Dubai

It’s been a long week in Dubai, and rarely have I disliked a place this much. It is impressive, there is no doubt about it. In the last five years they have built a hundred skyscrapers, each fifty floors tall. One of them, the Burj Khalifa, is the tallest building in the world. Everything here is a superlative – Dubai has the largest mall, the biggest aquarium with the most species, the oddest-shaped man-made islands, and more high-end sports cars than a teenage boy can fantasize about. In fact, Dubai has everything. The people who live here insist on pointing out that anything is available, all the time, and that the things you can buy in New York or Paris are available here, too… around the clock!

But is completely meaningless. Dubai is an orgy of consumption, with no production other than banking products tailored for converting Arab oil revenue in leveragable assets, and real estate projects that need to be syndicated to hapless fund managers and small time investors. More than any other place in the world, people seem to define themselves by what they buy, because there is virtually nothing else to do.

There isn’t a single sidewalk. It is virtually impossible to get from one area to the next without taking a car. “Knowledge Village” may be next to “Internet City” but you can’t walk from one to the other without taking your life into your hands amongst untrained drivers in high-powered vehicles. When you get there, be it the Jumeirah Beach Resort walk, the Marina bay, or the Financial District, you can spend time in architecturally wonderful plazas. But to me they are unbearable, because the giant air conditioning intake vents and heat exchangers are built at ground level, and there is a constant loud din that builds up a tension in your mind and body. You don’t become aware of the noise until you step inside and suddenly experience silence.

The building boom continues, and Dubai seems too big to fail. The projects will continued to be financed, and there is a tacit agreement to keep the Emirate humming because the investment banks and other service providers have too much at stake to let the place go. There is an inevitability to it. Everyone assumes the oil will run out sooner or later, and they will disengage just in time… let’s just not rock the boat while fees can still be generated.

Dubai is built on the backs of foreigners, and there are clear tiers of importance. There are the Gulf Arabs of course, who are the only ones allowed to own anything. They walk with a swagger through crowded malls, and drive in a seemingly constant state of road rage. Next are the Expats from Europe and the United States who enjoy the tax free environment, career opportunities, and cheap staff. Right behind them come the economic and intellectual refugees from the failing Arab countries – the Lebanese, the Syrians, and wherever else incompetent dictators or violent Fundamentalists make like intolerable.  There are smiling subservient Philippinos and Indians who have jobs in the service sector and cater to the Expats in clubs, restaurants, and around the offices. And then there are the Bangladeshis, Pakistanis, and Africans who do the manual labor, without any social net. Construction continues 24 hours a day, and the thermometer only goes to 49 degrees Celsius (120 F) because above that no one has to work… officially. But God forbid they break a leg or slip a disk, there is no quality health care, or paid time off.

Dubai encourages businesses to hire people from other poor countries to come here and work. They have them sign contracts that are a decade long and then take their passports.  Even though taking passports is officially illegal, the government knows it happens and does nothing to enforce the law. These poor people are promised a certain pay, but the companies neglect to tell them they will be deducting their cost of living from their paychecks, leaving them virtually penniless – that is, if they choose to pay them.  Companies hold back paychecks for months at a time. When the workers strike as a result, they are jailed. Protesting is illegal, but apparently this is one law that is actually enforced.

These people will never make enough to buy a ticket home and even if they do, they do not have their passports.  They live crammed in portables with many others, in highly unsanitary conditions. The kicker: they are building hotels that cost more to stay in for one night than they will make in an entire year. Things are so bad that a number of laborers are willing to throw themselves in front of cars because their death would bring their family affluence in the form of diya, blood money paid to the victim’s family as mandated by the government.

The laws are applied unevenly, and several people who live here have told me there is no point in contesting anything if an Arab is involved. If there’s a fender bender in traffic, guess who’s fault it is? And a Bangladeshi’s life is cheaper in a car accident than a camel. The replacement cost of the camel is higher than the money you’d have to pay to the dead man’s family… if he has one that can be located back in his country.

