Norway is a success story that is repeatedly pictured as a role model for a socialist-capitalist mixed economy done right.
According to the International Monetary Fund (IMF) 2018 rankings, the country had one of the highest GDP per capita in the world (Rank 4: $81,995 PP) falling only behind Luxemburg, Switzerland and Macau (with a PPs of $114,234 – $82,950 – $82,388 respectively).
The country has a strong trade surplus (Net exports value $17.67 billion – 2019 data), one of the highest national life expectancies (83 years according to the World Health Organization 2018 data), an highly skilled workforce with one of the highest proportion of University graduates (42% according to OECD tertiary education graduates to total population between ages 25-64), a very low unemployment rate (0.41% according to OECD 2016 data) and international recognition as a place that is very easy to do business in (Global Rank 7, according the World Bank Group 2019 Ease of Doing Business Index).
What is more remarkable is that Norway has achieved this while also being one of the most economically equal countries in the world. After taxation, a Norwegian resident from the bottom 20% of income earners in Norway, still earns on average about a quarter of what their top 20% income earners would. This is relatively high compared to the OECD average which has its top fifth owners making an income 10 times that of their bottom fifth counterparts, making the four-times disparity between Norway and OECD countries remarkable.
Working conditions in Norway also portray a successful aspect of the country. Norway has exceptionally robust workers’ protection; meaning that social issues like working long hours or people needing second job to support themselves is particularly rare. In this regard, in Norway, the OECD 2018 Better Life Index (workers working 50 hours a week and more) notes that only 3% of employees work more than 8 hours when compared to the OECD average of 11% or the American average of 33%. All of this contributes to the citizens of Norway being some of the happiest in the world.
What is the secret for this success case?
Norway by all standards is a model that citizens around the world would want to replicate in their own countries. So why haven’t other countries adopted similar economic policies to those in Norway?
In fact, Norway wasn’t always this prosperous. Back in the 1960s, Norway was an economy mainly based on fishing. All started to change in May of 1963, when the Norwegian government asserted sovereign rights over natural resources in the North Sea. This was basically the government saying that that specific part of the ocean is for them, and if oil happens to be found there, it would be owned by Norway. In 1969 a ship called the “Ocean Viking” struck oil in the North Sea, and from that point, oil production in the region boomed, where Norway produced more than 1.6 million barrels a day at that time.
By mid-1970s, Norway produced more oil per capita (313,000 barrels/day/pmp) than any other country in the world. Even today it is only surpassed by Kuwait (721,575 barrels/day/pmp) the United Arab Emirates (335,103 barrels/day/pmp) and Saudi Arabia (324,866 barrels/day/pmp).
The Norwegian government was extremely prudent with the revenues from these scarce resources (oil). The oil boom caused Norway’s GDP to grow over five times in the 1970s (from $12 billion to $65 billion in this period). But this newfound wealth was not being generated through private companies like Exxon and BP, but rather through a publicly run and owned company called “Statoil”. This meant that the profits from oil and natural gas sales were not going to fill the pockets of private shareholders, but rather go directly to the government. This made the Norwegian government rich overnight, giving them, in theory, the ability to freely spend on public goods and services such as construction, modernizing cities and on public infrastructure while also reducing taxes similar to other oil-rich countries. However, Norway didn’t. Income and business taxes in Norway are still among the highest in the world.
Fortunately for Norway, the government had the foresight to realize that the oil is not a permanent asset and that the citizens of Norway would not be satisfied if they had to go back to fishing in a generation time. To this end, the authorities invested the returns of oil into what is called a Sovereign Wealth Fund. Today, this has become the largest Sovereign Wealth Fund in the world ($1.002 trillion), beating out China’s Investment Corporation ($941 Billion), which is remarkable, considering that China has a population 270 times larger than Norway.
A Fund for the People of Norway!
This is a fund that belongs to the people of Norway. The rationale is that this oil and these natural resources were originally the property of the Norwegian people, so it is the citizens who should receive the revenue from the oil revenues. This means that every man, woman and child who is a citizen of Norway essentially has around $200,000 invested into this giant hedge fund. However, in reality this money is not easily accessible by these citizens to spend on luxury goods. The money itself is actually not even accessible to the Norwegian government. In fact, only the profit generated from these Investments is used to fund things like education, a strong welfare system, public infrastructure and reinvestment into the fund itself.
In 2017 the fund made $131 billion returns from its investments. This fund is a very diverse portfolio of stocks, bonds, cash and commodities, but what it does invest in, is not nearly as interesting as what it does not invest in. The Norwegian government has set-up an ethical council to oversees the investing decisions and it has excluded investing in things like weapons manufacturers, tobacco companies and companies that have caused severe environmental damage and companies that have breached workers’ rights, the fund is also forbidden to invest in fossil energy companies. This means that all the investments this fund are in foreign companies.
Despite the massive political power that the fund gives Norway to influence foreign companies it also means that the fund’s performance is independent of the Norwegian economy. This fund was an extraordinary piece of thoughtful decision by the Norwegian policy makers and practically means that Norway is now the national equivalent of the person who wins the lottery, keeps his day job and invests his money into a stock portfolio.
The story of Norway, can be an inspiration for many countries currently discovering oil and gas, especially in the Mediterranean Sea. The strategy and policies Norway has adopted are worth studying and taking into consideration.