Free Markets: A Lesson From Dubai

As many of you have already heard, the Dubai government is in a tough financial situation. Dubai has spent a decade and hundreds of billions of dollars trying to become the financial hub of the middle east (like New York is the financial hub of America and London is of Europe). To do this, Dubai has gone massively into debt to entities like its neighbor Abu Dhabi (Abu Dhabi has one of the largest oil reserves in the world), banks, investment firms and bond dealers. Dubai has very little oil, but has used the sale of the oil it has and the debt the government has gone into to build such awesome investments like artificial islands shaped like pretty palm trees, hundreds of skyscrapers, thousands of luxury condos and five lane highways with no speed limits.

Now, the country is very close to defaulting on all of its loans. The country is in debt about $100 billion (not a lot for America, but a staggering amount for state about the size of Colorado). Unfortunetly, almost all of the development in the last ten years has been directed by the government. Because the government did not wait for demand to determine what and how to build things, they have artificial islands that no one goes to, five lane highways that have no cars on them, skyscrapers with 50% vacancy rates and an enormous housing bubble. Even if Dubai does not default on their loans (Abu Dhabi will probably figure out a way to bail them out in one way or another), who cares? Dubai is still stuck with expensive investments that are going no where. Governments can't create a financial sector, there are complex processes that go on in New York that have taken a hundred of years to build!

Countries need to learn that you can't jump to the result you want; at best governments can set up streamlining entities that assist private companies in their quest for competitiveness. When a company fails, another company jumps in and takes over where the other company left off, but fix the mistakes the previous company made! Let demand and price dictate investment, not a round table committee that has government pockets.