The Whole World is Watching :: UAE community blog

Posting at the team blog, UAE community blog, i, Bobo provides a nice roundup on the latest Human Rights Watch report on labor abuses in the United Arab Emirates, "Building Towers, Cheating Workers". See also the comments to his post.

I tend to see this more as an equilibrium where the low-wage workers in the UAE know in advance that cheating occurs in the sector so, in effect, they are not cheated. All that happens is the UAE perpetuates its earned reputation for lack of enforcement of its own laws and for shifting the blame to authorities in source countries. Frankly, this has a corrosive effect throughout the society, stymieing trust and promoting cynicism -- which in turn makes all laws difficult to enforce. The cycle of life, such as it is, is complete. It's not a healthy economic atmosphere.

i, Bobo blogs at Bobo of Arabia.

Dubai 10th largest trading partner with UK.... hmm

Via grapeshisha comes this story:

The 30 billion pound money-go-round: Telegraph:

It seemed, on paper, that trade between Britain and Dubai was booming. After years of sluggish growth, exports were finally taking off - up by an astonishing £325 million in a single month last year - and the little desert kingdom was sending plenty back in return. Businessmen at both ends were getting rich, and the Government looked happily at the figures.

Until it realised that there were no ends. Just a loop around which billions of pounds worth of goods were continuously and lucratively revolving as part of a VAT fraud that has now grown so extensive and complex that it has begun to distort the entire British economy.
. . .
The most sophisticated version occurs when a trader imports the goods, sells them on, with VAT added, to a criminal associate, who re-exports them (claiming the VAT back from Revenue and Customs), and later re-imports them, so that the whole procedure begins again. Some carousels have been known to spin as many as 30 times. It is estimated that up to 10 per cent of Britain's recorded exports may be fraudulent to some degree.
. . .
The growth of the racket has produced some startling statistics. This year, Dubai, which has a population of barely 900,000, officially became Britain's 10th-biggest trading partner. Suspicions were raised, however, when, in June last year, our exports to the kingdom soared to £529 million from just £204 million in the previous month.
. . .
many critics argue that flaws in the VAT system - compounded by ill-conceived EU regulations - are substantially to blame. "The rules and the administration of the tax are fundamentally flawed," says David Raynes, a former senior customs officer and fraud expert. "Actually, VAT as a tax is fundamentally flawed."
. . .
VAT, which was invented in France, was effectively imposed on Britain as a condition of joining the Common Market. Until then, we had a simple purchase tax of the type still levied in America.

Emphasis added.

Gulf News picked up on the Telegraph story here, and followed that with an article connecting the proposal for a GCC VAT with the potential for carousel fraud, as did 7Days.

My standard observations:

1. People will find economic opportunities like water finds leaks in a boat. This is true whether those opportunities create wealth, or they rearrange wealth.

2. The law of unintended consequences applies. The effects of innovation in institutional arrangements are quite difficult to predict precisely because of the degree to which those arrangements will be tested by the individuals responding to the incentives created.

3. The health of a society's institutions can be judged by the degree to which individuals are expending effort rearranging wealth rather than creating wealth.

More at Tax-News.com:

Raw trade data suggested the the UK's exports rose by 39% year-on-year in the second quarter, but when the ONS factored out possible MTIC fraud, this falls to a 12% increase.
. . .
MTIC is a European concern, and some estimates have put the total loss of VAT within the EU at EUR50 billion annually. This has prompted some European governments, including the UK, Germany and Austria, to seek permission from Brussels to change VAT regulations to apply 'reverse charging' under which the purchaser of the goods, rather than the seller, will be liable to account for the VAT on the sale. So far only the UK has been given permission to change its rules to combat the fraud.

Momentum for action to combat the problem is also growing within the European Commission. In a paper published earlier this year, Taxation Commissioner Laszlo Kovacs presented some radical proposals to counter carousel fraud, but it is thought the EC will take a more conservative approach to the problem by enhancing administrative cooperation and improving safeguards in the current system.

Some companies violating labour law do not exist :: Gulf News

Quote:

Humaid Bin Demas, assistant labour under-secretary, said that there are about 50,000 companies that have violated labour card regulations.

"Around 80 per cent of these companies fall into three categories companies that only exist on paper, companies that mainly sell work permits and businesses that are going through financial crises," said Bin Demas.

Many workers purchasing labour permits from such companies stay in the country illegally after their permit expires. As they stay illegally, they have to survive with low salaries and could claim no rights or compensation if injured.

According to Ministry of Labour statistics, around 90 per cent of the firms violating labour card rules are for people who do not work for the companies sponsoring them.

A colleague calls this "turning workers loose on the local economy." There are companies whose business is, or has become, selling work visas by importing labor and then setting the worker lose in return for an annual payment; they would not exist otherwise. These foreigners are willing to pay a flat fee for the opportunity of finding work on their own. Or the workers are leased to firms that want to hire, but cannot get visas approved.

As long as work visas are rationed, there will be a market for the visas and those who get the visas obtain a rent. The government could, however, wipe out this kind of business by going into the business and selling the visas itself. But since it does not sell permits, if it wants to deny permits to firms that have no purpose except to collect and resell work visas then it has an enforcement problem.

I have a conjecture that the plethora of small businesses on the edge of survival that you see in many cities and towns in the UAE are a variation on this theme. The local owner has in effect sold the business to a foreigner who needs the owner to acquire the work visa and the business license. The foreigner is in effect working for himself.

