And one final thoughtful note… from Joel Bowman, reporting from the Persian Gulf, on what happens to all those fat profits made by oil exporters… and how costs always rise to fill the space available to them… and why whenever a nation discovers that it has an unearned advantage, it quickly finds a way to disadvantage itself:
“A friend who visited Dubai recently remarked to me that the emirate seemed to have one foot in the 13th century and the other in the 21st. His wife was shocked to learn that the political structure of the Emirates is basically akin to a feudal society; Sheikhs at the top, appointed by birthright, and imported, increasingly disgruntled, serfs laboring away at the bottom. A benevolent dictator is a marvelous thing… until things turn bad, i.e., the oil stops a flowin’.
“I found it interesting to note that the Saudis, perhaps the most expansive central planners in terms of intervening in individual’s lives, now spend $55 of every barrel of oil sold just to provide welfare for their citizens. This is a country with the largest reserves of the hottest export around and it requires a price seen less than two years ago just to balance the books! The only thing outpacing the rise in crude price, it would seem, is the over-reaching arm of the planners.
“(Venezuela, according to a report someone forwarded me recently, needs an astonishing $97 per barrel of oil to meet Hugo’s financial obligations… Iran and Nigeria require something like $75… not that I think it’s going back to these prices, but the margin between profit and just covering their expanding welfare buttocks is getting rather thin.)
“There is a region-wide nanny state syndrome that, in my opinion, will eat into every last drop of oil revenue long before the final well is exhausted… that’s if the SWFs don’t blow it all by ‘bailing out’ all the west’s financial institutions in the process – a practice that has seen the loss of billions for the Abu Dhabi Investment Authority, Mubadala and other, centrally planned and controlled funds.
“Back to the point though. Assuming that humans will remain a constant in any centrally planned equation, governments come up with hair-brained schemes to promote the interests of ‘a class’ or ‘a culture’ rather than let the individual fellow sink or swim for himself. This almost never works. History is full of examples. Here’s just one from my neck of the woods.
“The GCC determines that employment of nationals is of utmost importance, regardless of talent, merit or resume. (I can only surmise that this is motivated by cultural pride, as any company would surely want to hire the vast array of talented Indian IT gurus, for instance, before they settled for an Emirati who waltzed in around 11am and clocked out at 2 after an hour and a half lunch.) So, the central planners go to work…
“Qatar just announced a 20% ‘Qatarization’ (not to be confused with ‘racism’) initiative to be implemented by March 31 2009. That means every company must [hire] one Qatari for every four non-citizens on their books… or lay off a bunch of ‘imports.’ The Emirates and Bahrain are employing similar tactics as are Kuwait and Saudi.
“One may find themselves sympathetic to the cause of preserving the culture of a particular region… or not… but the fact is, making it illegal for companies to operate an employment system based on meritocracy will cripple them, particularly the smaller businesses.
“There’s obviously much more to it, but you get my drift.
“So, to hell with good intentions. You don’t count your investment returns until point of liquidation. And woe to the man who ever said, ‘Well, I intended to make a big fat profit… that’s what I had planned on.'”
Markets and Money