Treasury Secretary Paulson, the International Monetary Fund, and the Organization of Economic Cooperation and Development are all busily establishing “rules of conduct” for sovereign wealth funds. They want to be sure that their owners, who have poured more than $60 billion into American and European financial services companies over the past 14 months, do not attempt to use their investments for political purposes.

Honestly, can’t you just imagine the managers of the Abu Dhabi Investment Authority or the Singapore Investment Corporation sitting around having a pretty good chuckle over this? The sovereign wealth funds have bailed out any number of leading financial institutions — banks and investment banks including Citigroup, Merrill Lynch, and UBS — to the great relief of American shareholders, and we are dictating the rules to them? Good grief.

The sovereign wealth funds will accede to the guidelines being promulgated here and abroad because they want to continue to diversify their economies away from oil, the source of most of these entities’ riches. These organizations clearly regard their oil reserves as a gift to be enjoyed not only by the current generation but also by generations to come. Their ambition is to diversify into other currencies, other industries, and other regions, in order to safeguard that future. The key word here is future.

While these countries are thinking ahead, we are mired in trying to correct some very wrongheaded decisions made by our banks in recent years, which confused financial engineering with real economic block-building. At the same time, efforts to help out the financial sector have caused the dollar to nosedive, with declining interest rates assisted by our increasingly uncompetitive industrial sector.

It is just possible that we should look to some of the fast-growing nations investing in their sovereign wealth funds for some guidance, rather than the other way around. Certain of these nations are actively engaged in long-term planning and thinking, which makes them increasingly successful competitors. I am especially impressed with the emirate of Abu Dhabi, having just visited Dubai, the United Arab Emirates’ second-largest state.

Abu Dhabi has made diversifying away from oil a national priority. Despite the incredible ramp-up in oil prices, the IMF is estimating that oil and gas amounted to just 35% of the country’s GDP in 2007. Dubai has been even more successful in this area; oil and gas account for less than 10% of GDP.

America, too, is trying to shift its economy, in this case to technology and other intellectually-rich pursuits from manufacturing. For this ambition to succeed, we need to stop monkeying around and put the nation’s resources behind improved education. We need to help workers retrain for the new century, and we need to open up new markets for our exports.

Abu Dhabi is better able to plan for the future because of its style of government, which gives its ruler supreme authority, and because it presently has the money to invest in rapid development. In Dubai, the speed with which diversification has been pursued, and the scope of the accomplishments to date, are breathtaking. Tourism and commerce have grown to take the place of oil revenues, encouraged by investor-friendly policies and by concerns that oil reserves may last only another 20 years or so.

This determination translates into a building juggernaut. I have never seen construction on such a relatively vast scale. Though Beijing’s skyline is dotted with cranes and building projects interspersed around the city, Dubai has vast tracts of nothing but brand new skyscrapers erupting out of the desert. The density of these 60- or 70-story buildings — and the world’s tallest, the 164-floor Burj Dubai — packed into newly developed areas seems peculiar when the desert stretches out as far as the eye can see, until you realize that the emirate’s development plans also extend to the horizon.

Dubai’s ruler has encouraged this aggressive building by underwriting investments in required infrastructure such as airports, roads, and schools.

The growth in Dubai, and in the UAE as a whole has been above 10% in recent years. Dubai’s large port facilities and position at the crossroads of East and West have long led to its reputation as a major smuggling hub, but these days the state is better known for its regional leadership in finance and technology. The growth of Dubai, and of the Emirates as a whole, is not without its challenges. Just 17% of the population is UAE nationals, the balance being those drawn to job opportunities, mainly from Asia and Africa. Attracting these laborers to a place with relatively high-paying jobs has been easy, but with the expansion taking place in India and across the region, labor rates may escalate in the future.

Inflation may become a growing concern also because the UAE, like most other Arab nations other than Kuwait, has pegged its currency to the dollar. That linkage has created rising prices, since the central bank is committed to follow the Fed’s interest rate moves (and just recently lowered rates by 75 basis points). Today, the UAE has a negative interest rate, and inflation has been running above 10%. Though some are calling for the government to de-link the currency, the administration has described such a move as too destabilizing.

Housing is in short supply, pushing rents up more than 10% a year in the region, but here, too, construction is rapid. Shopping centers, hotels, and all manner of services are expanding apace. A new airport is just getting under way; locals say it will be able to accommodate seven 747s landing simultaneously.

All this activity takes place in a multicultural and open society, not an especially easy thing to achieve in the Middle East. Until you see a fully clothed woman wearing a head scarf alongside bikini-clad Europeans while rafting at Dubai’s Wild Wadi water park, you can’t conceive of the cultural free-for-all. The country’s finance minister, who gets high marks for guiding the economic advance, by the way, happens to be a woman. Dubai is a phenomenon that should be seen. It is the most accessible (and unveiled) face of the modern Arab world, a world that is growing in wealth and influence and is little-known by most Americans.

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