It would be interesting to know how many of these companies are owned by staff or former staff of the Ministry of Labour.

Ministry cuts fees for expatriate students in government schools :: Khaleej Times

Quote:

DUBAI — The Ministry of Education has announced a substantial reduction in admission fees for children of expatriates in government schools.

''Annual fees for students in grade 1 to 3 will be slashed by 50 per cent from Dh 6000 to Dh 3000 a year while those of grade 4 to 7 will be amended to be Dh 4000. As for grade 8 and 9 fees will be in the range of Dh 5000, according to a resolution endorsed by Minister of Higher Education, and acting Education Minister Sheikh Nahyan bin Mubarak Al Nahyan.

The ministry has set Dh 6000 as fee for each grade at the secondary school level. Earlier the ministry specified fee for grade 1 to 12 at Dh 6000 and despite that it imposes strict requirements for admission.

The ministry has also allowed the acceptance of children of Arab expatriates employed by the federal government at remote areas that are far away by 35 kilometres, instead of 50 kilometres, from the nearest private school.

I presume the goal is to improve the quality of education of nationals. One of the inputs to a good education is the other children in the classroom. Increasing the number of highly talented or highly motivated students can improve the quality of learning as those students transmit knowledge and make the environment more competitive. These effects may be greatest for the other talented students in the classroom.

Not so long ago government schools closed the doors to expatriates. This policy represents a reversal.

The parents of these expat children have superior alternatives in terms of school quality. Thus, to attract the most talented of these students the price has to be right.

Modern life is healthy :: New York Times

Those wacky microeconomists are looking in places where the average Joe would be surprised to find an economist (no, most of us have no expertise in stocks, bond and foreign exchange). So reports the New York Times.

New research from around the world has begun to reveal a picture of humans today that is so different from what it was in the past that scientists say they are startled. Over the past 100 years, says one researcher, Robert W. Fogel of the University of Chicago, humans in the industrialized world have undergone “a form of evolution that is unique not only to humankind, but unique among the 7,000 or so generations of humans who have ever inhabited the earth.”

The difference does not involve changes in genes, as far as is known, but changes in the human form. It shows up in several ways, from those that are well known and almost taken for granted, like greater heights and longer lives, to ones that are emerging only from comparisons of health records.

The biggest surprise emerging from the new studies is that many chronic ailments like heart disease, lung disease and arthritis are occurring an average of 10 to 25 years later than they used to. There is also less disability among older people today, according to a federal study that directly measures it. And that is not just because medical treatments like cataract surgery keep people functioning. Human bodies are simply not breaking down the way they did before.
. . .
Dr. Barker of Oregon Health and Science University is intrigued by the puzzle of who gets what illness, and when. “Why do some people get heart disease and strokes and others don’t?” he said. “It’s very clear that current ideas about adult lifestyles go only a small way toward explaining this. You can say that it’s genes if you want to cease thinking about it. Or you can say, When do people become vulnerable during development? Once you have that thought, it opens up a whole new world.”

It is a world that obsesses Dr. Barker. Animal studies and data that he and others have been gathering have convinced him that health in middle age can be determined in fetal life and in the first two years after birth.
. . .
But not everyone was convinced by what has come to be known as the Barker hypothesis, the idea that events very early in life affect health and well-being in middle and old age. One who looked askance was Douglas V. Almond, an economist at Columbia University.

Dr. Almond had a problem with the studies. They were not of randomly selected populations, he said, making it hard to know if other factors had contributed to the health effects. He wanted to see a rigorous test — a sickness or a deprivation that affected everyone, rich and poor, educated and not, and then went away. Then he realized there had been such an event: the 1918 flu.

The flu pandemic arrived in the United States in October 1918 and was gone by January 1919, afflicting a third of the pregnant women in the United States. What happened to their children? Dr. Almond asked.

He compared two populations: those whose mothers were pregnant during the flu epidemic and those whose mothers were pregnant shortly before or shortly after the epidemic.

To his astonishment, Dr. Almond found that the children of women who were pregnant during the influenza epidemic had more illness, especially diabetes, for which the incidence was 20 percent higher by age 61. They also got less education — they were 15 percent less likely to graduate from high school. The men’s incomes were 5 percent to 7 percent lower, and the families were more likely to receive public assistance.

The effects, Dr. Almond said, occurred in whites and nonwhites, in rich and poor, in men and women. He convinced himself, he said, that there was something to the Barker hypothesis.

If life in the womb and in the first two years has such a large impact, that bodes well for Jeffrey Sach's program of concentrating development aid on direct relief of extreme poverty: people will be able to lead much more productive lives. And, no, I have not lost track of the opposite direction of causality that Fogle points to: the Industrial revolution has allowed people to live longer with fewer disabilities.

Economic development even seems to be a cure for cancer:

“Suppose you were a survivor of typhoid or tuberculosis,” Dr. Fogel said. “What would that do to aging?” It turned out, he said, that the number of chronic illnesses at age 50 was much higher in that group. “Something is being undermined,” he said. “Even the cancer rates were higher. Ye gods. We never would have suspected that.”

Economics development in the last century has so improved lives that Fogel is suggesting the world's population carrying capacity is 50 billion.

