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While Dubai is held out by many as an example of capitalism at work, I actually see it as another case of socialism gone wrong. While you might scoff at the su

by brc 16y ago

While Dubai is held out by many as an example of capitalism at work, I actually see it as another case of socialism gone wrong. While you might scoff at the suggestion of linking socialism and Dubai together, what you effectively had with Dubai world was a government entity making investment decisions seemingly with no regard to price signals as more land sat unsold, and more buildings sat unrented, as more hotels sat unoccupied, but still the construction went forwards. It's this central government command of the economy that has arguably caused the problems with overinvestment and overbuilding, and a tightly controlled workforce (no freedom to associate, no rights) that supplied the labour to do it. If there had been proper price signalling (insistence, for example, that the existing hotels turned a profit before new ones were built) and a properly free labour force, which would have seen rising wages during contruction booms, then the growth would have slowed somewhat. Instead, because of these artificial market conditions, overinvestment continued and tripped off a speculative frenzy, which has caused the grief. I'm not pretending this is the only cause, but when you have a central authority blazing away wasting money, it's only a matter of time before the economy as a whole suffers from overinvestment in unproductive assets.

blahedo 16y ago
Correct me if I'm wrong, but my impression was that there were a lot of foreign investments in Dubai real estate, not just (maybe not even primarily) the government. Certainly there were many people buying at the wildly inflated rates, ignoring the "proper price signalling" that you suggest might have solved the problem. Or are you suggesting that Dubai should have blocked the private investors from building the new hotels and condos until more of the unsold pieces were occupied? That might have been a good idea, but it is also not the unfettered market you're advocating in the rest of your post, so I'm not sure what you mean. "The market" is not a magic wand, its invisible hand not nearly so reliable as many, apparently including you, seem to think; and "socialism" is also ill-defined as "everything short of rampant unregulated capitalism". Dubai's market was pretty darn free, and its safety nets were effectively nonexistent and certainly nothing even remotely worth of the name "socialism".
- brc 16y ago
  Yes, there is (was) a lot of foreign investment in Dubai, but the government was effectively underwriting much of it by starting off and feeding the Ponzi scheme. The big headline projects (the world, Burj Dubai, etc) were all underwritten by the Dubai government. Perhaps I didn't make it clear enough in my post that I wasn't suggesting Dubai was remotely socialist. My point was that centralised planning in an economy leads to problems. Where I failed in my haste to post and move on, was that I omitted the next part is that most socialist economies rely, and expect, a greater amount of government control over the economy, right up to the point where you get 100% control of the official economy in the case of communism. The point I'm making is that excessive government interference in the marketplace leads to undesired outcomes. Everyone who is entrepreneurial should have this as a startup message on their computer or phone. It's so easy to mistake government money flows for real prosperity. What I'm suggesting is that Dubai World shouldn't have borrowed and spent so much money on non-productive investments. The [tenuous] link to socialism I'm trying to make is that the hallmark of any truly socialist government is that it spends too much money on unproductive investments (aka bridges to nowhere), not because they are stupid, but because they evaluate investment on things other than the ability to return their outlay and make a return in the future. My post was designed to look absurd, because I'm truly concerned about the reckless amount of government borrowing and spending taking place across the world. It's unprecedented in scale and will affect us all in the fallout. We all look at Dubai and think 'can't happen here' (wherever we might be) but so many places can end up like this.
  - sesqu 16y ago
    > the hallmark of any truly socialist government is that it spends too much money on unproductive investments -- because they evaluate investment on things other So your means of identification of socialist government is that you don't agree with its valuations? Perhaps you mean to say that without stringent focus on a numerical performance measurement, like size of budget deficit or kLOC, optimization theory breaks down. I don't see how that would be particular to any form of government. That said, communal ownership does suffer more here, because it's an attempt at moving past local maxima in the poorly-defined utility space. Perhaps Jesse Schell's point system for people would be a sufficient compromise. The problem with borrowing in particular is that it leverages the assumption that your use for the money is valued by society. However, you can't nail down a worth and societies are fickle.
crux 16y ago
Centralized economic control by the state is not socialism. It's just centralized economics. Indeed, nearly everything you described—especially the tightly controlled, wholly un-free workforce—is antithetical to any socialist plan. The elements you've highlighted have more in common with corporatism than anything else.
nostrademons 16y ago
The way price signalling works is through failure and bankruptcy. Capitalism doesn't assume that all participants are rational; rather, it assumes that some fraction of them are irrational (possibly all of them, as long as there are some people who happen to be right despite being irrational), and that those firms will go bust, and their assets will be picked up by the people who happened to be on the right track in the first place. As long as you let those failures occur, you have a functioning market.
- brc 16y ago
  You're exactly correct, it's a good point. We should be watching what happens now - if the failures are allowed to happen, and the pre-built assets can be had at the market clearing rate - then growth in the future should be assured.
mwerty 16y ago
Muscat could have been Dubai if they had developed their port. I don't think Dubai is in a worse place than Muscat in the long term. The reason people see Dubai going down is the same reason people saw it go up - ambitious/optimistic development by the 'socialistic' ruler.
- hugh3 16y ago
  Muscat could have been Dubai if they had developed their port. It took me several reads to figure out that that sentence had nothing to do with wine.
joe_the_user 16y ago
http://en.wikipedia.org/wiki/Socialism http://en.wikipedia.org/wiki/Socialism Whatever the problems or merits of socialism, it advocates common ownership. Dubai has always been openly a personally owned state advancing financial speculation. You may indeed call it something other than standard capitalism but calling it socialism is clearly an abuse of the term.
- noarchy 16y ago
  People have been confusing government intervention of any kind with socialism for a long time. The argument against this generalization, by and large, keeps falling on deaf ears.
edu 16y ago
I think you mean fascism. From the Wikipedia: Fascism, pronounced /ˈfæʃɪzəm/, is a radical and authoritarian nationalist political ideology. Fascists seek to organize a nation according to corporatist perspectives, values, and systems, including the political system and the economy. (Edit: format)
notahacker 16y ago
what it actually shows is that capitalism where much of the wealth is heavily concentrated in the hands of those who accrued it more through property rights than business acumen ignores market signals at least as much as socialist style central planning.

