Dubai’s ruler, Sheikh Mohammed bin Rashid al-Maktoum, likes to say that he is seeking to run his country like a company. He has established key performance indicators for government bureaucrats. He is said to prefer meeting corporate bosses than heads of state. And what is essentially international aid policy, Dubai Cares, is run as a corporate social responsibility project.

Some, of course, have their doubts about whether the wisdom of the boardroom is enough to meet the challenges of government. Dubai lives in a dangerous neighbourhood and, if it becomes ever more economically powerful, it will be required to play an ever-greater role in regional security. And, while it continues to grow at breakneck speed, public policy needs to go well beyond economic planning.

For as much as Dubai might like to measure itself by its own extraordinary commercial success, it is much more complicated than any profit and loss account. It is a tolerant autocracy; it is a well of riches served by more than half a million migrant workers, many living in impoverished conditions; it is an impressive investor in education, culture and the media, all the while suspicious of full freedom of speech; it is a beacon of hope for the Arab world, but, judging by the fact it seems to have more hookers than hookahs, it is also its favourite fleshpot.

Nonetheless, Exhibit A in the case for applying a business approach to the job of governing Dubai is that it is working. This is not just in terms of the 12 per cent economic growth, a twelvefold increase in foreign direct investment in the UAE within five years and the fact that for all the talk that Dubai’s orgy of construction would leave the city with a property glut, the hotels are full, office space is at a premium and, such is the scarcity of downtown housing, people are subletting garages as apartments.

More important still, the corporatist approach to state management imposes results-based competition and greater accountability on what is still a dictatorship. If a state is to be run by one all-powerful leader, much better that he should adopt a modern business model: Monarchy 2.0 – not so much orb and sceptre as laptop and mobile phone.

It is less clear whether companies should be run as countries.

The state-backed funds in Abu Dhabi and Dubai like to claim that their investment decisions are governed solely by financial criteria. But this is plainly untrue. Profit may be the prime motive but it is not the only one.

Mubadala, the investment fund backed by the Government of Abu Dhabi, bought a 5 per cent stake in Ferrari. In part, this was because it was seen as a good investment. But it was also because Abu Dhabi wanted to get a seat at the table to lure Formula One to hold a race at the UAE’s most powerful, if lower-profile, emirate.

Dubai Group has backed Borse Dubai in its deals with Sweden’s OMX and Nasdaq in New York, as well as its acquisition of a stake in the London Stock Exchange. No doubt, there is a commercial logic here but it also helps the state to fulfil its ambitions to build an international financial centre by creating a technologically sophisticated and highly liquid stock exchange rooted in Dubai.

The emirates are using the power of the modern corporation to leverage their oil wealth to build a prosperous future for their states and citizens. But it should not be mistaken for the creation of a world-class fund management and private equity industry. The capital available is almost limitless. In a bull market, almost every investment wins.

Over time, though, this could become an issue. Corporations that have one eye on the bottom line and another on their royal rulers will sacrifice competitiveness. The Gulf funds may be hugely profitable but they are unlikely to be best in class. This is not simply because they lack the in-house expertise to make the most rewarding investment decisions in the world. Nor is it just because they are all so opaque that they cannot benchmark their performance against each other. It is also because rate of return is not their only measure of success.

The long-term issue for the Gulf is not that the state is run like a company. It is that market forces be allowed to govern business.

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