Life for UAE nationals was quite harsh up until 40 or 50 years ago. The first two years of life for someone born here in 1960 was quite different for someone born here in 1980. Yes, we are seeing lots of childhood obesity. But is that extra weight due to a good start in life or to an unhealthy lifestyle? Moreover, even if it is the latter going back to the economy of the 1960s would be literally unhealthy.

Key money

Gulf News headline: Key money puts Abu Dhabi rents beyond reach.

Key money - a charge for the transfer of an apartment - occurs when rents are held below the level that would balance supply and demand. When rents are held down - say, by rent control - you create apartment seekers who are willing to pay more for an apartment but cannot find one. That creates the opportunity to collect key money.

Who collects the key money? It may be the apartment owner who charges the legally allowed rent, but then charges an additional fee to transfer the apartment to a new tenant. Or it could be the existing tenant who transfers her contract to a new tenant for a fee.

In the Abu Dhabi case there is no mention of rent control. Rather it appears that the apartments are government owned and the government has chosen to rent at below market rates. Enterprising building supervisors (the watchmen) watch for match-making opportunities between tenants moving out and persons seeking apartments. When a match is made the new tenant pays the key money, and the watchman and the departing tenant split it.

Workers in a competitive market are paid according to the value of their marginal product

In competitive labor markets a worker gets paid the value of the worker's marginal product, that is, the value of the additional product the worker's presence provides.

There is a link between several of the recent posts at The Emirates Economist.

1. Customer-based discrimination: The notion that customers may be willing to pay more for an enterprise's service according to the nationality or ethnicity of the employee providing the service.

2. The debate over Western style education systems in the Gulf: see my posts here and here.

3. Taxation of US taxpayers living abroad.

Here's what ties these together. An institution that wishes to adopt, say, the American system of university education will have to be careful to choose employees who understand that system, and to include among that set of employees some who grew up in the American system. This is especially true if your aim is to create an experience that is like attending university in the US. We may not be able to describe the American system exactly or what the boundaries of an education system are, but it is not merely about textbooks, the academic calendar, the style of teaching, or the method of testing.

Parents and students seeking an American-style education know this. Thus, they are willing to pay more in tuition to an institution that employs more Americans. Americans are worth more to the institution; thus we expect to see the institution pay more to Americans.

And when taxes on US taxpayers living abroad increase it will take more to entice Americans to work abroad. The theory predicts American-style universities will do two things as a result of such a tax increase: reduce the proportion of their workforce which is American, and increase the pay of Americans it continues to employ relative to the pay of others with otherwise similar credentials.

If we see an American-style institution that is not paying a premium to Americans what do we conclude? One possibility is that the institution does not want to be know for paying less to non-Americans. The customers, for example, may not understand that their own preference for Americans means the institution values Americans more, and/or they may be appalled by that pay difference. And so, to keep their business, the institution pays non-Americans more than is necessary to attract their services.

Another possibility is that the institution values diversity. This could be because diversity is part of the American system of education. Or it could be because the institution is not merely modeling itself to be American. Either way, each faculty member could be contributing to the diversity of the whole and be paid for it.

A goal of diversity, however, does not imply equal pay to all nationalities. In the US, in some academic disciplines where there are few women, the pay of females has been bid up above that of males -- the wage gap can persist the mix of men and women needed to achieve diversity differs for the mix naturally attracted to the profession at equal wages.

Back to that tax increase that affects only US taxpayers living abroad. Even if diversity is part of the institution's mission you would expect to see the institution increase the pay of the US taxpayers but not to the degree that it maintains the same proportion of Americans in its workforce.

Economic nonsense

OPEC may override call for production cut :: Business Week:

Chavez played a key role in getting OPEC members to abide by production quotas that have helped reverse prices from roughly US$10 (euro8) a barrel when he took office in 1999, which subsequently quadrupled Venezuela's oil export revenues.

Chavez may well have been key in getting OPEC members to abide by quotas in 1999. Today, however, quotas are irrelevant as crude oil production and refining is running close to 100%. And that is because of the success of the liberalization of markets in India and China due to the defeat of Chavez-like thinking in those countries.

It's disturbing that the Business Week article does not cite the key role of the economic success of India and China in explaining the current high price of crude. Instead, the article cites SG Securities analyst Frederic Lassere in Paris:

Maintaining or boosting output does little to address the factors behind the current run-up, which include a lack of refining capacity, a larger global run on commodities, and geopolitical tensions, Lassere said.

No mention of India and China's surging demand for oil. (And, the run up of what? The lack of refining capacity would not explain a run up of crude prices.)

I wonder what Iran's Gulf neighbors think about this:

Kamal Daneshyar, chairman of the Iranian Parliament's Energy Committee, told Dow Jones Newswires on Monday that Tehran could retaliate for any sanctions by closing the Strait of Hormuz, a major oil shipping route, which he said could drive prices as high as US$250 (euro195) a barrel.

Gulf states: educational reform's real goals :: Arab Reform Bulletin

Ebtisam Al Kitbi (UAE University) writes:

Among the most important changes in the Gulf is increasing reliance on the English language at the university level, despite the fact that English language instruction in elementary and secondary public schools in the region remains weak. The decision to change the language of instruction in the social sciences and humanities to English, although many students lack the required proficiency, has profound implications for education.

