Saturday, April 04, 2009

High Value Added Bullshit

So, the world economy is in recession, people are losing their jobs left and right, and Economic models are being called into question. So what of the Economic model that has been preached to us all these years ?

Today we are going to talk about the trading economies. We basically have 3 parts to every economy:
  1. Agriculture
  2. Industry
  3. Services

What has happened to the world economy, and especially in countries such as Britain which has been almost completely de-industrialized is that Services have come to make a majority of the Economy. The Problem with Services is that they are not a producer of wealth, but rather a distributor of wealth. Someone in industry or agriculture has produced everything, someone working for a Real estate company or a Restraunt is simply distributing it.

And these are the people who will be hit the hardest in this recession. The distributors, traders, the people working in the service industries will all be hit very severely. It is because at the very essence of human commerce and finance is the simple notion of I give you my chicken, you give me your tobacco. We need to produce these two things to be able to trade. But when I trade my chicken for stocks, and you trade your tobacco for government debt, we just go into a swapping cycle of useless assets which spiral in price until they hit a sharp drop, when we have realised that our assets are worth 100 chickens and bags of tobacco.

What I am emphasizing here is a key note: Production, Production, Production. This should be the cornerstone of any economy. Money is useless if it is not used to acquire something being produced. You cannot stimulate an economy by increasing the money supply if no production or increases of productivity are being made. Just look at the Japanese after the asset price bubble.

Now that the real estate agents and the property developers are running with their tails in between their legs, and the holding companies are going bankrupt, it is time that we emphasize a New economy for our country. One of production. Initiatives like Masdar (into renewable energy), further advances into industries, engineering, these are all productive cycles that will generate an economy which is able to trade not on assets, but on goods. This is the future that the UAE should aspire to.


azucenamaryam said...

As Salaamulaikum:
Yous da man, Allah ma'aki

veritas said...

well said,

you really have to wonder just how "productive" these financiers really are.

something tells me a farmer is more useful to society than an investment banker. You can't eat money, you can't eat Credit default swaps, but you sure can eat corn and beef.

this recession is much needed overhaul of society.

Anonymous said...

This storm will pass... like the many storms before it...And our struggle; Humanity's struggle will continue to persist... until God claims the earth and those who live upon it, or the natural order of things comes to a stop. whatever your beliefs are.

Rupert Neil Bumfrey said...

Sorry a bit late on this, but only recently have I become aware of UAE Community directory.

FT commented on Abu Dhabi recently:

Talha said...

well said!

A Purple Monkey said...

Lebanon is the perfect example to `debunk` what you`re saying. Lebanon`s entire economy is only based on Services (finance, real estate, tourism, etc) and yet it is still booming despite the economic crisis. I can assure you that the agriculture was not what saved the Lebanese economy.

Greed, greed, and greed are the only reason behind the current recession. People, corporations, and governments buying more than they should, and people, corporations, and governments using the financial loop-holes of the system more than they should. Do you know that banks in the UAE are only required to hold 10% of their assets in cash? This means that 90% of the money deposited is used in investments by these banks. Hence, when a financial crisis hits, banks get into trouble for lack of liquidity.

The main goal right now for the GCC should be to design and implement a strong and resistant financial system that doesnt sway according to the whims of the global financial markets.

Anonymous said...

that'll be the day...

Emirati said...

Lebanon is thriving on a web of FDI, remittances, basically the oil production of the GCC.

It does not produce any real wealth, and can only redistribute it amongst its service industries.

So long as the tourists keep coming, the Gulf states keep pouring cash, and providing jobs for the small country of 1-2 million, it can continue to grow.

This is basically a "small countries" phenomenon. This model does not work for a developed economy such as the United States or the United Kingdom.

Anonymous said...

Well said...Are there more Emarati tribes like think rational ??

Ronald M. said...

Well said. I'm glad there are still people like you who think rationally in the Internet. Rarer still that you are a native of the United Arab Emirates who is open to other ideas.

I'm a Filipino architect who worked there and the situation here in the Philippines is exactly how you describe a service oriented economy.

The real estate business is booming here, and only the people who know how to sell products and services get jobs here. How about technically skilled professionals like me, who worked hard to earn an engineering or architectural degree, and who are more intelligent than these salespeople?
Unfortunately there are more architects here than the companies who are willing to hire us, and real estate companies only need one or two architects, they need more salespeople though. So we go to countries like the UAE who appreciate our expertise.

I have always advocated the industrialization of the Philippines, but corrupt government officials and a jaded public that has no initiative for change thwarts this dream. That is why you see few Koreans, Singaporeans, or even Taiwanese in the UAE. Those countries used their skilled manpower to build computer and car factories and office buildings, which contribute to an increase of national productivity, which in turn is used to create more jobs and build more factories,etc.

I wish both our nations' leaders may find the right path, so that we can all be self-sufficient.

Emirati said...

Ronald, I completely agree with your ideas. You are the future of the Philipines. I hope it gets to be a great country in the future.

psamtani said...

You hit the nail on the head. The entire field of finance is basically a cesspool of materialism and a manifestation of individual greed on a corporate level. Produce nothing, take money from one hand, give to another and keep some yourself.

What a fool calls an investment banker, I call a thief.

psamtani said...
This comment has been removed by the author.
psamtani said...

This reminds me of Kahlil Gibran's poem in his book, The Prophet:

To you the earth yields her fruit, and you shall not want if you but know how to fill your hands.
It is in exchanging the gifts of the earth that you shall find abundance and be satisfied.
Yet unless the exchange be in love and kindly justice, it will but lead some to greed and others to hunger.

When in the market place you toilers of the sea and fields and vineyards meet the weavers and the potters and the gatherers of spices,
Invoke then the master spirit of the earth, to come into your midst and sanctify the scales and the reckoning that weighs value against value.

And suffer not the barren-handed to take part in your transactions, who would sell their words for your labour.To such men you should say,
"Come with us to the field, or go with our brothers to the sea and cast your net;
For the land and the sea shall be bountiful to you even as to us."

And if there come the singers and the dancers and the flute players, buy of their gifts also.
For they too are gatherers of fruit and frankincense, and that which they bring, though fashioned of dreams, is raiment and food for your soul.

And before you leave the market place, see that no one has gone his way with empty hands.
For the master spirit of the earth shall not sleep peacefully upon the wind till the needs of the least of you are satisfied.

3lo G said...

You are forgetting that service providers bring something other than distributing the tangible things in an economy. They bring knowledge.

Your analysis skims the surface: an economy based on services goes much deeper. Indias IT sector, and the outsourced help lines. Knowledge. Given, answering a phone is not hard, but it is done cheaper than it is done in say, the USA.

I would like a strong production based economy here in the UAE. BUT I would like a stronger service based economy taking advantage on our geographical location. We already export and re-export from Iran, and Iraq. We consolidate MNC middle-east balance sheets here.

We do other things than real estate :-)

3lo G said...

Purple monkey has a valid point. Its banking system is peachy. and that isnt tourism, that is sound financials based on assets.

"real wealth" is based on assets.

So is the lebanese banking system.

Mohamed Ehsan said...

Very well said. You must be one of very few Emaratis I've come across with such a refreshing take on the UAE. I'm bookmarking your blog! :D