leading members. Since the fall of the Berlin Wall, European political integration has obsessed Europe’s entire political elite, in spite of reservations amongst the electorate. In fact, any political ambitions to advance European integration beyond the Common Market have unchained anti-systemic resentment amongst the electorate.”

p. 35

Financial Regulation

“The consequences of the 2007 implosion in credit markets will serve as a catalyst to break the thin ice on which democracies and its leaders have operated for decades. With hardly any understanding of the implied systemic risks when allowing the financial services industry to prosper off-balance sheet in leverage-enhancing derivate products – despite the many warning signs during at least the past ten years – political leaders more so than bankers should be held to account. Simply more regulation – democracies’ typical mantra – cannot be the right answer, though.”

p. 38–39

“The Sarbanes-Oxley legislation in the US, for example, emotionally and hastily enacted to enhance corporate transparency after the collapse of US energy company Enron, has demonstrated the limitations as well as high cost of any corporate and financial regulation that goes beyond the self-regulatory enforcement of sound principles. The credit crisis will rightly assault democracies’ existing form and shape of capital markets governance. But any solution resulting from Western democracies’ existing political processes is likely to be inadequate in the short-term and counterproductive in the long-run.”

p. 39

“Financial regulation should follow the governance model of monetary policy. Most democracies have successfully de-politicized monetary policy by constitutionally protecting the independence of central banks in their mandate to pursue constitutionally set objectives. While some politicians…would like to dilute that independence, the short history of central bank independence suggests that the electorate is best served when economic stewardship is not only insulated from politicians and politics, but governed by objectives and principles that are benchmarked against quantifiable measures.”

p. 39

Taxation

“Capital markets have been at the forefront of deconstructing national borders and as a result have served as a showcase of a borderless world. But it appears that location increasingly matters more rather than less in global finance… And the respective policy responses to the current credit crisis will reinforce this phenomenon. The pre-eminent role the London Stock Exchange has assumed amongst foreign issuers is insightful. In 2007, the London Stock Exchange raised US$30bn on behalf of foreign issuers, double the amount raised by non-US companies on the New York Stock Exchange and NASDAQ combined.”

p. 42

“Against this drift, New York’s Mayor Michael Bloomberg commissioned a McKinsey report…with alarming conclusions in spring 2007. An excessively litigious environment and burdensome regulations, such as Sarbanes-Oxley, were primarily held responsible for the deteriorating attractiveness of New York as a destination for public market listings. Both factors have undoubtedly increased costs to a level where the competitiveness of the US as a listing venue is compromised.”

p. 42

“A too often ignored consideration determining Wall Street’s overall competitiveness, however, is America’s tax system. The US’s extraterritorial tax system, empowering its authorities to tax – on a worldwide basis – not only US citizens’ but foreign US residents’ income and capital gains, effectively shelters America from full economic competition. It will compromise the US’s ability to attract foreign wealth, in particular in a world where the economic epicenter has not only shifted eastwards but when the US does not represent necessarily any longer the most vibrant system and place altogether – at least in the near future.”

p. 42

Dubai

“For some it has been nothing more than a bubble-prone mix of Las Vegas and Disneyland. For others it represented a future model of strategic economic development characterized by open trade, low taxes, public-private infrastructure financings, and entertainment-driven mass tourism. For most, undoubtedly, it remains an experiment hard to ignore.”

Bijan Khezri: New Vision for Dubai, Economic Focus, The Quarterly Magazine of the Arab British Chamber of Commerce, Spring 2009

“Few cities have so consistently caught the headlines of the global media like Dubai. During the past ten years it has been the story of an unstoppable accent setting new superlatives in construction and tourism. Since early 2009 it is the story of a failed and decadent world that Dubai has come to symbolize.”

Bijan Khezri: New Vision for Dubai, Economic Focus, The Quarterly Magazine of the Arab British Chamber of Commerce, Spring 2009

“Vision, focus and uncompromising discipline have characterized the success model of modern Dubai. Focus and discipline became more and more diluted by international debt and credit markets that became too eager to finance anything Dubai had to offer on the assumption that Abu Dhabi will be Dubai’s white knight in case of default. Indeed, this is a prime example of market failure. Dubai, in the first place, should have never had access to this magnitude of funding priced at Abu Dhabi risk. But above all, we must recognize that Dubai – on its ascent as well as in its most recent struggle with reality – is a story of Western practices taken to extreme levels.”

Bijan Khezri: New Vision for Dubai, Economic Focus, The Quarterly Magazine of the Arab British Chamber of Commerce, Spring 2009

End of an Age

“Our closing age – dominated by the West and characterized by an obsession with democracy and nationalism – started sometime around the end of the Great War in 1918. In fact, it was an age that emerged from Exit as hordes of Europeans continued their departure for America in search of prosperity and freedom. But it was an age predominantly captured by Voice, or the Revolt of the Masses.”

p. 30

“Following its final boost in 1989, this age is now approaching its end. The emphasis is back on the individual and one’s personal rather than collective choices. Voice or Democracy will play a less prominent role in the mindset and self-identity of the new emerging age…More importantly, the new age is no longer dominated by the West and Western values.”

p. 30

“The new age is about pragmatism and will be primarily concerned with personal self-fulfillment, private wealth creation and spirituality – indifferent to location, the brand of the governance system or any particular religion. The fault line is neither between countries nor East-West or North-South but runs straight through each society – pitting those fearful of change as well as deprived of means and self-confidence against those that embrace the opportunities the world has to offer and if need be by moving abroad, Exit.”

p. 30