It is difficult for students to engage enthusiastically in the detailed discussion required to understand the sophisticated concepts, theories, and debates in the humanities and social sciences when it is clear to them that their English language skills are not up to the task.
. . .
The increasing reliance on English is an example of the sort of proposed changes in educational systems that serve foreign interests more than they serve the societies of the Gulf. The insistence of foreign powers on a change in the educational philosophy in the Arab Gulf region comes within the context of the control and suppression of university youth so that their world view in the future will be compatible with and serve the interests of those powers. . . . Altering the role of higher education neutralizes university students and prevents them from being an effective force for change.

I'm skeptical that English was made the language of learning in universities so as to control and suppress university students. Or that this format of instruction is imposed or insisted upon by foreigners. Very skeptical.

I do believe, however, that it is appropriate to question whether the language of instruction ought to be English. Part of the answer would have to consider what are the barriers to providing a quality university education in Arabic.

Although students have limited options to pursue university level education in Arabic they do have the choice of different university formats including the American style of university education. Many students opt for this format. Why? And why do employers find graduates from American-style universities attractive? (Given that the American style of university education is thriving in the Gulf also leads me to wonder if the paucity of Arab-language universities is a matter of student/parent preference rather a format that is imposed by providers (let alone imposed by foreign powers).)

I believe that the American-style education is one of many styles that work. I do not claim the American system is superior. However, I do believe that any education system is transformative, that is it changes the person's attitudes, beliefs and world view; it does not merely transfer knowledge or build skills. Cultural DNA is transmitted. I often wonder if the Gulf States are aware that the education systems they allow to operate within their borders are likely to change native culture in unexpected if not undesirable ways.

What I'm reading today - May 27, 2006

Saudi Arabia's Mass Weddings Leading to Unhappy Endings :: Asharq Al-Awsat - Maybe. But there's numeracy issues in this report. You report that "thirty-nine percent of couples who tie the knot in mass weddings in Saudi Arabia later divorce" (and you later quote an official as saying it is 39% in the first year of marriage amongst those married in mass weddings in Jeddah last year). But you give no percent for couples who did not marry in mass weddings. So what can we conclude about mass weddings? Later you state that 1,052,000 women of marriagable age are single. But you do not put that number in perspective. For example, as a percentage how does this compare to the amount in recent decades?

Mid-day break for workers during summer indispensable :: S.S. Lootah Contracting Company press release - "The announcement came during S.S. Lootah Contracting HSE policy review meeting held in Dubai last week. Health and safety policy refinement, unconventional operational methods and behavioral based safety management were among the issues discussed during the meeting. 'It is challenging to achieve safety excellence in the construction industry'. Lootah noted. 'We are communicating and implementing HSE principles at all operational levels, but our values that promote respect, care and appreciation for all workers is the key in achieving our goals' he added. . . . The discussion concluded that it is becoming increasingly important to have one official body overseeing health and safety policy making and implementation in the construction industry."

Note that Lootah would like its standards imposed on the rest of the construction industry. It is probable that this means that Lootah is not being compensated by its customers for its higher safety standards. When we blame construction companies for treatment of workers let's remember that it is the customers of the construction companies who are not willing to pay for improved safety. Nor, evidently, are the workers, otherwise a construction company could cut labor costs by exchanging better safety for lower wages. Workers who complain about working in deadly heat are asking to change the terms under which they were hired. Are they willing to take a wage cut in return for not having to work in the hottest hours of the day? Reader, if you object please note that I am also willing to accept the possibility that the construction company is the one that is changing the terms and did not provide workers with full information about working conditions before they were hired.

Getting rid of old cars in Dubai will help the economy? :: Gulf News - Actually, thereare simply not that many old cars on the roads in Dubai. But there are a lot of old trucks. I wonder who owns all those old trucks and why they are still allowed to ply the highways? My guess is that they are the major source of pollution in the vehicle fleet. Besides that, these older trucks are slow and unsafe, contributing to traffic jams and hazardous conditions for others. So, yes, tightening up on the regulation of old cars and trucks would be a net benefit for society.

But reasoning like this is simply a display of economic ignorance on a grand scale: "Ayir N., 36, a manager from India, said preventing very old cars from plying the roads 'is an excellent idea that will push up the economy by allowing more sales of new cars.' . . . Reem Hashim, 29, a flight attendant from Syria, said removing vehicles over 15 years old is a great move. 'It will help decrease the pollution and will refresh the economy by allowing people to buy new cars,' she said." While we at it let's destroy some of the older housing in Dubai to "allow" Ayir and Reem to rent new apartments.

Besix workers turn violent, beat up their colleagues :: Khaleej Times

Quote:

Rashid Bakheet, Member of the Permanent Committee of Labour Affairs, told your favourite No. 1 newspaper, Khaleej Times, yesterday that the committee checked all the documents of the company and visited the labour camp. The company is paying on time and the accommodation is good. The committee is satisfied with the company and it is a well- run company,” he said. “The workers’ demand of an increase in their salary to Dh1,000 and provision of Dh300 for food allowance is not an acceptable demand. They should abide by the labour contract they signed,” he added.

An easy solution for the firm would be to call in replacement workers. The trouble is the UAE labor rules do not allow firms to go onto the local market to hire workers - all ex pat workers in the UAE (over 98% of the private sector workforce) are essentially locked into employment with the employer - that is, they can't change jobs readily.

I've been arguing for a relaxation of the rules that limit or make it costly for firms to hire workers on the local market. I have in mind giving workers greater freedom to change jobs.

