Norway is a wonderful country that has time and time again been used as the poster child for a socialist-capitalist mixed economy done right. Norway has several times been compared to that child in our school who is absolutely tremendous at each and everything. The country boasts a GDP per capita of $81,995, one of the highest in the world, only falling behind Switzerland and a select group of micronations. The country has a robust trade surplus, exports of $106 billion, compared to imports of $84.8 billion, one of the highest national life expectancies at 81.8 years, an extremely skilled workforce with one of the highest proportion of university graduates at 42% of any country in the world, an extremely low unemployment rate of 0.41%, and international recognition as a place where it is very easy to do business.
What is more remarkable is that Norway has achieved this while also being one of the most economically equal countries in the world. After taxes, a single individual from the bottom 20% of the income earners in Norway still earns on average a quarter of what their top 20% income earners would. Now, this still sounds pretty unfair but compared to the Organisation for Economic Cooperation and Development (OECD) average which has top one-fifth earners making an income ten times that of their bottom one-fifth counterparts, this disparity is remarkable. The good news keeps on coming considering working conditions. Norway has workers protections which are commendable, meaning that social issues like working extremely long hours and people needing second jobs to support themselves are very rare. In fact, the OECD better life index notes that only 3% of employees work long 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 entire world despite their country being extremely cold. Norway, by all standards, should be the model that most citizens would want to replicate in their own countries. So why haven’t other countries adopted similar economic policies to those in Norway? Is this country just a lucky outlier or could this success be replicated in other economies around the world?
The truth is that Norway wasn’t always this prosperous. In the 1960’s, it was an economy mainly based on fishing with a GDP similar in size to underdeveloped countries like Bangladesh or Nigeria. Now, in all fairness, Norway’s population was and still is far smaller than these other countries and the average Norwegian back then had a quality of life similar to a person in Spain or Greece. But Norway in the 1960’s was still far out from the economic powerhouse it is today. This all started to change in May of 1963 when the Norwegian government asserted sovereign rights over natural resources in a huge area of the North Sea. This was basically the government saying that this part of the ocean is ours now. If we happen to find any oil here that is ours too. Six years later, in 1969, a ship called the Ocean Viking struck oil in the North Sea, and from that oil production in the region exploded. This meant that in the mid-1970’s Norway produced more oil per capita than any other country in the world and even today it is only beaten out by Kuwait, UAE, and Saudi Arabia.
Now, I know what you are thinking, but this is not a story about another country that just got rich off oil and now everybody in the country is living like a child handed with a rack of money. It is actually the opposite. Rather than getting drunk off the oil wealth that they had discovered; the Norwegian government was very prudent with the revenue from these finite resources. The oil boom caused Norway’s GDP to grow over five times in the 1970’s growing from $12 billion to $65 billion in this period. But this newfound wealth was not being generated by private companies but rather a publicly run and owned company called Statoil. All this meant that profits from oil and natural gas sales were not going to the pockets of private shareholders but rather directly to the government. This made the Norwegian government immensely rich meaning that if they wanted, they could have easily gone on a public spending spree, building fancy cities and public infrastructure while also reducing taxes just like many of the countries have done in a similar position. This kind of an approach would have been very popular among citizens because in short term it meant lower taxes and a better quality of life but they didn’t, and even today income and business taxes in Norway are among some of the highest in the world.
Fortunately for Norway, the government had the foresight to realise that oil wealth was not forever and that the citizens of Norway would not be satisfied if they had to go back to fishing in a generations time so the government invested the money into a piggy bank, a very large piggy bank called a ‘sovereign wealth fund’, in fact, this is the largest sovereign wealth fund in the world at $1.002 trillion beating out China’s state investment corporation. 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 and so it is they who should receive from the sale of these resources. This means that every man, woman, and child, who is a citizen of Norway essentially has around $200,000 invested into what is a giant hedge fund. This money is unfortunately not accessible by these citizens to spend on gold plated Ferraris or yachts. 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, which explains the very skilled workforce, a very strong welfare system, public infrastructure, and reinvestment into the fund itself.
In 2017, the fund made an incredible $131 billion from 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 set up an ethical council that oversees investing decisions of all of the fund and it has excluded investing in things like weapons manufacturers, tobacco and alcohol companies, and companies that have caused severe environmental damage or companies that have breached workers rights and labour laws. Additionally, in an effort to diversify where they get their money from, the fund is also forbidden to invest in fossil energy companies. This means that all the investments in this fund are actually in foreign countries’ securities and commodities. Now, despite the massive political power this gives Norway to influence foreign companies, it also means that the fund’s performance is absolutely independent of the situation prevailing in the Norwegian economy. The fund was a fantastic piece of thoughtfulness by the Norwegian government and practically means that Norway is now the national equivalent of the guy that wins the lottery, keeps his day job, and invests the lottery money in a stock portfolio. It certainly is not as cool and it does not get as much attention as blowing all of the money on extravagant displays of wealth, but it does mean that they will be safe and secure for generations to come.
To finish it up, it is only fair to look at some of the economic issues that are present in Norway. First and foremost is that it still has an incredibly high cost of living compared to wages. Given the very high taxes, an average Norwegian worker is bringing home about $3,200 a month which is far higher than the American average of $2,730 per month. However, it does not make a considerable difference because Norway is an expensive place. A mid-range restaurant meal in America tends to run about $50, in Norway, it is about $92. A monthly utility bill in the US is expected to be around $130 whereas that same bill in Norway is $176. But the citizens of Norway almost universally agree that they are happy to put up with these high taxes and this incredibly high cost of living because in return they do not have to worry about serious economic hardships.
Nobody in Norway is going to go bankrupt because of a medical situation, nobody has to worry about drowning in crippling debt to get an education and they do not have to fear being homeless if they lose their jobs. So, the million-dollar question arises - is Norway really the perfect economy? Well no, not really. Norway is a great example of a planned social-democratic economic system. They have done everything right with the opportunities that have come their way but they were still extremely lucky, and expecting that every country can get to where Norway is today only by copying and pasting their government’s financial policies is absurd but that said I still think Norway is the economy closest to achieve perfection if they haven’t already.
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