If this place disappeared tomorrow, and everyone simply had to walk home, there would a be a big collective shrug. This place has no soul, and very few would truly mourn its disappearance. But in the mean time it remains the Victoria Falls of the oily River Nile, a breath-taking stop close to the source of all the petroleum wealth, and everyone who can get a piece will participate. But we’ve seen the bankers and the accountants, and most don’t know when the bubble is over. They won’t get out in time, and let’s just hope they don’t pull us down with them.

Atomkraft… Nein Danke?

This may be one of these posts where I show real ignorance, but let’s hope it generates discussion. I have the feeling that the arguments around nuclear energy are highly polemic, and not really that well founded. There seems to be a knee-jerk reaction against nuclear power, and my generation has heard since childhood that it is bad for us, and that only bad people support it. Even the anti-nuke logos and stickers seem to have been designed by an advertising agency on Sesame Street.

I guess the biggest argument is that “something terrible could happen, and lot’s of people could get sick or die.” This is true, but it seems a little irrational. There are tens of thousands of aircraft that take off and land safely every day, and the track record improves every year. Why can’t we apply that same skill and discipline in monitoring world-wide energy generation?

Our primary energy source right now is oil and coal. If you factor in illnesses such as cancers and other diseases, it is hard to argue that these are leaving humans unscathed. Add the various wars we have to fight in order to protect resources – the death and injuries, the collateral damage to human life and property – it could be argued that our current energy policy hurts and kills more humans than any reactor accident. I include the long-term effects… just as a reactor accident would contaminate a site for years, it takes generations for a country to recover from a war, and most societies never come back from the brain drain and destruction.

What about waste products? Storing spent nuclear fuel is no more dangerous than our current strategy, which stores spent carbon fuel in our atmosphere. It may be out of sight and out of mind, but it is in our lungs and depleting our ozone layer. The waste issue is what makes alternative energy sources so attractive.

It seems that the human mind can focus on a single helpless disaster more than a series of small incidents. People are horrified by plane crashes, yet many MANY more people die in traffic every day. But somehow that is less visible. The deaths of soldiers and civilians in the war for resources happens “over there” to other people, and seems less prominent. Sure, there are some well-intentioned people protesting foreign wars – often the same people who oppose nuclear power, by the way – but most people just ignore the topic entirely.

Alternative energy sources provide hope, but it doesn’t seem like any version can keep up with growing demand. Sun and wind require a lot of space, and aren’t yielding sufficient energy to serve the current need. Unfortunately, power generation has never been as big a problem as power transportation. You can capture wind energy in the great plains of the United States, but getting it to the coast is a different problem. Simply put, we will need to improve every link of the value chain, from generation through transportation all the way to consumption. We will not simply find a new source that we can plug into the top end of the power grid which will solve our energy problems.

Any government seeking to carve out a niche of expertise should be supporting research, both through tax cuts and direct funding. The same minds that develop computers and software could achieve great things in a short time. But we are not having honest conversations about energy technology. There are a lot of powerful voices seeking to protect existing business, and on the other side are people who dream of a future when alternative energy will make everything better somehow. That is utopian, because it ignores what we need now, what we will need in the future, and what sources are available to us at this time. We need to seek out new energy sources, and we need to develop technologies that make energy use more efficient. But we should be making nuclear energy part of any real future model, and should invest a lot of effort and skills into improving its yield as well as safety.

Phnom Penh real estate

Last spring I spent a few weeks in South-East Asia, including a week in Cambodia. Nico Mesterharm, an old friend who runs Meta House in Phnom Penh, showed me around. He was quite sanguine about the corruption that underlies everything in Cambodia, especially real estate development. Cambodia sits right in the heart of South-East Asia… There’s Vietnam to the east, which uses its vestigal Communist structure to control corruption (with death penalties, if need be) and Thailand to west, which doesn’t permit gambling. Finally there’s Laos to the north, incredibly a country even less developed than Cambodia, a land-locked strip that mirrors its appearance as a conduit hose to Chinese infusion.

So Cambodia has become a sketchy playground for all its neighbors, and Phnom Penh is Sin City Central for the Chinese. Gambling is huge in China, so casinos are being built. Phnom Penh is a small town compared to other cities in Asia. It’s got about 1.5 million residents, and Asians live in tighter quarters than people in Europe or North America. That means the city’s footprint is small, and the slums are right in the middle of town… prime real estate.

