This post may include affiliate links. If you make bookings through these links, I will get a small commission at no cost to you, which helps support the costs of running this website. Note that I also sometimes link a business that appears in my stories; these links are usually not affiliate links, but do support them anyway.
-----
Nowadays, you can hardly imagine Dubai without thinking of finance and capitalism. Its rapid development from an obscure pearling town to a logistics hub for its region, and then as its finance capital, with the subsequent opulence of skyscrapers and fancy cars, and the entrepreneurs and finance bros who followed after, does give that image – at least to outsiders.
Dubai itself ties this modern identity to its roots as a merchant people. And when I visited Dubai on my layovers, going sightseeing around its landmarks and museums, I didn’t question my assumption. That is, until I went into the Culture of the Sea pavilion in the Shindhaga Museum, and read something unexpected about traditional pearling in the Gulf.
History of pearling in the Gulf
It’s reasonable to assume that an aspect of historical identity that repeatedly features across the country, is probably important to it. Before its current incarnation, Dubai’s economy relied on the pearl diving industry. It has, in fact, been the case since its beginning. So you can find this pearling historical reference across Dubai, from Shindagha Museum to the Alif Pavilion in Expo City, and the BurJuman Metro station.
In fact, pearling has been an economic activity in the broader Gulf region for thousands of years. Before the invention of cultured pearls*, there were only natural (wild) pearls. You could only get them by diving to the pearl beds and harvesting whatever number of oysters, and hope to randomly find pearls inside.
While there were other pearl diving sites in the world, apparently Gulf pearls were famous for exceptional quality. So there was a particular demand for them since antiquity.
Another reason why such a prolific pearling industry existed in the Gulf for centuries without depletion, was the size of its oyster beds. The oyster beds cover almost 44,000 hectares, with an estimated billion oysters!
The pearling economy of Dubai
The Gulf pearling industry reached its peak around the turn of the 20th century. Half of the world’s pearls were Gulf pearls, worth $4,000,000 in 1906 (should be about $143 billion in today’s money). The runner-up pearl source was the sea around Sri Lanka, at a distant 15%.
At this time, 4,000 pearling dhows were at sea in the pearl season. Dubai became an important pearl trading centre, and there were pearl markets across the Emirates region.
But all this wasn’t what warranted this article.
Pearling business math & an exhibit in the Culture of the Sea pavilion
Maybe it’s because I’m Asian, but the moment I saw an exhibit with fractions, I automatically started doing the math.
Like I mentioned earlier, it was in the Culture of the Sea pavilion, inside the Shindagha Museum complex. After explaining the history of pearling in the Gulf, the next exhibit section explained the pearling business.
The pearling season began in June, but the preparations begin much earlier. This involved preparing and provisioning the boats, which involved various professions, from shopkeepers to carpenters, water-sellers and sail-makers, captains and crew. Wealthy merchants advanced loans to the dhow captains. This financed the preparations, and supported the families of crew members while they were away for the four-month season.
But then, I came upon the interesting part. The museum explained how the profits were divided. There were three steps.
Step one: Net profit
Step 1 involved paying off the expenses of the pearling expedition from the pearl revenue. Presumably this included paying back the loan, and any other expenses incurred on credit. The remainder would be the profit.
It seemed implied that loans are paid off completely from the year’s pearling revenue, every year. I’m not sure what happens if the expedition didn’t return enough revenue to pay off the loan. It’s possible that this is simply a risk that the lender has taken, and written off as a loss.
Step two: Return for capital owner
There is a separate step to pay the boat owner and the pearl divers. This is Step 2.
20% of the profit is split between the dhow owner and the pearl divers. Half (i.e. 10% of the profit) to the boat owner, and the other half split between the divers. So the amount a diver gets would depend on how many divers were on the expedition.
Step three: Compensation for labour
The remaining 80% of the profit was entirely for the workers. Not only that, there was no additional step just for the captain (whose duties would, in a modern corporate organisation, be considered the “management”). The captain gets his share in the same step as all other workers.
There is a differentiation of compensation to recognise the different responsibility level, though. The remaining profits were divided according to this formula:
- The captain (nokhada) gets 1.5 share**.
- The pearl divers (yes, they appear again!) get a share each.
- All other crew and workers, such as the hauliers, oyster openers, and cook get half a share.
Now I’m not saying the formula will work for all kinds of enterprises. I’m not an economist; I can’t comment on how applicable it would be to a modern, complex economy. And there are downsides to this model. For example, the work is annual and not long-term employment.
But that single exhibit occupied my thoughts for a long time after. Though the content seemed simple, it carried implied meanings which revealed a different kind of relationship between finance, capital, and labour. At least, different from the conventional economics of much of the modern world, including modern Dubai. And that’s what held my fascination in the months after.
