Nationality and the rental market :: Khaleej Times

Landlords believe that some nationalities make better tenants than others. They also believe that many persons prefer living in neighborhoods with others of their nationality.

This has always been so. Yet the article was given the headline "Now, landlords turn choosy on tenants nationality." Perhaps that's because discrimination has become cheaper to exercise now that government rent controls have been put in place, creating an apartment shortage. When there's a line waiting for your services, and you can't raise the price, then you can afford to be choosy.

MOE changes: insider scoop :: An Emarati's Thoughts

An Emarati says he's got the scoop on what Shaikh Nahyan Al Nahyan has planned to shake up UAE government schools. The plan An Emarati outlines makes sense.

As is true anywhere (my comparison is with the U.S.) the greatest difficulty will be to make the plan work in the rural areas where there isn't competition, and it is difficult to attract the best teachers.

What I advocate for university-bound products of the government schools is a year or two of study at a prep school (where the prep schools are vying for students, and part of this vying is success in placing them in universities) before going on to university. But that won't address the problem of the disproportionate number of males who quit school before graduating high school.

Freehold law 'need of the hour' :: Gulf News
Buyer beware

Quote:

Dubai : Absence of freehold law and formal regulations are likely to discourage buyers of freehold properties in the coming days, following a dispute between Emaar Properties and some customers living in Dubai Marina.

A dispute over service charges is forcing potential buyers to reconsider their decision or wait until the laws are in place. Most developers do not declare service charges at the time of sale, but fix them later at a higher-than-expected price, to the dismay of the homeowners.

"This is happening due to the absence of transparent legislation and lack of regulation in the market," said an eminent lawyer, requesting anonymity.

"Further delay in issuing property laws to regulate the growing freehold market will create more confusion and uncertainty among new investors; also it will allow certain developers to take the customers for a ride.

"This is a wake-up call to homeowners and a lesson for new investors to force the developers to mention this in the contract."

I agree that there is ambiguity surrounding freeholds. With ambiguity comes a responsibility for buyers to look for hidden costs that have not been spelled out by the seller.

It sounds as if contracts did state that service charges would apply for services for the upkeep of common property, but did not spell out the level of those charges. And it was left open how those charges would be set - and, equally important, how it would be determined that promised services were delivered. These are issues that are difficult to deal with in any legal setting.

Would a freehold law be a sufficient remedy? Law is not a magic wand. Isn't a well-developed independent judiciary as important? A freehold law might have some benefit in simplifying enforcement by bringing standardization to contracts. But it would not itself develop a judiciary that could enforce contracts, and it would not necessarily address the question of enforcement when there is substantial government ownership in companies such as Emaar.

Emaar is a large company with many properties. It has an interest in maintaining a reputation for honest dealing. (And Dubai's reputation is linked to Emaar's.) Thus, it is not necessarily the case that there is a need for a law or for a judiciary. Rather what is necessary is that Emaar can build and maintain that reputation. To do so it needs to demonstrate that it is carrying out the spirit of the contracts it enters into. And it needs to monitor the claims and promises of its sales agents.

Emaar may be doing all those things. It also has an interest in making contracts straightforward to external interpretation. Otherwise, it risks losing its reputation when buyers' complaints about high service charges have more to do with every buyer's preference for a low price than with a failure on Emaar's part.

Plan to set up fund to help unpaid workers :: Gulf News

A colleague sent along this link with the comment "how about this for moral hazard"?

The image of the UAE has been tarnished by employers who have failed to pay wages for employees for months at a time. My recommended solution has been to give the employees more leverage by giving them the right to change jobs. Among the virtues of allowing labor mobility is that the incentive to collect remains with the workers.

Dubai wants to preserve the buzz it has developed and is concerned with the problem of employers failing to pay. Dubai's proposed solution is to create a fund to help workers when their employer fails to pay. The downside of such a plan is that it undercuts the incentives of potential employees to choose reputable employers. And it encourages employers to gamble on riskier ventures without fear that this would mean they would have to pay workers more to participate in these ventures - the workers would calculate that if the firm fails they will still get paid for services performed; the firm will calculate that if the venture succeeds it will not have to share its gain with the fund.