Of course, the Cambodians are used to forcefully moving people. They killed a third of the population under the Khmer Rouge in the 1970s by forcing people from the cities to work the fields. So when real estate companies like 7NG, controlled by the Cambodian People’s Party and its oligarchical prime minister Hun Sen, evict some residents it is the same people that already suffered forced relocation under prior regimes. In the past buildings were simply burned or bulldozed, but now they conduct actual smiley-face ribbon-cuttings while people are crying in the background.

Well, last week 7NG forced their way and evicted everyone from Dey Krohm, an area I toured and photographed in March 2008. The only area that remains now are the Bassac apartment buildings, horrible and dilapidated structures that were once on the cutting edge of social housing – even by Western standards. Built by Vann Molivann, Le Courbusier’s Cambodian pupil, they were built to help the needy.

Human rights watchers and those who worry about preserving landmarks have been fighting hard to protect the structures, but it is unlikely that this will stop the eviction and destruction. They’ve failed every time so far. Below are two images – what was, and what remains:

You can see a few of these images as a Flickr slideshow – they show a little of Dey Krohm as well. What made it a particularly harsh place to live is that it was a garbage site. Not officially of course, but most people in Phnom Penh cannot afford to pay for weekly garbage pick up, so they just drive up to the few slum blocks int middle of town and dump their rotting food and discarded plastic right there.

…imagine living there the next time you walk up to your tap and get a fresh, cool, clean glass of water…

The worst part is that people are being located to the far edge of the city, where there is no work, and no transportation. Their very existince is at stake – in a country with no social infrastructure.

I don’t have a real call to action. It is frustrating for me to be personally aware of such injustice being committed, while being so helpless. There seems to be little I can do. I just wanted to add one more voice into the ether of the shouting internet, and put people on notice.

If you happen to be in Phnom Penh tonight (yeah right, how likely is that?!) stop by Meta House. They’re screening some films and having a discussion about evictions and development. And they have some interesting artwork there!

You can check out my whole Phnom Penh collection on Flickr.

The Ascent of Fear

I just finished reading Niall Ferguson’s “The Ascent of Money“. He writes about the history of finance and economics in a casual yet eloquent way, which makes it a joy to read and easy to understand. Unfortunately it had the same effect on me that a scary monster story might have had on my three young sons. I lay awake at night, and see threats in the shadows and doom in between the lines of newspaper stories and TV news reports.

Ferguson shows how markets can cycle through cataclysmic events with little logic, and great rage. I look at the current markets, and I can’t help worry that this might be the beginning of a very large melt-down… the kind that might end in civil wars, and Great Nations facing each other over resources and reserves.

He tells the story of how states have defaulted on their debts (surprisingly frequently throughout history), and how poor economic decisions have wiped away even the best-laid fortunes of prudent investors. Of course, I don’t want to be overly dramatic. After all, it is my job as captain of this little family tub to keep my cool, and navigate us to calmer waters.

I wonder about a lot of the same things as Gideon Rachman did in his Op-Ed piece in yesterday’s FT, which I will simply cut-and-paste here.

Generation L and it’s Fearful Future:

Pop sociologists like to divide people born since 1945 into different groups. There are the baby boomers, there is Generation X, we may even be on to Generation Y by now. But, as far as I am concerned, we are all members of Generation L – that is, L as in lucky.

Those of us born in western Europe or the US have never really experienced hard times. Our parents and grandparents lived through world wars and the Great Depression. We have had decades of peace and prosperity.

Could that change? Perhaps Generation L has just had the luxury of an extended “holiday from history”, which is now coming to an end.

There is no doubt that people are panicking. The flow of dire corporate news is so relentless that Boris Johnson, the mayor of London, has complained that: “Spending an hour with the FT is like being trapped in a room with assorted members of a millennialist suicide cult.” A CNN poll found that almost 60 per cent of Americans expect the current recession to turn into a depression.