It's not what I had in mind, but the recent proposed plan for Worker Cities, where there would be large labor renting companies, would also make it easier for a firm to swap out its workers if it wished. It's not immediately obvious that workers such as those striking at Besix would be better off under the Worker Cities plan.

Quote of the day

From Agoraphilia (the numbers are U.S.):

Even looking at the poorest fifth of the population, the fraction of income required to buy gasoline is still lower than it was in the early '80s. . . . How is it possible that the same qualitative pattern holds for both rich and poor, given the rising disparity in income? . . . The gap has grown because the rich have gotten a lot richer, while the poor have gotten a little richer.

I blame George Bush.

I just wonder what the Emirates will be like when gas prices exceed historic highs. It's hard to imagine a more rapid pace of construction. Maybe at a new high in gas prices more of that oil cash will flow to better government schools. There's room for improvement there.

It would be even more interesting for the money to be turned back to Emiratis on a per capita basis, no strings attached. Would families elect to spend the money on better education? Better housing? Invest it? Economists would like to see.

Central Bank urged to curb offer of easy personal loans :: Gulf News

The Central Bank should curb the phenomenon of easy personal loans offered by banks in the emirate, the National Consultative Council said yesterday.

The Central Bank will be like the man pushing on a string until the Rulers' Courts stop paying off the bad debts nationals have with banks. The National Consultative Council might want to ask that that practice halt. Otherwise banks have every incentive to loan to a national regardless of his or her credit worthiness.

Speaking of credit worthiness, that's pretty difficult to check - there are no credit bureaus in the UAE where borrowers credit histories are kept. There's not been a demand for a credit bureau and there won't be as long as the personal debts of nationals, or certain nationals, are always taken care of by someone. If you want to curb spendthrift borrowing you have to shift the obligation to repay onto - novel idea coming - the borrower and - novel idea coming - leave it up to the lender to collect from the borrower and from someone else. Otherwise the bank and the borrower have no reason to care.

The National Consultative Council

also suggested the Central Bank should hold a bank responsible for a default because of bad assessment when offering the loan, and the transfer of a person's salary to banks to repay a loan should not be made mandatory.

They also called for a new regulation to control personal loans by fixing a ceiling for the interest rate charged for transactions between banks, and cancelling the provision of a cheque as a guarantee in offering a loan.

According to Abu Dhabi Police General Headquarters, 1,748 UAE nationals were reported defaulters from 1999 to 2004 with a total Dh2.727 billion in credits. Regarding bounced cheques, the council was told 35,418 cases involving Dh1.14 billion, had been registered with Abu Dhabi Police between 2002 to 2004.

But an interest ceiling on loans only encourages borrowers to borrow more. Is that what you want?

Facial Profiling :: Farkonomics

Today we resume the irregular farkonomics feature at The Emirates Economist. Our subject, racial profiling.

From yesterday's The Sunday Times of London:

Cameras set racial poser on car crime
Dipesh Gadher, Transport Correspondent

BRITAIN’S most senior policeman Sir Ian Blair is facing a race relations dilemma after the release of figures that reveal almost half the number of people arrested in relation to car crime in London are black.

Blair, the Metropolitan police commissioner, has signed off a report by his force’s traffic unit which shows that black people account for 46% of all arrests generated by new automatic numberplate recognition (ANPR) cameras.

Dear Reader, one of my blogging secrets is that I am regular reader of Fark. Sometimes credited, sometimes not, Fark is often my source for stuff that interests me and shows up on this blog.

Fark works like this. A reader submits a news article for listing in Fark, giving it an amusing headline. Next, moderators at Fark decide whether to accept the submission - to post the link and headline. Once an item is posted anyone can also comment on it. Comments are also moderated. Fark steers me to interesting articles I would often otherwise miss, and it attracts commenters who add value to the media's product. Probably Fark attracts folks that have similar tastes to mine which is why it works for me and might not work for you. But if you are a regular reader of this blog that says something about your tastes.

In the case before us, the media's product is the Times article quoted above. One might expect such an article to attract comments by farkers that are ignorant or racist. Not so. At least under the Fark system comments are witty, ironic, and intelligent - all of which will mean that those ready to be offended will be, but avoiding offense often leads to avoiding the question.

The comments on the Times article certainly add value to the article. Here is a great comment written by Godwin which he opens with a quote from the article:

The report tacitly appears to address concerns among ethnic minority communities who believe they are unfairly targeted by the police through stop and search powers. Black people are up to six times more likely to be stopped than whites.

Let's assume the cameras are truly non-partial. According to the article, 45.6% of crimes caught through the camera system are perpetrated by blacks, while 36% come from white backgrounds. According to the most recent census, 11% of London is black and 71% is white. The relative crime rate between black and white Britons (again, assuming the cameras are impartial) is then given by the ratio of the percentage of crimes perpetrated by blacks times the percentage of whites to the percentage of crimes perpetrated by whites times the percentage of blacks (the math's pretty easy, work it out yourself).

If you plug in these numbers, then black Britons are 9 times more likely to commit a crime than white Britons. Meanwhile, blacks are "up to" only six times more likely to be stopped by police. Therefore, British cops are more likely to pull over a white suspect than a black suspect when the relative crime rates between the two groups are normlized out. QED

The flaw in this analysis is that the cameras are concentrated in Southwark and Lewisham. If you plug in the numbers for Southwark, blacks appear to be only 5 times more likely to commit a crime. If you plug in the numbers for Lewisham, blacks appear to be only 4 times more likely. Therefore the rate of blacks being stopped by British police is closer to what it should be considering relative crime rates (keeping in mind that the figure was "up to" six times).

