Dubai might look stupid now because it has imploded. The same happened to the Reichmann brothers at Canary Wharf. They got over-extended and lost the whole project. However, over the next decade Canary Wharf turned into an overwhelming success.

I think another 10 years will prove that Dubai will also be a great financial, creative and leisure hub of the world. The idea itself wasn't bad. The problem was the real estate mania that made everyone a little too greedy.

Dubai is “cool stuff.” It didn't work this time around but if I were a billionaire, I would definitely be investing in the area.

Dubai is not “cool stuff”. Dubai isn't about being over-extended, but about spending time and money on allocating and extracting profit rather than creating value. The real estate mania is just a small part of of the problem with the overall development and investment path behind Dubai. What is Dubai creating in terms of sustainable, meaningful value?

The value is not with what Dubai currently is, basically a giant speculative real estate development. The value is in what it will facilitate when businesses, culture, finance and technology start to coalesce there.

If Dubai manages to establish itself as a major international hub, which I think it will over the next decade, there are huge agglomeration economies of scale. I believe that is facilitating sustainable and meaningful value. Just as New York, Hong Kong, Tokyo and London are major international centers of finance, art, technology, etc., Dubai will also emerge as a Middle Eastern hub.

Right now Asia is the new focus, but it will soon shift to the Middle East. In my view, that will indeed be “cool stuff” in the future. Again, the Reichmann's were ridiculed for Canary Wharf when it failed. It later recovered and became a prime commercial district of London. Dubai is Canary Wharf times 1000.

Understood that the value is in the future, in what Dubai could facilitate as a hub of business, culture, tech, finance, etc. Completely.

But why spend all the money on real estate development rather than investing some in productive businesses? How much money was spent on developing R&D capacity, or bringing non-financial businesses into Dubai, or developing a better legal system? Why spend all the money and attention on activities that ultimately are based on allocating value rather than creating value?

Why not follow the model of Singapore or other countries in how they developed into international hubs of business?

related: http://www.unstructuredventures.com/uv/2009/03/…

Basically, I understand that Dubai could still be an international hub, and that there is value in what Dubai could be after the speculative real estate bubble passes. But Dubai didn't need to try to develop this way.

Brilliant discussion Taylor! Thanks for continuing the dialogue.

Why not like other hubs?
Dubai was created out of nothing in the dessert. Zero. No infrastructure at all. That in itself is amazing. Maybe only Israel can compare and they had essentially infinite capital.

Try creating a city in a dessert. That is definitely not a task for the faint of heart, nor should anyone expect it to be a quick and painless process.

I agree that a solid legal system, educational institutions, a vibrant culture and many other factors are important to a great city. However, you can't start a hub in tents in the dessert. They needed to build infrastructure first and for the most part they succeeded.

As much or more blame should be attributed to the immigrant speculators buying up properties and expensive cars like there would be no end to the boom. It is their failure that is causing Dubai problems now. People walking away from apartments and Porches is a sign of greed at a consumer level not necessarily institutional gambles.

In a few years, Dubai will have recovered and then some. I personally don't think it could have been done any other way. It is difficult to control speculators. The rest of the world didn't see any of the problems coming, I don't think the Arabs could have either.

I stand by my prediction that in a decade Dubai will emerge as a major hub. It is still off the radar for most Americans, but any well traveled European will likely have been through Dubai already. Wait till the celebrities start moving in.

To be clear: when Lloyd, I, and many other people I know talk about “doing cool stuff”, we use the phrase to describe productive, possibly meaningful, interesting, thought-provoking activities that are not finished projects but part of an ongoing, evolving, sustainable effort, done simply because of its intrinsic benefits and because we want to find out if it can be done and if people care about it, without an expectation that it continue or grow.

***

Every city was once built out of nothing. Almost all took far longer to attract the attention and $$ that Dubai gathered. But that rush to start created a bubble, and we're seeing the first hiccup in that approach.

Building a sustainable ecosystem of businesses, talent, industry, takes far longer and is incredibly difficult to jumpstart in a few years. Dubai may indeed be recovered back to its current state, but that current state is not sustainable long-term.

Exactly: Dubai needed to build infrastructure. But along the way, they didn't spend the time building the other aspects required to create a self-sustaining business ecosystem and social environment. That's what I meant when I said “But why spend all the money on real estate development rather than investing some in productive businesses?” In no way was every marginal $$ spent on infrastructure a rational decision. While individual speculators make those marginal decisions, institutions are still creating a system that incents those individual gambles.

Dubai couldn't have it's rapid growth and current level of activity in any other way, but I'd argue that's not the kind of growth and activity anyone really wants.

Hi Taylor,

I love this discussion but feel free to delete my comments if you think I am wasting your valuable blog real estate. I don't want to scare away other readers. :-) I would also be interested in continuing this discussion in private if you like?

I completely agree with the title of this post:

“This is business as unusual. There’s no playbook. Let’s do our part to create it.”

I also agree that “creating” is far more valuable then “allocating.” So for the most part we are in agreement.

However, there are some areas that we may disagree.

Creating “cool stuff” is very different for an individual then it is for a country. Just like it is much easier for you to be innovative and creative than it is for Microsoft. So I agree that you and Lloyd are talking about something different, but your post led with Dubai so that is the only issue I have with it. If it were about Wall Street than I wouldn't have any debate. (For the record, I am really enjoying this discussion so I hope I am not overdoing it here.)

The US financial mess is an “allocation” problem. Wall Street got rich by shuffling money around. I think we both agree that not much was created there.

Umair Haque tries to equate America's problems to what happened in Dubai. I think that is a stretch. The UAE created a world class airline and airport hub. They created a city out of almost nothing in the middle of a dessert. They created free trade zones to encourage business and finance. They offered an essentially tax free zone. That is not shifting money around. I think that is creating something from almost nothing. (The population was only 40,000 in 1960. It peaked recently at more than 1.2million) How could the government stop speculators from coming in and driving up property prices with access to easy money from abroad? Why didn't the US government follow that same advice?

