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 / Summer 2009 / Issue 55(originally published by Booz & Company)


The Challenges of Balance

In their quest to build sustainable economies, the Gulf states of the Middle East are learning to manage opposing forces.

Illustration by Lars Leetaru

Visitors to cities such as Abu Dhabi, Doha, and Dubai are likely to encounter a near-constant state of change. Building construction continues apace, even during the current economic downturn. It will eventually lead to better transportation systems, less traffic, and more energy-efficient buildings. But in the short term, it means that each city’s landscape is different from one day to the next. The footpath that a frequent traveler might have taken last week from the airport terminal to the taxi stand is now blocked by scaffolding; the road to the hotel has been plowed over and the taxi is forced to take a detour. The taxi drivers are likely to be confused by the routes, as they are often recent immigrants who don’t yet know the area and are also perplexed by its constant evolution. And yet, such inconveniences are directly linked to the region’s economic dynamism, which has drawn so many people there in the first place. The paradox of travel in these countries, growing more difficult as it attracts more people, is a metaphor for the nature of development in the Gulf states, and by extension in all rapidly emerging economies.

The more rapidly a country moves toward industrialization, the more powerful the constraints and counterbalances that seem to hold it back. System dynamics pioneer Jay Forrester coined the phrase “limits to growth” in the late 1960s to describe such phenomena. The harder a complex system is pushed, the more it resists — often in unpredictable, nonlinear ways. Frequently, the push-back is experienced as a seemingly unrelated symptom: a traffic jam, a labor shortage, or a mysterious inability to reach a critical goal. The challenge facing any emerging economy is to find a way to balance opposing forces in the midst of rapid development: to enjoy the benefits of growth with as few side effects and unintended consequences as possible.

Since 1998, the nations of the Gulf Cooperation Council (GCC) — Bahrain, Kuwait, Oman, Qatar, the Kingdom of Saudi Arabia, and the United Arab Emirates (UAE) — have become a kind of laboratory experiment in meeting the challenges of balance. Together, they provide the world with one of its most prominent examples of rapidly accelerating economic growth. In the space of a few years, they built up manufacturing, finance, and service industries and started to establish a sustainable middle class. They consciously set out to develop the legal and technological infrastructure of fully industrialized nations, without losing their close-knit cultural identity and political stability. And though they have a common culture, they are also diverse states, with different industries and different approaches to growth.

In “Oasis Economies” (s+b, Spring 2008), we described the rapid economic growth of the GCC in recent years, and its impact on the Middle East and the world at large. Since then, economic crisis has affected these countries; they are wrestling visibly with constraints and resource gaps that might have seemed unimaginable a year ago. But the aspirations of the region have not faltered. The GCC states’ sovereign wealth funds (SWFs) remain major global investors, and the states continue to be models of rapid development that are closely watched and emulated. After the first dozen years of this experiment, one primary lesson is clear: The forces of growth and reaction are interdependent, and every growth spurt is likely to be accompanied by some unexpected setback. Leaders of governments and businesses in emerging markets everywhere would do well to understand these forces and their impact, so they can more effectively steer the growth of their economies.

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