Cement prices up 7% :: Khaleej Times

Cement. A mundane product. But in the context of the building boom in the UAE it's quite important.

Cement is heavy, hence the recent increase in fuel prices in the country have pushed up the cement producers' cost of transporting the product within the country. Customers tend to understand these price increases.

When increases in price are driven by an increases in demand, customers often complain these price increases are not justified. What they have in mind is that if the cement producers expanded and invested in new plant and equipment it should be possible to produce to satisfy the growth in demand with little or no increase in price. What is omitted from this thinking is that cement producers are aware that the construction is cyclical. They do not want to be left holding a lot of excess capacity when demand recedes. Implicitly builders are demanding that cement producers share in the risk that the boom will go bust.

The article mentions that last year the government placed a price ceiling on cement. The result was a shortage; no surprise there. What is not clear is whether the price ceiling is still in place and these announced increases in price represent an adjustment in the ceiling due to the recent increase in the price of fuel.

Sharjah taxi fares up :: KT

Dubai and Sharjah taxis have raised fares. Not surprising given the 35% increase in petrol prices.

Quote:

Following in the footsteps of Dubai Transport Corporation (DTC), the Sharjah Transport Corporation (STC), too, has decided to adjust taximeters, effecting an increase of 10 per cent in the fare. Speaking to Khaleej Times, an STC official said that Dh1 would now be levied after every 800 metres instead of the earlier 900 metres. "The decision will be implemented in a few days time," he said, and confirmed that there would be no change in the starting fare, which would continue to be Dh2.

More:

"Drivers who refuse to take passengers to their desired destination are fined between Dh100 and 200," he said, adding that, at present, the corporation had 2000 drivers.

Why would drivers refuse to take passengers to their desired destination? If the driver is not compensated entirely by salary, but shares in the revenue or net revenue the driver would decline to take a passenger to a time-consuming destination or a destination where he or she is not likely to find another find another fare. (One case of the latter is the restriction the emirates have on taxis from one emirate picking up fares in another emirate.)

Put yourself in the shoes of such a driver asked to contend with this.

Law sought to halt visa trading :: Gulf News

Quote:

Dubai: The Labour Ministry is hoping to push through legislation to punish owners of bogus companies, which are used to illegally sell work visas to expatriates, Gulf News has learnt. Humaid Bin Deemas, Assistant Labour Undersecretary at the Ministry of Labour and Social Affairs, said current ministerial decisions were not enough to stop bogus companies. "At present if we can prove a UAE national owns bogus companies and is using them to sell work visas, we can halt all his company's transactions with the ministry."

Bin Deemas said he did not have available statistics on how many UAE nationals had been dealt with in this way, but said the procedure was not enough to halt the practice. "We want a law to punish this," he said. The official said there was political will to see a law through.

The fact that there are foreign workers willing to pay for a work visa tells us that those who gain admission to work in the UAE are better off than they are in their home countries. Likewise, there are companies who want to hire more workers, but are not able to get more work visas from the ministry are also willing to pay for more work visas. The buyers and sellers of work visas gain from the transaction. Where are the victims of trade in work visas?

At present, the number of work visas issued is determined by a process in which companies apply for visas and must justify the number based on the number of workers they require to operate their business. The ministry reviews the application of each company and decides the number of visas it will issue to the company. The result of this process has been that not all companies requests have been met in full. It is the approval process that has resulted in binding limits on work visas that has created the business opportunity of the so-called bogus companies to apply for work visas, giving bogus justifications for seeking the visas.

Criminalizing trade in work visas is only one way to shut down this trade. The ministry could kill off the trade in work visas in two other ways. It could raise the fee it charges for a work visa. (This is in fact what it is being contemplated for work visas for domestic help.) Or it could become less restrictive in issuing visas.