That was pretty pointless, but hey, I was curious.

(All formating is Godwin's.)

The Times headline refers to a "racial poser." A poser is a baffling question or problem. I like the word and how it has been used by the Times writer. In the article the writer goes on to talk about feelings that exist, feelings that could be legitimate as long as we remain in a state of bafflement. And fail to present some facts. But there's not much in the way of making sense of those facts.

If analysis like Godwin's was in the article itself, then you'd have some powerful journalism. Sometimes we have to do the analysis for ourselves, as Godwin did. Sometimes we can find the answer at places like Fark, or even at a humble blog. The article is now much more useful. Once Godwin's analysis is out there others may find a flaw in his reasoning, but at least now we are reasoning about what the numbers mean and not expressing how we feel.

Bloggers may often work in their flannels, but that is immaterial. What matters is that the good ones are not merely cutting pasting and ranting. They are taking the mainstream media's product and adding value. You are the beneficiary.

TAGS: farkonomics, racial profiling, statistical discrimination

A crime against humanity

The UAE government makes it quite difficult for foreign workers to leave one employer in the UAE and seek alternative employment with another. This contractual constraint imposed by the government creates an environment where bad employers can (1) abuse their workers, and (2) spoil the reputation of employers as a whole, damaging the majority of firms who keep their commitments to their workers.

For low-wage workers especially the least-cost method of enforcing the contract you have with your employer is to have the option of leaving the employer and taking up work with another. Saying that workers have access to the courts is a vacuous assertion for a worker whose employer will not give him time off from work, who does not have the resources for something as minor as transport to the court, and who lacks the education to understand his or her rights and make arrangements to have his or her case heard.

My recommendation continues to be: give the workers and firms the right to enter into contracts where the worker can change jobs and the firm can replace workers by hiring them from other firms. If that recommendation is stillborn, then the UAE - if it wants to disarm critics who make the case that the UAE is complicit in the abuse of workers - must devote the resources to ensure employers keep their promises.

What does that mean? I think it means a government official has to be present with low-wage workers and witness whether they get paid, whether they are working beyond agreed upon hours, and whether the working conditions and employer-provided living conditions and transport to work are mutually agreed to. That's a lot of resources devoted to monitoring. It would be enormously costly. Allowing workers to change jobs is the low-cost alternative to costly government enforcement of contracts.

Here's the latest report of an employer failing to honor his or her commitments. It's representative of so many such reports. As usual, it is a clear cut story; failure to pay for several months and workers having no real alternative except to continue to work for that employer:

Sharjah: About 120 contracting labourers stopped work on Thursday in a demand for unpaid salaries, police sources told Gulf News.

The Asian labourers who work for Swaidan and Al Nile Contracting Company in Sharjah took to the streets at about 10am. The workers said that they have not been paid for four months and are owed between Dh400 to Dh600. The only solution for them was to stop work because they need the money to send to their families back home.
. . .
Police said they contacted the manager of the company, Mohammad Sulai-man, asking him to solve the problem immediately. The workers left after an assurance from police that they would be paid. The case will be referred tomorrow to the labour department.

Revealed preference suggests the UAE does not find the host of employer breach-of-contract cases embarrassing. Otherwise the problem would be solved by now. It is revealing, I think, what things some would find embarrassing that others do not.

Questions the article fails to address:

>>Will the firm be fined? Is the fine substantial enough to be salient?

>>Will the UAE make sure that this firm's behavior is made know to the villages where it is likely draw to workers in the future?

>>Will the workers be made whole? Paying them back wages is sufficient to make them whole -- what about the loans they probably had to take at terms that are typically much much worse than you and I can obtain.

Annual rate of growth in the expat labor force in the UAE: 17 percent

Gulf News:

The number of expatriate workers in the UAE was 2,738,000 in 2005. The number is a 17 per cent increase over 2004.

That's a big number. It tells you that the Ministry of Labour does not make it difficult for a firm to bring in expat workers.

Demand for labor in the UAE has increased. But the UAE is a small player in the worldwide labor market. So an increase in demand translates into an increase in employment with little if any upward pressure on wages. (Exceptions to the rule would include narrow job categories such as experienced construction managers.)

Translation: The UAE faces a highly elastic, if not perfectly elastic supply of labor from abroad. There is a vast army of workers who would be glad to come to the UAE at terms that represent an improvement over salary and working conditions in their home country.

Thus, if wages and working conditions are to improve in the UAE the laws of economics tell us it will be because wages and working conditions improve in the countries where the UAE recruits labor. This is happening in places like India where economic liberalization has triggered a growing economy. But it is not in other countries. The UAE has other countries to turn to for cheap labor.

Ironically, the Indian miracle has also contributed to the growth in the world demand for oil that has resulted in the increase in the UAE's oil revenues.

Emirates Economist: Unrepentant apologist for UAE

A Daily Dose of Architecture has a nice post on the labor riot at the Burj Dubai worksite in late March. The comments are even more interesting.

But Daily Dose and I are quite far apart on the issue of whether the workers are exploited or in what sense they are exploited. Daily Dose writes:

I have to admit that stuff like this makes me so angry it's hard to facilitate a response. The use and abuse of poorer people in poorer countries by places like Dubai and the United States is just another part of the situation where a few rich people own and get most of the pie.