If we had Depression-era economics, would we also get Depression-era politics? That would mean new extremist parties and ideologies, rising nationalism, the growing irrelevance of international organisations such as the League of Nations and the United Nations and – ultimately – war.

Amid all the gloom and the hype, it is worth remembering just how far we still are from the Great Depression – when unemployment hit 25 per cent in the US and 20 per cent in Britain, and hunger and homelessness were commonplace. But the return of mass unemployment is not impossible. Last year, the US experienced its biggest annual job losses since 1945. Imagine the impact on the wider American economy if General Motors and Ford really did go out of business this year.

We are told that our current leaders have learnt the lessons of the 1930s. Ben Bernanke, head of the US Federal Reserve, is a historian of the Great Depression and mainstream economists believe that their discipline has made real progress since the 1930s. Like modern doctors, modern economists have a whole range of new tools available to them that were unknown back then. Economic diseases that would once have proved fatal can now be effectively treated.

That is the theory. But economists largely failed to predict the scale of the current crisis. Since they did not diagnose the disease, there is little popular confidence that they know the cure. What if economics is, actually, at the same level as medicine was when doctors still believed in the application of leeches? Or what if economics has indeed made great progress, but we are facing a new type of economic virus for which we have not yet identified a cure – the H5N1 of economic crises?

A similar question applies to the politics of the current crisis. Does our knowledge of what went wrong in the 1930s make it less likely that we will make the same mistakes again?

There are some worrying signs. At the Group of 20 leading countries’ summit in November, all 20 governments solemnly promised to avoid protectionism, which is widely believed to have worsened the crisis of the 1930s. Yet within days of returning from Washington, India and Russia had pushed through new tariffs. One lesson of the 1930s is that international co-operation – so sorely needed in a global financial crisis – can disintegrate in a depression.

In the past, periods of economic dislocation have reliably led to the rise of new radical political and social movements. The only important democracy to have held an election since the collapse of Lehman Brothers last September is the US, and it voted for Barack Obama, a liberal internationalist. But in recent months there have been riots in Russia’s far east, in southern China and in Greece.

It is still a huge leap, however, to go from a little light rioting and some international trade tensions to the rampant nationalism and war of the 1930s. For my generation it seems almost unthinkable that we could return to an era of armed conflict between the world’s main powers.

But previous generations have felt the same way. In 1911, towards the end of another long period of peace, prosperity and globalisation, G.P. Gooch, an eminent British historian, wrote that: “We can now look forward with confidence to the time when war between civilised nations will be considered as antiquated as a duel.”

Some contemporary political scientists take a similar view. John Mueller, an American academic, crunched the numbers a couple of years ago and concluded: “Within a very few years there may be no war at all anywhere in the world.”

With bombs whistling down on Gaza as I write, that seems a little premature. But contemporary optimism about the disappearance of war between the world’s leading powers may be more sensible than it proved to be in the years before the first world war. It is almost 60 years since American and Chinese forces clashed in Korea.

The balance of terror did not exist in 1914 and it has made war less feasible. But so has the long period of economic integration and increasing wealth that now threatens to come to an end.

Long periods of peace and prosperity, however, are not always terribly interesting. Amid all the economic gloom, I do not think I am alone in feeling an odd excitement at the sense of living in uncertain and historic times. As Philip Larkin, a gloomy British poet, once wrote: “Life is first boredom/Then fear.” We have had the boredom. Now it is time for the fear.

I’m with him until the last few paragraphs. Israel’s hunt for Hamas terrorists can hardly be described as a war between “civilized nations.” I’m not excited by the notion of living in uncertain and historic times, at least not if they give rise to extremism and violence.

I keep reading about a giant glut of debt being issued by every major developed nation, and no clear answer as to who will be buying all it. We are talking about several trillion Euros of bonds that Germany, France, England and especially the United States are bringing to market in order to fund their respective economic stimulus packages. All this debt will need to be placed in Q1 and Q2 2009. The value of existing debt might fall by as much as 35% – 40%. This is not a big deal to couponiers waiting for a quarterly interest payment until the bond matures. However, it’s a major problem for mutual funds, insurance trusts, pension companies and other investment vehicles who’s valuations are based on their assets. In a mark-to-market world, this falling market value of their existing bond investments will make the funds lose substantial value, thus panicking investors even further.