The UAE of course has a very large foreign population. Total population in the UAE is around 5 million, 80 percent of which are foreigners. Foreign workers in the UAE make up 1 percent of all workers working abroad worldwide. It is probably the case that an average UAE citizen would gain materially if even more foreigners were allowed to enter the country; but the same average citizen already believes, quite understandably, that local culture is under threat and would not support relaxing limits on work visas.

Some might object that an increase in the work visa fee would increase costs and push up prices. Clearly costs would increase, but mostly this would result in a transfer of business profits to the government that would not translate into higher prices. The reason is that businesses are currently constrained from expanding because of bottlenecks in the issuance of work visas. The increase in fees would defuse this desire to expand, but would not necessarily result in a cut in production that would drive up prices.

Either way, criminalization or increasing fees, you would be cutting into the profits of UAE nationals who own businesses.

UAE ministry warns salary defaulters :: Aljazeera

Using shame. Seems significant.

Quote:

The Labour Ministry will begin publishing the names of employers who fail to pay their workers, the ministry's undersecretary said, warning that protests by unpaid labourers are damaging the image of the United Arab Emirates.

"If they (employers) don't care about our country's reputation, we don't care about their reputation," Undersecretary Khalid Alkhazraji told The Associated Press in an interview on Tuesday.
. . .
The threat to name the defaulting employers is significant because they include companies owned by members of the royal family, who have never been shamed publicly by the government in the past. Alkhazraji said the failure to pay was usually the fault of the companies and their managers because they could not handle the projects they had undertaken.

But then there's this:

The government says it is keen to upgrade labour standards, as they are an issue in negotiations for a free trade agreement with the US. Top sticking points include giving workers the right to form trade unions and bargain collectively.

Alkhazraji acknowledged that such rights could have huge consequences for the country, perhaps slowing down the building boom and causing prices to rise. "We're working towards it," Alkhazraji said. "You need to look at the UAE as a new country, a developing country. You cannot ratify these things all at once. We need time to prepare the ground."

Enforcement of contracts and freedom of individual parties to negotiate terms of a contract are essential to a healthy economy. Collective bargaining and adoption of U.S. labor standards are not essential. Standards cost money that many workers would prefer to see in cash. Unions fall in the category of monopolies; they reduce employment below the efficient level. At a minimum, workers should not be compelled to be members of a trade union.

Visa fees for maids, drivers may double :: Khaleej Times

If you've never lived in the UAE, here some of the key facts to know in order to begin to imagine life here.

1. 80% of the population are not citizens and never will be.

2. 90% of the working population are noncitizens.

3. And, as the Khaleej Times reports today, an "official said domestic servants and others falling in this job category constituted 8.2 per cent of the labour force in the country."

Oman petrol stations shut taps for Al Ain taxis :: GN

OmanOil has tired of the cross border arbitrage brought about by the substantial difference in petrol prices in the UAE and Oman. Pegging its price below the UAE price was draining its coffers. UAE taxis will no longer be allowed to buy in Oman.

Ironically, the lucrative illegal export of incredibly cheap petrol from Iran into the northern Omani province of Musandam continues.

Why is the Dana Gas IPO so oversubscribed?

To put it another way, investors appear to believe that the IPO is substantially underpriced. Why would the founders of Dana Gas underprice the IPO? Don't they want to realize the greatest gain possible for themselves from going public?

I asked this question to a colleague in finance. He had a ready suggestion. Could it be that the founders of Dana Gas are intentionally giving away wealth to GCC citizens? Could it be that the founders are part of the ruling class that controls the oil resources, but also distribute some of the wealth back to citizens in order to retain their support? Other ways of sharing the wealth include obvious ways such as increased social support for citizens on low incomes, and less obvious ways like paying citizens above market salaries in government jobs, or subsidizing the price of petrol at the pump.