But workers come to Dubai on their own volition because they believe opportunities here are better than in their home countries. How is that exploitation? It's not.

Daily Dose is in the same camp as those who believe Nike is evil for creating jobs in low-wage countries. I fear I do not have the skill to convince critics of Nike and Dubai to share my perspective. If Nike and Dubai did not exist their employees would be worse off. If you care so much about the employees at Nike and in Dubai, why don't you open up your pocketbook to them?

So I am an unrepentant apologist for Dubai. But I am a critic as well. What is immoral is to attract workers under false pretenses, to not deliver on the terms and conditions that were promised. It appears that this occurs in the UAE on a widespread basis.

Because so many UAE firms so often fail to honor their obligations towards workers this creates a cloud of ambiguity that workers can exploit. How can an observer tell who is telling the truth in a labor dispute? A commenter on the Daily Dose post quotes someone on the scene:

I was on site when things happened. At Laing O'Rourke we have best card punching system with eye scan identification on site. LOR employs legal labor on site with best compensation in industry. Also LOR maintains the best labour camps with all medical facilities. LOR is the only company in Gulf which pays its labourers on time. After the incident the labourers supported the facilities of LOR to labour commissioner.

As we employ a lot of labour force, in the evening time when work is over labourers rush to their buses, everyone of them wants to board the first bus. This places their own safety at risk due to stampede. LOR committed to safety of its employees made arrangements so that workers can come to buses without rushing in safe manner. (Imagine 3000 workers force). Some trouble makers who were identified by police had been trying to mess things and went on rampage.
. . .
I am not saying it because I work in Laing O'Rourke, but as one of few architects who work with contracting firms - I am more aware of workers conditions. Of course these cannot be compared to luxuries enjoyed by white collar jobs of us Architects but one fact is true. Asian workers are best paid with safe & healthy environment with Laing O'Rourke. Our low AFR is much below industry standard.

Thanks to SamuraiSam for drawing my attention to the Daily Dose post and to this particular comment.

Aside: Look at this comment to the same Daily Dose post on "the effect that Dubai's construction industry is having on the international recruitment of experienced construction managers".

Gulfnews: Labour needs laws. And fast

More laws? No. More resources to enforce existing contracts? Yes.

Actually, I've argued that what would really help is fewer laws, such as the law that does not allow firms to hire workers from other firms. The core of the problem is too many laws, and lack of effective enforcement of the terms and conditions to which workers and firms (or their recruiting agents) have agreed. If individual workers could change jobs when they were dissatisfied, then they would not be driven to collective action as their only recourse. And if firms could go onto the local market and hire workers, their workers would not be able to grab them by the short and curlies. It works both ways.

The government seems to recognize my point:

Mubarak said the Labour Ministry allowed him to "hire workers from the local market, if necessary, to continue work."

Labour law forbids companies from employing workers they do not sponsor, but officials made an exception because "they did not approve of the sabotage these people intend," he said.

"Dubai's economy will not be damaged by these kinds of people."

He said "foreign workers" also incited the men, without providing details. "Why did these men riot two and a half years after beginning work, as the project was nearing completion?"

Get rid of the law that prevents workers from changing jobs. That would defuse the situation that is threatening - I'm not saying it, the government is - the security of the UAE.

UAE nationals in the workforce - views aired

Khaleej Times reports. The indented material below is from the article.

Interestingly, some businessmen remain critical of the current emiratisation process alleging that a large number of UAE nationals are not serious about doing the jobs offered to them.
. . .
Raja Al Gurg, Chairperson of Dubai Businesswomen Council, ... said, "We need to chalk out a mechanism to encourage nationals to be serious when it comes to taking up jobs. Large numbers of nationals are not serious at all...they take up a job and then simply quit few days later."

Nationals are wealthier than expats. Under standard economic assumptions about human preferences, when you are wealthier you will have a higher reservation wage - that is, you demand a larger reward for joining the labor force. Employers are motivated by profit, and for workers of the same quality employers will offer the same nondiscriminatory pay. The compensation offered attracts the number of workers the firm requires. As it happens it is below the reservation wage of most nationals.

There was also some similar criticisms at yesterday's meeting dealing with the country's 'educational output' — not being compatible with the requirements of the labour market.

True. The output of government schools for nationals needs improvement, and, in general, it is inferior to the output of private schools. In my judgment, government expenditure per pupil is sufficient. The trouble comes from two major factors.

The first is that schools are mismanaged and/or have are subject to government rules and regulations that often make the job of school principles and teachers more difficult.

The second factor is weak incentives. Too often a young national's future has little connection to merit, to how well he or she does in school. This is not a problem schools can solve, but it does constrain what schools can achieve with the raw material - students - they are given.

Brigadier Saeed bin Beleilah, Director-General of Dubai Naturalisation and Residency Department (DNRD), said: "As long as employment directors at banks are not UAE nationals, the emiratisation process will remain a cosmetic one; nationals are given jobs with low salaries or the percentage of nationals employed would be tampered with in league with some companies that are assigned to carry out certain jobs".