As someone born in that world of conventional capitalist economics, and who had a career within it, it took me some time to grow enough space in my imagination to project what the pearling economics would’ve been like, in a world when shareholder capitalism did not dominate every market.
Here are some of my takeaways from this meditation.
1. If you contribute only money, you don’t own part of the enterprise
Firstly, I couldn’t help but notice that there was no profit share for the merchant lender. There was no such thing as investing money, and expecting a dividend from the profit. You loaned money for the expedition, and then you get your money back (if the pearling revenue is enough).
Maybe the loan agreement might have included an agreed sum for the merchant, like exists today in some Islamic finance instruments. But I think those analogues wouldn’t have been invented yet, and a straight-up fee for lending money would just be usury, thus haram (forbidden) for Muslims. So maybe, the merchants advancing the loan made their profit some other way, for example by owning the businesses that supply the pearling expeditions.
In other words, the merchants made their money by actually selling something tangible. They loan the money for the pearling expedition, potentially at 0% interest, because if there were no expeditions, there would be no demand for their goods. And even just financially, the lender faced the least risk, since they’re paid first. No risk, no gain.
So in this system, it seems you’re only considered a shareholder if you risk something more than just money. Something tangible, like your boat, or yourself.
2. Business-essential skill is also considered capital
My initial rumination about Step 2 led me to think that maybe in this system, labour (or at least, the skilled labour) was considered a partner to capital (the dhow owner). I thought it was interesting that the labour partner to capital was not the captain, but the pearl diver. But I couldn’t square it with why the divers would be paid again in Step 3. Why not all at once in Step 2?
Then it dawned on me, that I was still not imagining hard enough. I was still thinking in terms of capitalist economics vs socialist economics, in terms of what is ‘labour’ and what is ‘capital’.
What if, in this system, skill could be capital too? Or at least, the skill essential for the enterprise. Nobody can get any pearls without a boat. And you could have a fully crewed boat, but it would only be a cruise without the divers.
So I think that Step 2 is about compensating those who contribute capital, whether capital assets like a dhow, or human capital such as the ability to dive for pearl oysters.
Even so, the dhow owner gets quite a bit more just by risking his boat, since his share was his alone. But I guess, boats were very expensive. If it were damaged or sank, it would mean a big loss, as well as eliminate any future pearling expeditions.
3. A CEO wage ratio of 3:1
Step 3 was the most straightforward to understand. The obvious implication of this step is that the true shareholders of a pearling expedition were the workers. They’re the only ones assigned shares (sahm).
That the profit due to the worker-shareholders is a whopping 80%, was already a revelation. But there was something else interesting in the system. There was a cap on the profit share for the manager.
The captain – the ‘CEO’ – only gets 3x the share of the lowest tier ‘staff’. There were no finance investors setting profit incentives, so the concept for CEO compensation to include “share options” (basically extra shares) for increasing profits for the finance investor, at the expense of the labour investors, never came up.
Not only that, but the return for the labour of pearl divers was also capped, at a ratio of 2:1.
No doubt, as an organisation gets larger and more complex, you’d have more organisational layers than just three. But even in 1950s USA, the CEO pay ratio was already 20:1. In 2024, the average S&P 500 CEO pay ratio was 285:1, with the highest ratio being well over 6000:1 – and that’s to median employee pay, not the bottom!
This might have something to do with why Emirati society still feels unusually egalitarian (at least, between themselves), considering that it is a monarchy society. Considering that clearly nobody – not the merchant lenders nor the captains nor the crew – felt the system was unfair (the industry lasted a few centuries after all, and grew to be worth millions), there must have been something in the culture that limited how economically unequal the society could get.
Modern day examples
Economic partisans tend to speak as though the goal is to realise some kind of pure economic philosophy. But in reality, most economies pick and choose what works from all ideas.
If you think about the above takeaways in terms of systemic function, examples or versions of them survive even in our current globalised capitalist economy.
1. Lenders whose motivation is not profit from the loan
The dominance of interest-based finance has effectively rendered extinct the merchant lender who lends at 0% interest. Even modern Islamic finance includes a fee for the lender in lieu of interest, to be compatible with conventional economics.
But you still have government-mediated lending or investment (e.g. sovereign funds), or multilateral institutions (e.g. the BRICS Development Bank), that lend not necessarily solely to earn from the loan, but to grow an economy that would generate revenue to governments through taxation of tangible (real) economic activity that follows.
2. “Core business” jobs
Most of the time, when companies refer to ‘human capital’, it’s just words. They don’t really consider any employees as owners of capital, because otherwise they would be compensated like they own the company.