Note that an underpriced IPO that places limits on participation by noncitizens - like Dana Gas - is similar to the idea of making each citizen a stockholder in the country's oil wealth. See my recent post here for links that elaborate on this idea.

The New York Times turns the eyes of the world on Dubai. And it's not in the travel and tourism section.

Quotes (emphasis and links added):

The men were among 6,000 foreign laborers, most of them Indians and Pakistanis, who live in a desert work camp several miles outside of the city. All 6,000 had languished without pay for more than five months.

The protest was by no means the first of its kind here, but it was unprecedented in its scale and high profile, laying bare a Dickensian underworld of poverty and exploitation in the shadow of a gleaming city of high-rise buildings and luxury hotels.
. . .
The marchers, in overalls and hard hats, were impossible to ignore on Monday. They first went to the Ministry of Labor, in the heart of Dubai, and blocked a main artery into the city, snarling traffic. The protest surprised many - but far more astonishing was the government's response. Within hours of meeting with representatives of the workers, the labor minister, Ali bin Abdullah al-Kaabi, issued an unexpectedly tough ruling that shook many companies here to their roots.
. . .
It was the first time that the minister had singled out a company involved in a labor dispute. That the company is led by a prominent sheik, Khalid bin Ahmed al-Hamed, and the workers were builders on a major construction project, only heightened the significance of the ruling. By Friday the workers had been paid.
. . .
The United Arab Emirates has earned the dubious distinction of having some of the worst labor conditions. Human Rights Watch has cited the country for discrimination, exploitation and abuse. Many foreign workers, especially women, face intimidation and violence, including sexual assault, at the hands of employers, supervisors, and police and security forces, the rights group said, while children are especially vulnerable to labor and sexual exploitation and denial of basic rights.

Ultimately, the workers have few rights. Visa sponsors and employers usually confiscate their passports and residency permits when they sign on, restricting their freedom of movement and their ability to report abuse. Few can leave the country without the permission of their employers, leaving them in "situations that amount to forced labor," Human Rights Watch reported. Employers can block them from working elsewhere in the country for six months if they resign or are fired.

Economists are known for risking social unacceptability. So, for instance, my view is that - provided workers know what they are getting into - their working conditions are a matter of choice. Who are we to judge whether the poor should accept Dickensian working conditions in return for being paid for accepting them? (Not that it isn't a good question why Dubai would want to be in the same boat as economists in terms of social acceptability.)

While economists agree our realm of expertise is not ethics, we don't have any trouble agreeing that deceit and broken pledges are wrong, all the more so when it is the rich taking advantage of the poor. What is the remedy? One part of the remedy is for the government to continue what it started in its actions towards Al Hamed.

But another part of the solution is for the government to give workers the right to change jobs. Workers could still enter into long term contracts with firms, but it would up to the firm to pursue legal remedies if a worker walked out on such a contract. In order to enforce the contract, the firm would have to prove they had lived up to their half of the bargain. If the consequences of not paying your workers on time is that you lose them, you'll be more likely to keep your promises.

Resignation letters flood MoE on talk of 5 yrs extension in service :: KT

Khaleej Times reports:

A proposal hammered out by the General Pensions Authority to increase the retirement period from 15 years in service to 20 years is under study.

This had evoked a sharp reaction from a large number of national women teachers whose duration of service was nearing 15 years. They were on their way to retire entitling them to a pension (60 per cent of the salary), but the new proposal would compel them to remain in service for five more years.

Teachers are expecting that the rules on years of service will be increased, but that those who have earned 15 years or are nearing 15 years of service can act quickly and retire with benefits under the existing rules. How do they respond?

1. If a teacher had planned to work for 20 years or more there is no effect.

2. A teacher who has 15 years of service and who planned to retire at the first opportunity will retire as planned.

3. A teacher who has 15 years of service and who was planning to retire before reaching 20 years of service now faces a choice of entering retirement immediately (in advance of the rule change) or staying on until they have earned 20 years.