Don’t forget, these kinds of funds are modern-day orphans-and-widows investments, and if they collapse there’s little governments can do to prop these up… without issuing more debt.

Maybe the long-term result of this next chapter in economic insanity will cause a return to valuations based on performance, not just the underlying assets for potential leverage.

New York, after the shoe fell

Living in Berlin, we don’t get that first-hand look at the credit crunch that I’m now getting here in New York. We’re in The City for Thanksgiving. Last night we had dinner with a large group of friends, and like everyone else in New York, there’s only one topic: Top-This anecdotes of the way people’s lives are unraveling.

The typical stories are almost benign: everyone seems to know the wife of a banker and mother of two, someone who’s left a career because the husband’s income is enough for all of them. They’re nervous, and she realizes she needs to save now. She doesn’t enroll the kids in after-school programs… which means she doesn’t hire a nanny… but it also means there’s no time for yoga, so she saves the gym fee. Not a big deal, but you can see how a city built on services is quickly coming apart. The weekly hair appointment becomes bi-weekly, the manicure will need to last longer, and the family visit to Florida is definitely canceled. But these are the lucky ones.

It’s a lot worse for most others. There is fear everywhere. “Will I be laid off when they finally announce it? What about my spouse’s job?” Two incomes, two kids, private daycare so both parents can work, a babysitter for an occasional night out… two cars that are leased, the mortgage, the credit cards… Most Europeans live differently, and can’t really imagine that two little emails could end life the way a family knows it.

Manhattan is extremely kid-friendly. This has become a city of younger families with everything from high-end private day-care to kids clothing stores. Well, no one needs $120 jeans for kids anymore… so those businesses will be the first to go. These are not small boutiques, but high-margin businesses for retailers who’s profits are usually razor-thin in the adult sector. The failure of this segment might be too much for the rest of the company.

Places like Kidville are also facing some dire times. Who can afford a private club for the toddler set? There is no public daycare here, so a place like this used to be a necessity. Not anymore.

Private schools are girding themselves. Many parents have already declared their inability to pay tuition… and the annual endowment gifts are canceled. Clubs and other membership organizations are all letting people go, because members aren’t renewing right now.

One of my good friends (a successful director of commercials and movies) had a big deposit on a condo in Manhattan in one of those ultra-cool new bachelor towers. He was getting tired of living in Williamsburg. But just prior to completion, his bank decided not grant the mortgage… and the developer wasn’t going to give him back the $140,000 deposit. He has to walk away from his life savings… and he actually found a silver lining in that! The fear of having to feed a giant monthly mortgage in the downturn when high-end commercial work is being scaled back was too much. He would spend the next few years living simply to feed the beast, without a penny left over for anything else…

Just imagine the family man who followed conventional wisdom and took out a mortgage so he could invest it in stocks, or a hot Hedge Fund… you can call it greed, but that was the system. And now the margin calls are being made.

There is no Schadenfreude in all of this for me. These people – the attorneys, the creative types, even the bankers – have worked very hard to get where they are in life. Good grades in school, the proper universities, and grueling entry-level executive jobs to get a shot at living well. They had faith in the system, and they played by the rules. These are not the self-important corporate Field Marshalls who enjoy seeing themselves in glossy magazines, but rather mid-level warriors on capitalism’s front lines.

…and what’s horribly ironic is that all these people have voted Democrat for a long time, not for the deregulating Republicans. They would gladly pay a little more in taxes. Rather than having to fork out for private school and premium medical coverage, they would prefer supporting good public schools and a reliable healthcare system. These are not “Me First!” elbow-society leeches, but people who’s values I share.

Pessimists are already predicting that an entire generation will be washed out of this version of the American dream. They believe the recession will be so long and brutal that it will take years before the law firms, ad agencies, and banks start hiring again. Let’s hope that isn’t the case… and that those people forced to go back to wherever they came from will enter public service and help make the U.S. a better place for everyone.