However, in some companies or industries, it is still customary to recognise the jobs that deliver the “core business”. Examples include well engineers for oil companies, pilots for airlines, and doctors for hospitals. While not treated as capital contributors outright, and still compensated as labour, these jobs tend to command a significantly higher wage than their colleagues, similar to how pearl divers receive a higher profit share than regular crew.
3. Co-operatives & employee-owned companies
Of course, the closest forms of companies where labour gets most of the profit, are worker co-operatives. Typically, these are small companies. However, it’s not impossible to run a big employee-owned company. Huawei is probably the best known example, albeit the shareholding mechanism is pretty convoluted.
A less definitive version of employee shareholding is the employee share program, which I believe is fairly common with European companies. While it doesn’t assign shareholding just through contributing labour, employees do get incentives for share purchases just for being employees, such as matching shares or favourable market rates.
A merchant society with limits
We are currently living in an era when the systems that we consider as default are coming under critical scrutiny. The most current zeitgeist is a focus on the economic and financial systems of our world. In many countries, the debate has been stuck between capitalism and socialism for decades.
But what if, in the old Silk Road civilisations, there was never a binary, nor purely economic way of looking at the economy? That China’s “socialism with Chinese characteristics” is nothing but a re-brand of the historical Chinese civilisation’s pragmatic economics? And on the flip side, that there was also something that you could plausibly re-brand as “capitalism with Arab/Muslim characteristics”?
For Dubai identifies as a City of Merchants, yet the merchants are expected to support the public good. It is strongly pro-business, in the same way as Arabian peoples have historically been. Trading is considered an honourable profession. In fact, one of the jobs that Prophet Muhammad had in his pre-prophethood life, was as a merchant.
But merchants are also frequently singled out in the Qur’an, and in various hadith of the Prophet, for being the most at risk of sin, through dishonesty and usury, and disregarding limits***. So there are many limits in the Islamic economic system which deters wealth accumulation, so that there would always be economic flow rather than stagnation. For instance, mandatory spending of zakat, which is essentially a wealth tax, and a culture of charity that prioritises people relationships over material prosperity.
GDP vs its circulation
At the heart of any long-lived civilisation is a philosophical position on the purpose of a complex economy. The transition from a rural to an urban nation is not a new experience. It is, in fact, something we’ve done since thousands of years ago – or at least, the likes of Egypt and Sumeria.
Wealth concentration became possible with work specialisation, the creation of industries, and big infrastructure. Which in turn was necessary to provide efficiently for a growing number of people in the same amount of territory. This growth in productivity is what we measure today as “GDP”.
But GDP alone clearly does not result in people being provided for. We can see that in how emerging countries across Asia have been able to lift millions of people out of poverty in the last few decades, with much less GDP to work with than the wealthiest countries by GDP, while at the same time those countries are now struggling with cost of living despite their GDP remaining high.
And that’s really because, it doesn’t matter how much water you add to a river, it doesn’t benefit anybody if it all collects behind a dam, while less and less is released downstream.
Perhaps the pearling economy in old Dubai understood that it’s better for business to treat workers like partners and not an input commodity. So they recognised and rewarded niche knowledge and skill like a capital asset, and they assigned the greater share of the reward for those who took the greatest and most personal (not financial) risk.
And it still got them a multi-billion dollar industry – while retaining their social cohesion.
Notes:
* The first people who tried to develop cultured pearls were, unsurprisingly, the Chinese (specifically, the Song dynasty). However, for whatever reason, they didn’t seem to develop an entire industry out of it. What is usually referenced by the “discovery of cultivated pearls”, is the advent of industry-scale cultured pearls in Japan (and later, the South Seas).
Following its global commercialisation, the pearling economy of the Gulf crashed and never recovered. In several of Dubai’s museums, this was usually the starting point of the story of Dubai’s rise, which is a story about how Dubai responded to the sudden poverty stemming from the loss of its sole industry.
** The Arabic word used for ‘share’ is basically the same word borrowed into Malay (saham), literally meaning shares/stocks. As in company shares. Our term for ‘stock exchange’ is ‘bursa saham‘.
On a separate note, nokhada is probably also related to nakhoda, the word for ‘captain’ in Malay.
*** One example of such a hadith:
Rifa’ah ibn Rafi’ reported: The Prophet, peace and blessings be upon him, said, “Verily, merchants will be raised on the Day of Resurrection with the wicked, except for those who fear Allah, behave righteously, and are truthful.”
Source: Sunan al-Tirmidhī 1210
Carbon offset information to Dubai
A return flight between Kuala Lumpur and Dubai produces carbon emissions of approximately 2,518 lbs CO2e. It costs about $20 to offset this.