4. A teacher with less than 15 years of service who planned to retire before 20 years of service will now have less of an incentive to stay. Some will find better opportunities and leave.

5. The attractiveness of entering teaching is reduced. Fewer persons will be attracted into the profession.

At the present time the Ministry of Education has difficulty attracting and retaining sufficient numbers of qualified teachers in government schools. The solution to that problem is to increase the reward to teaching. Increasing the number of years to be eligible for retirement, and making no other change in compensation, decreases the reward to entering or remaining in the profession.

It could be that increasing the years-of-service before retirement combined with an increase in salary sufficient to attract the number of teachers required is good policy. Not only would the average experience of teachers be higher (in the steady state), but years-of-service may screen out less dedicated teachers.

Call for price ceilings :: Khaleej Times

Quoting "The Monitor":

We believe that the economic bodies in the country should meet and chalk out a certain ceiling for prices of foodstuff and other essential consumer goods, and enforce its application by all those involved in the trade. It should be an exhaustive list, covering each and every item on that shelf that people buy for daily use. Only this will help preserve and safeguard the interests of both the consumer and the dealer.

Price ceilings would be very foolish - as any good student of economics would understand.

The Gulf News today reports:

The Department of Planning and Economy in Abu Dhabi, in conjunction with the Department of Municipalities and Agriculture, has decided to penalise traders who might choose to increase commodity prices on the pretext that petrol prices have been raised, according to official sources.

Petrol, however, is used in production and transportation. When petrol prices rise, costs rise. As sellers see their costs rise they reduce their supply to the market and final goods prices rise. If prices are not allowed to increase, then shortages arise.

Authorities should instead focus their attention on sellers who conspire together to raise prices, and on dissolving existing government-sanctioned producer unions that set prices. It is these actions that will promote the vigorous competition in the marketplace that is the consumer's best protection.

Should the UAE subsidize fuel? :: GN

Khalaf Al Habtoor, member of the Dubai Economic Council and chairman of the Al Habtoor Group thinks it should:

"The UAE is an oil producing country and oil revenue is one of the largest sources of national income. I do not see any reason to pass it on to the consumer," he said at a news conference yesterday.

"If our neighbouring states, Saudi Arabia, Oman and Kuwait, can absorb the pressures of high oil prices, why can't the UAE do the same?"

He also spoke out against the idea of taxation:

"The UAE has always enjoyed a competitive advantage as a tax-free economy which is one of the reasons behind our massive growth. We do not need to tax people when there is no economic crisis," Al Hab-toor said

"By introducing taxes, we will lose our competitive edge that we have been enjoying so well."

The UAE and its seven member states have pursued a policy of diversifying the country's economy beyond the level of diversification that would arise in an unregulated environment. One of the central instruments of that policy has been to keep the price of fuel low, in effect subsidizing businesses across the board. Low fuel prices reduce the direct cost of fuel in the production process as well the price of other inputs to production that are produced locally using fuel. This includes labor: lower local fuel costs reduce the cost of living, thereby reducing the salaries firms must pay to attract foreign workers.

Underlying calls to subsidize fuel is the maintained hypothesis that diversification of the economy is good for the country. Notice that this hypothesis runs counter to the theory of free trade which concludes that countries gain from specialization and exchange.

UPDATE. I just noticed this related story:

RIYADH, 14 September 2005 — Before its entry into the World Trade Organization (WTO), Saudi Arabia must still finalize discussions on the pricing of natural gas for petrochemical companies, according to ambassador Bernard Savage, chief of the delegation of the European Commission in Saudi Arabia. In an exclusive interview, Savage said the European Union had signed an agreement with Saudi Arabia in August 2003 for the Kingdom’s accession. He explained, “There remains an outstanding issue which is the question of the pricing of natural gas supplies to petrochemical companies. There have been extensive discussions on both sides. As far as the commission is concerned, we are pushing ahead on those and we are hoping that we can continue discussions with Saudi Arabia in order to reach an agreement in time to allow for Saudi Arabia’s accession at the Hong Kong ministerial meeting of the WTO toward the end of the year.”

