RENEE MONTAGNE, host:
A half century ago, Dubai was a poor, isolated fishing community, as we just heard, with none of the oil wealth of its neighbors.
Mr. JIM KRANE (Author, �City of Gold: Dubai and the Dream of Capitalism�) In the late �50s, Dubai was just a little village with no electricity, with not a single concrete building or a paved road or no running water. And then, you know, now it's a place where Paris Hilton films her latest TV show.
MONTAGNE: Jim Krane has written a book about Dubai called �City of Gold.� He says the emirate began its stunning transformation back in 1959 when it borrowed a few hundred thousand pounds to build a port. That, in turn, helped Dubai attract Western businessmen, migrant workers from South Asia and billions of dollars in capital from every corner of the globe.
Mr. KRANE: Dubai kind of lives by its wits, if you will. They've got a quarter of their economy, now, that's shipping and logistics. They've got tourism, now that Dubai gets more annual tourists than does all of Australia or all of Brazil. They've got another quarter - until the crash - that was in construction and real estate, which is much diminished. And they've also got a large financial services sector, it's like an international banking hub now. Although, you know, the future of that industry might be damaged by this scandal - certainly be damaged by this debt problem.
MONTAGNE: So, Dubai has managed to grow up in the last, say, five decades with no natural resources but with some smart business decisions, it's sort of built itself up. But probably we have all heard of Dubai, many of us don't know exactly what it is. What is it? A city state?
Mr. KRANE: That's right, yeah it's a city state on the lines of Singapore, Hong Kong. It looks a lot like Venice did, actually, in it's hey day.
MONTAGNE: Venice, Italy - or Venice before there was an Italy.
Mr. KRANE: (unintelligible) got a lot in common with Venice in the old says when Venice was a big trading state. I mean, even to the point where, you know, Venice was excoriated by the Pope at the time, for being too tolerant - for trading with Muslims and being too tolerant. Well, Dubai has got this conservative hinterland around it that looks down on its relations with, you know, with Christians and its tolerance of other religions.
MONTAGNE: Well, given that Dubai is frowned upon by its neighbors who are very conservative - Saudi Arabia, Iran - is there a likelihood that there will be a rush to help it out?
Mr. KRANE: That's the million dollar question. There are people in the region that are happy to see Dubai being punished for flying too close to the sun, but Abu Dhabi is definitely not comfortable with the state of affairs right now in Dubai or in the world.
MONTAGNE: And Abu Dhabi being one of the Emirates.
Mr. KRANE: Yes, Abu Dhabi is the strongest, biggest controlling Emirate inside the UAE, it's the one with all the oil and all the resources. The Sheikh of Abu Dhabi, Sheikh Khalifa, is the national president. You know, Abu Dhabi could get Dubai out of this issue, or this debt problem, you know, with a push of a button. It's got plenty of money, it's got the richest sovereign wealth fund in the world - but the terms for that bailout might just be a little bit too difficult for Dubai to swallow.
MONTAGNE: What you see, though, happening? And I'm asking, partly, because the amount that Dubai World - which is the sovereign fund owned by Dubai - it has a problem with about $60 billion, but in the world economy, it may not be so much. Why does it loom so large and how do you see it playing out?
Mr. KRANE: Dubai World and the other Dubai-owned entities got preferential rates when they went to the market to borrow money because they were associated with the Dubai government and because there was an implication that Dubai would bail it out when the going got tough - that the debt was, you know, in effect sovereign debt. Now, Dubai is saying, well that's not true. Actually it's not sovereign debt. There's a whole market of very fast growing countries that don't have, like, a big financial hub right now, and Dubai wants to be this -this hub. But this damage to its financial reputation could put it out of the running for that job. It's anybody's guess how they unwind this, but I think Dubai's going to need to make good on this, really, if it's going to keep its reputation intact.
MONTAGNE: Jim Krane is author of �City of Gold: Dubai And The Dream of Capitalism�. He spoke with us from London.
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