That's a long sentence. Let's start with the last bit, "percentage of nationals employed would be tampered with in league with some companies that are assigned to carry out certain jobs." He is referring to one of the ways that employers game requirements to have a certain minimum percentage of their employees be nationals. One way to get around the rules is to take some tasks that would have been insourced and to outsource them. Would requiring firms to have HR Directors who were nationals create an effective policing mechanism to prevent gaming of the emiratization rules? I doubt it.

Requiring firms to have HR directors who were nationals would not mean nationals would be offered higher salaries. Senior management still sets salaries, not the HR director, and senior management defines what authority the HR director has. In the extreme case the formal HR director position would become a token, and the company would have a shadow HR director running the show. Besides, all private employers in the UAE have majority national ownership. That is a convenient fact to omit. If the owner is a national what difference will it make if the HR director is a national? Especially if the HR director is a member of the family.

Obaid Al Jaber, Chairman of the Board of Directors of Al Jaber Group, highlighted the problem of nationals' employment and their inclination to switch to other companies after getting the necessary training. Unlike expatriates who find it difficult to change their sponsorships, nationals can switch jobs easily.

Mr. Al Jaber echoes a point of view I have frequently expressed here at The Emirates Economist. The inequality of job change rights between nationals and expats works to the disadvantage of nationals. For the same compensation and same quality of work, employers will prefer to hire the worker who has less freedom to walk away from his or her contract with the employer. It is the government that has created the preference firms have for expats.

Reacting to criticism voiced during the meeting against the skyrocketing fees imposed by the ministry last year, the Labour Minister said only erring firms felt the pinch. "Companies committed to the rules concerning nationalities and nationalisation do not actually pay high fees and are exempt from the bank guarantee," he stated. He said the number of violations was "shocking". Fines collected, he pointed out, amounted to Dh153 million last year.

Part of the reason for the large amount of fines collected is that there was a change in enforcement of existing rules. Firms were accustomed to violating the rules and did so. They were surprised when the ministry began to enforce its own rules. We can expect firms to adjust by finding ways around the rules.

What this last quote also points to is that there are a load of rules and regulations regarding labor. Too many to have a vibrant labor market. But not enough, evidently, to prevent private sector employment from being over 95% expat. Indeed, as I pointed out above, the rules are part of the explanation of the 95%.

Labor minister: ‘UAE nationals should be the biggest segment in demographic structure’ :: Khaleej Times

Quote:

UAE nationals should be the biggest segment in the country's demographic structure, according to the UAE Minister of Labour Dr Ali bin Abdullah Al Kaabi. Spelling out this new priority, he said, his ministry will soon task a committee to draft a viable strategy for achieving this purpose by 2015.

"I want UAE nationals to be the biggest segment in the country," he told the opening session of the First Meeting of the Labour Market Committee yesterday at Emirates Palace Hotel.

This goal - UAE nationals should be the biggest segment in the country's demographic structure by 2015 - will not be achieved by 2015. Indeed, I doubt that much will have changed by that time. A goal this unfeasible lacks credibility, undermining the likelihood that much if anything will be achieved. The likelihood of substantial progress will be enhanced by setting achievable goals, and understanding how we came to the present state of affairs.

What are the present state of affairs?

1. Upwards of 80 percent of the population of UAE is nonnational.

2. Citizenship is granted only to the children of fathers who are nationals.

3. Less than 3% of private sector jobs in the UAE are held by nationals.

4. The UAE receives the labor services of foreign expats at wages and working conditions that are close to the source-country wages for those salaries.

5. UAE nationals prefer not to take private sector jobs at these wages. The UAE is a very rich country, and it is generous in making sure all nationals are well off whether they work or not.

6. For the same quality of workers, employers - as with any buyer - choose the lowest-cost alternative. Thus, employers do not willingly offer UAE nationals wages and working conditions that differ from the terms the employers get from expat workers.

7. UAE nationals benefit enormously from low-cost expat labor. Let's begin closest to home and look at domestic servants - maids, drivers, cooks, gardeners. If national families are not willing to give them up, you have a natural national constituency against the achievement of the labour minister's goal.

What about in retail - what will life be like without low-cost labor to staff stores, restaurants, and hotels? Citizens may point out we don't need so many outlets. But a natural political constituency exists to keep expats in those jobs as well: the national business owners whose profits depend on low-cost labor.

Those nationals who have invested in real estate would also be actively engaged in undermining any policy goal that sought to make nationals a majority by 2015. Because the only way to achieve that goal is to send a lot of working expats home.

8. National families are having fewer children today than they were 20 years ago. Children take time to rear, and there are so many things to do with your time today whether it is leisure or work. Reproduction is not going resolve the demographic imbalance.


So what is politically feasible? I suggest that the labour minister place limits on the issuance of new work visas. Even a modest limit will create a lot of complaints from firms that are accustomed to bringing in cheap labor from abroad. Firms that wish to hire would have to turn inwards to look for labor. The source of new workers would be nationals and they would command premium salaries. Firms would also reconfigure their operations and substitute away from labor. We can imagine that these firms would place pressure on the government to make it easier for expats to leave one employer and join another -- a policy I have long advocated.

A limit on work visas would quickly reveal where the political pressure points are, and demonstrate very quickly the degree of resistance there will be to stronger measures to remedy the demographic imbalance.

A fundamental question is: what's wrong with demographic imbalance? My sense is that the true concerns are culture based and are not being aired in public. Usually you can't make progress on a goal unless you are articulate your purpose and make a convincing argument for why a solution needs to be found.