Fish prices soar in Abu Dhabi :: Gulf Today

Quote:

THE fish prices in Abu Dhabi have hit the roof following the hike in petrol prices on Sept.1. Customers have to cough up Dhs105 instead of Dhs60 for the hamour fish while price for Al Sha'ari has risen to Dhs60 from Dhs25. Al Jash now costs Dhs75 instead of Dhs40 and for Naysar one has to pay Dhs30 which was selling for Dhs 10. Al Badh is priced at Dhs40, earlier it was available for Dhs15.

The Abu Dhabi residents were shocked by the abnormal increase in fish prices fixed by both Asian traders and the Abu Dhabi Fishermen Co-operative Society at the port fish market. General director of Abu Dhabi Fishermen Co-operative Society Humeid Bin Harmous Al Rumeithi said this increase is due to the greedy fish traders who decided to hike up the fish prices and in turn adding more financial burden on the customers. "As the fish traders are free to fix fish prices according to demand and supply, there is no mechanism to control the fish prices in the market," he pointed out.

Basic economics. Petrol fuels fishing boats, so the increase in petrol prices pushed up the cost of fishing. The result is a decrease in the supply of fish. If the price of fish were to remain unchanged the quantity demanded would exceed quantity supplied. The price of fish gets bid up, encouraging production and discouraging consumption. Price eventually settles at a new higher equilibrium price.

Fish traders aren't any greedier than the rest of us. Fish prices may have taken a jump up that is out of the ordinary, but that price increase can be explained by the increase in the price of petrol. If there was a "mechanism" - government regulation - to control prices the results would be far more unpleasant. Many consumers would not find fish available. Further, fish traders could let the freshness of fish slip and still find willing buyers - if you're concerned about freshness now, don't wish for price controls.

Update. The story's no different in the northern emirates:

Customers in RAK say the price has almost doubled. Obaid Bin Rokn, a senior fisherman, said the fuel price hike has triggered the rise in fish prices in Ras Al Khaimah.
. . .
Abdullah Mohammad Sulaiman, an auction announcer in Fujairah harbour, said: "We used to pay Dh100 for gas to cover 30km and back, now we need at least Dh250 to cover the same distance.

Tariff Regime to Solve Jeddah's Water Crisis :: Arab News
People respond to incentives. Really. They do.

Quoting from the article based on an interview with Mohammed Baghdadi, director general for water in the Makkah Region:

Although he cannot force conservation on the profligate consumers, “I can introduce a tariff,” he said.

He demonstrated his point with an example. One ten-ton tanker costs about SR60 to fill. To draw ten tons of water from the network, the consumer pays SR6. “Eighty eight percent of the consumers in Jeddah are on the network,” he said, “and they pay very little.”

For the equivalent of first five tankers full however, the consumer pays only SR5 or SR1 for one tanker-full; that is the price of one 330 ml can of soft drink for one tanker of water.

“The history of cheap water is that the government wanted to support people,” said Baghdadi. “So the subsidy was put in place. They also wanted certain groups of people to come and live in Jeddah — so they wanted water and services to be cheap. Now things have changed.”
. . .
“The introduction of a tariff will add an incentive to consumers to conserve and give a measurable value to water. Currently, the only real incentive to save is with those who take water by tanker.”

Emphasis added.

People are not profligate. People prudently respond to the price signals they receive. You send them the message that 10 tons of water is worth one to six 330 ml cans of soft drinks and they will find lots of uses for the water, including very low value uses for the water.

Baghdadi is correct that he cannot force conservation on people and that he can cause people to conserve by raising the price and sending people a truer indication of what it is costing society to provide water.

Full disclosure: I pay nothing for water.