by brc 16y ago

blahedo 16y ago

Correct me if I'm wrong, but my impression was that there were a lot of foreign investments in Dubai real estate, not just (maybe not even primarily) the government. Certainly there were many people buying at the wildly inflated rates, ignoring the "proper price signalling" that you suggest might have solved the problem. Or are you suggesting that Dubai should have blocked the private investors from building the new hotels and condos until more of the unsold pieces were occupied? That might have been a good idea, but it is also not the unfettered market you're advocating in the rest of your post, so I'm not sure what you mean. "The market" is not a magic wand, its invisible hand not nearly so reliable as many, apparently including you, seem to think; and "socialism" is also ill-defined as "everything short of rampant unregulated capitalism". Dubai's market was pretty darn free, and its safety nets were effectively nonexistent and certainly nothing even remotely worth of the name "socialism".

brc 16y ago
Yes, there is (was) a lot of foreign investment in Dubai, but the government was effectively underwriting much of it by starting off and feeding the Ponzi scheme. The big headline projects (the world, Burj Dubai, etc) were all underwritten by the Dubai government. Perhaps I didn't make it clear enough in my post that I wasn't suggesting Dubai was remotely socialist. My point was that centralised planning in an economy leads to problems. Where I failed in my haste to post and move on, was that I omitted the next part is that most socialist economies rely, and expect, a greater amount of government control over the economy, right up to the point where you get 100% control of the official economy in the case of communism. The point I'm making is that excessive government interference in the marketplace leads to undesired outcomes. Everyone who is entrepreneurial should have this as a startup message on their computer or phone. It's so easy to mistake government money flows for real prosperity. What I'm suggesting is that Dubai World shouldn't have borrowed and spent so much money on non-productive investments. The [tenuous] link to socialism I'm trying to make is that the hallmark of any truly socialist government is that it spends too much money on unproductive investments (aka bridges to nowhere), not because they are stupid, but because they evaluate investment on things other than the ability to return their outlay and make a return in the future. My post was designed to look absurd, because I'm truly concerned about the reckless amount of government borrowing and spending taking place across the world. It's unprecedented in scale and will affect us all in the fallout. We all look at Dubai and think 'can't happen here' (wherever we might be) but so many places can end up like this.
- sesqu 16y ago
  > the hallmark of any truly socialist government is that it spends too much money on unproductive investments -- because they evaluate investment on things other So your means of identification of socialist government is that you don't agree with its valuations? Perhaps you mean to say that without stringent focus on a numerical performance measurement, like size of budget deficit or kLOC, optimization theory breaks down. I don't see how that would be particular to any form of government. That said, communal ownership does suffer more here, because it's an attempt at moving past local maxima in the poorly-defined utility space. Perhaps Jesse Schell's point system for people would be a sufficient compromise. The problem with borrowing in particular is that it leverages the assumption that your use for the money is valued by society. However, you can't nail down a worth and societies are fickle.

crux 16y ago

Centralized economic control by the state is not socialism. It's just centralized economics. Indeed, nearly everything you described—especially the tightly controlled, wholly un-free workforce—is antithetical to any socialist plan. The elements you've highlighted have more in common with corporatism than anything else.

nostrademons 16y ago

The way price signalling works is through failure and bankruptcy. Capitalism doesn't assume that all participants are rational; rather, it assumes that some fraction of them are irrational (possibly all of them, as long as there are some people who happen to be right despite being irrational), and that those firms will go bust, and their assets will be picked up by the people who happened to be on the right track in the first place. As long as you let those failures occur, you have a functioning market.

brc 16y ago
You're exactly correct, it's a good point. We should be watching what happens now - if the failures are allowed to happen, and the pre-built assets can be had at the market clearing rate - then growth in the future should be assured.

mwerty 16y ago

Muscat could have been Dubai if they had developed their port. I don't think Dubai is in a worse place than Muscat in the long term. The reason people see Dubai going down is the same reason people saw it go up - ambitious/optimistic development by the 'socialistic' ruler.

hugh3 16y ago
Muscat could have been Dubai if they had developed their port. It took me several reads to figure out that that sentence had nothing to do with wine.

joe_the_user 16y ago

http://en.wikipedia.org/wiki/Socialism http://en.wikipedia.org/wiki/Socialism Whatever the problems or merits of socialism, it advocates common ownership. Dubai has always been openly a personally owned state advancing financial speculation. You may indeed call it something other than standard capitalism but calling it socialism is clearly an abuse of the term.

noarchy 16y ago
People have been confusing government intervention of any kind with socialism for a long time. The argument against this generalization, by and large, keeps falling on deaf ears.

edu 16y ago

I think you mean fascism. From the Wikipedia: Fascism, pronounced /ˈfæʃɪzəm/, is a radical and authoritarian nationalist political ideology. Fascists seek to organize a nation according to corporatist perspectives, values, and systems, including the political system and the economy. (Edit: format)

notahacker 16y ago

what it actually shows is that capitalism where much of the wealth is heavily concentrated in the hands of those who accrued it more through property rights than business acumen ignores market signals at least as much as socialist style central planning.