Cities can take centuries to grow, Dubai, in its current incarnation, is only a decade old. There is nothing to compare it to in the world.

You said that, “But that rush to start created a bubble, and we're seeing the first hiccup in that approach.” Are you saying they should have done it slower?

I think they know they don't have the luxury of time. Oil income is not going to last forever. I think they need to be going all out now or they won't have an opportunity in another 10 or 15 years.

I agree that, “Building a sustainable ecosystem of businesses, talent, industry, takes far longer and is incredibly difficult to jumpstart in a few years.” That is why I don't think we should overlook how much was accomplished already in Dubai. Dubai will definitely turn around. It will become a global financial hub and jet setting destination. The pieces are all in place, it just needs the world economy to recover.

You said that, “But why spend all the money on real estate development rather than investing some in productive businesses?”

In my view, most governments don't have a very good track record investing in businesses. Maybe manufacturing, but certainly not in creative businesses like you are espousing. They just need to provide the infrastructure and provide a favorable tax and business climate so that real businesses can take care of the rest.

Again, Dubai was a victim of the global financial crisis. The current Dubai problems wouldn't have happened to the same degree without the western financial meltdown. Easy access to foreign capital is the cause. Usury is still illegal in Arab countries so the speculative money wasn't coming from within.

Dubai is too young to “create a self-sustaining business ecosystem and social environment.” They needed an airport, roads, electricity, water, and buildings first. You can't create a warm home environment before you have the four walls and a roof that first make the house. Dubai is still just a construction project, now it needs the people to come in and fill in the details. Those people will come, it will just take a little longer now.

Governments didn't create New York, Tokyo, London or Hong Kong. Those cities are where they are because government got out of the way. Governments can set the political and tax climate, build the roads and transportation but they can't do very much to establish a vibrant business environment and culture. The best they can do is to remove barriers to entry to make it enticing for creative people like you. By those measures Dubai is a success in my view. (In my humble opinion anyway.)

Thanks for listening!

Hi Taylor,rnrnI love this discussion but feel free to delete my comments if you think I am wasting your valuable blog real estate. I don’t want to scare away other readers. :-) I would also be interested in continuing this discussion in private if you like?rnrnI completely agree with the title of this post:rnrnu201cThis is business as unusual. Thereu2019s no playbook. Letu2019s do our part to create it.u201drnrnI also agree that “creating” is far more valuable then “allocating.” So for the most part we are in agreement. rnrnHowever, there are some areas that we may disagree. rnrnCreating “cool stuff” is very different for an individual then it is for a country. Just like it is much easier for you to be innovative and creative than it is for Microsoft. So I agree that you and Lloyd are talking about something different, but your post led with Dubai so that is the only issue I have with it. If it were about Wall Street than I wouldn’t have any debate. (For the record, I am really enjoying this discussion so I hope I am not overdoing it here.)rnrnThe US financial mess is an “allocation” problem. Wall Street got rich by shuffling money around. I think we both agree that not much was created there. rnrnUmair Haque tries to equate America’s problems to what happened in Dubai. I think that is a stretch. The UAE created a world class airline and airport hub. They created a city out of almost nothing in the middle of a dessert. They created free trade zones to encourage business and finance. They offered an essentially tax free zone. That is not shifting money around. I think that is creating something from almost nothing. (The population was only 40,000 in 1960. It peaked recently at more than 1.2million) How could the government stop speculators from coming in and driving up property prices with access to easy money from abroad? Why didn’t the US government follow that same advice?rnrnCities can take centuries to grow, Dubai, in its current incarnation, is only a decade old. There is nothing to compare it to in the world. rnrnYou said that, “But that rush to start created a bubble, and we’re seeing the first hiccup in that approach.” Are you saying they should have done it slower?rnrnI think they know they don’t have the luxury of time. Oil income is not going to last forever. I think they need to be going all out now or they won’t have an opportunity in another 10 or 15 years. rnrnI agree that, “Building a sustainable ecosystem of businesses, talent, industry, takes far longer and is incredibly difficult to jumpstart in a few years.” That is why I don’t think we should overlook how much was accomplished already in Dubai. Dubai will definitely turn around. It will become a global financial hub and jet setting destination. The pieces are all in place, it just needs the world economy to recover. rnrnYou said that, “But why spend all the money on real estate development rather than investing some in productive businesses?” rnrnIn my view, most governments don’t have a very good track record investing in businesses. Maybe manufacturing, but certainly not in creative businesses like you are espousing. They just need to provide the infrastructure and provide a favorable tax and business climate so that real businesses can take care of the rest.rnrnAgain, Dubai was a victim of the global financial crisis. The current Dubai problems wouldn’t have happened to the same degree without the western financial meltdown. Easy access to foreign capital is the cause. Usury is still illegal in Arab countries so the speculative money wasn’t coming from within.rnrnDubai is too young to “create a self-sustaining business ecosystem and social environment.” They needed an airport, roads, electricity, water, and buildings first. You can’t create a warm home environment before you have the four walls and a roof that first make the house. Dubai is still just a construction project, now it needs the people to come in and fill in the details. Those people will come, it will just take a little longer now.rnrnGovernments didn’t create New York, Tokyo, London or Hong Kong. Those cities are where they are because government got out of the way. Governments can set the political and tax climate, build the roads and transportation but they can’t do very much to establish a vibrant business environment and culture. The best they can do is to remove barriers to entry to make it enticing for creative people like you. By those measures Dubai is a success in my view. (In my humble opinion anyway.) rnrnThanks for listening!

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