Bemoaning floating teachers :: Khaleej Times

Labor mobility is a hallmark of healthy, dynamic economies. If workers are not free to change jobs to seek the opportunities (that is, employed with employers how place the highest value on their services), then the economy will suffer.

The UAE places restrictions on labor mobility. The result is a black market in the trade of labor. Like any black market, the trade it permits improves on the allocation of labor resources to their highest and best use. But it also fosters a culture of disrespect for the law. Firms who deal as sellers in this black market actually benefit from the legal restrictions on the freedom of workers to choose. It is these firms who capture the gains from matching the workers to firms who value their services.

Shift in demand or supply? It depends on who pays for the petrol: Khaleej Times
Economic principles

The price of petrol is increased. Petrol and cars are complements. The demand for rental cars declines. The price of rental cars declines:

Describing the renting rates of small cars, Hani said, “At present, I charge Dh70 for a Toyota Corolla 1993 model, but I am going to reduce it to Dh65. Because the petrol is the responsibility of the client, so I will reduce the car rent so as to make it affordable,” he said.

On the other hand, the story is different in the case where the company includes petrol with the rental. Petrol is an input to production. An increase in the price of petrol increases the rental company costs and reduces supply. The result is an increase in the rental price the consumer pays:

But for customers of companies leasing out bigger cars including limousines and also offering chauffeur services, prices will see an upward trend. “At present, we’re not going to increase the rents because the cars are pre-booked,” said Mahmoud Akram of Auto Plus. “But from next month, the hiring charges for chauffeur driven cars — that are rented with fuel charges included – will definitely go up Dh100-200,” he said. “Because the petrol will now cost us an extra Dh70 for bigger cars, we will charge it to the customer and let them know about it,” he added.

Notice that small cars rent by the day, week and month, whereas the larger cars rent by the hour. This may explain the difference in business practices regarding whether the customer or the company pays for the petrol. You can only go so far in an hour. But in a day your driving behavior will differ depending on whether you are paying for the petrol or not. You and the company are better off if you internalize the cost of going an extra kilometer.

UPDATE. See also this 18Sep Khaleej Times article about the UAE rental car market. Quoting:

"I am almost out of business. I have put some of the cars for sale and have dismissed several employees. Some companies, that were tremendously affected, have liquidated their businesses to avoid further losses. I have heard rumours of further petrol hikes. If this is true, it will definitely be a fatal blow to our business,'' Abdullah Rashid, a depressed owner of a car renting company declared.

"The rise in petrol prices have put us in hot water. During the past years, our business was flourishing, but now we are cornered and there is no way out. I had bought the cars available in my company by a bank loan, which I am currently unable to pay. This resolution should not have been applied suddenly and on the spot by the government. We should have been notified a few months earlier, in order to face the unpleasant dilemma and work out a solution to this catastrophe,'' another flummoxed owner of rent-a-car asserted.

Jeddah residents outraged by recurring power outage :: Arab News

The failure of service pales in comparison with what has taken place on the other side of globe in New Orleans. Nevertheless, the Jeddah and New Orleans cases raise the same question: Is the value of uninterrupted service high enough to justify the cost?

On especially hot days the electricity system serving Jeddah cannot meet demands on the system created by the heavy use of air conditioning. The result is denial of service - partial blackouts. Somehow I doubt that electricity customers are willing to pay what it would cost to make the system fail-safe. And I suspect we are still a number of years away from a system that would make it feasible to offer individual households the choice of uninterruptable service at a premium price.

Just as we know that Jeddah will experience a few especially hot days each summer, we knew that a massive storm would hit New Orleans some day. We do not build water, communications and transportation systems that can withstand all catastrophes. It's not worth it.

The next question is should New Orleans be rebuilt? I suspect not. I am sure, however, that it is not worth the cost to the public to create water, communication and transportation systems that make New Orleans as safe as living in areas which are less prone to storm damage.

Rebuilding Chicago after Mrs. Leary's cow kicked over a lantern made sense. Putting New Orleans back like it was doesn't.