Norway: The Perfect Economy?
In the past, we've seen how countries that have struck the jackpot with economic matters can easily fall victim to corruption and financial instability, put forward Venezuela (Chapter 1 and Chapter 2). A lot of the times, this is because countries forget to diversify their economy and focus on only a few sources of income. Also, they may be tempted to go on a mass spending spree, resulting in lower taxes, fancy infrastructure and everyone getting their hands on supercars and mansions. Whilst this is desirable for everyone in the country, we've also seen that this golden standard of living only lasts in the short term.
Today, we're looking at a country often swept under the carpet in terms of economics and financial prosperity: Norway. This small, socialist, Scandinavian nation seems to have got almost everything correct with their fiscal framework both in the short and long term. In fact, they have one of the highest:
- GDP per Capita
- University graduates
- Life Expectancy
- HDI (Human Development Index)
So how have they done it?
It's imperative to understand that until the 1960s, Norway was just another underdeveloped country reliant heavily on fishing, seemingly miles away from their more prosperous European counterparts. It was only in 1963 when they decide to assert rights over a certain region in the North Sea. This essentially meant that this region and everything in it belonged solely to the Norwegians. This also includes every country's best friend - oil.
In 1969, Norway struck a huge amount of oil in their share of the North Sea (roughly 1.6 million barrels of oil per day). This made them have the highest levels of oil production in the world. Even now, they are one of the highest producers, only slightly overtaken by the Middle East. Their economy boomed by over 5 times in only a decade. Now, Norway could have spent all this money on their population and reap the benefits other countries such as Venezuela once received. What they decided to do instead was rather the opposite.
Rather than giving control to private companies such as Shell and BP (following a more market/capital economy approach), the government took control via their publicly owned company Statoil. Norway understood that oil reserves would be limited and that if they went on a massive spending spree, they would soon find themselves back in their fishing boats within a generation's time.
Hence, they made the decision to invest in what is now the largest wealth fund in the world (their Sovereign Wealth Fund). In simpler terms, they started to save their income made from oil exportations - only the profits made would be invested into the country's development such as education, infrastructure and reinvesting back into their wealth fund. This works very well given that in 2017, the wealth fund made $131 billion.
To ensure the highest levels of development and effective spending, Norway has prohibited the investment into companies which:
- Sell tobacco or drugs
- Sell arms and weaponry
- Violate labour laws e.g. by utilising child labour
- Harm the environment
- Are involved in fossil fuels
So how are the Norwegians benefitting from this? Despite the high taxes and cost of living that the government impose, the people of Norway are actually one of the most protected people in the world. This means that their financial stability will be protected not only for their generation but for their future generations as well (thanks to the wealth fund they invest in). Also, the environment is very well looked after and clean, barely affected by pollution or water contamination. This is why the Norwegian people are amongst the happiest and most secure people in the world. They don't mind the high levels of expenses as they are guaranteed security and a high quality of life in return. The average salary of a Norwegian, even after tax deductions, is still relatively high, which is made even better by the fact that only 3% of the population have to work long hours (compared to the 33% in the USA).
This then raises the question of whether or not other countries like the UK can follow suit and why we haven't done so yet. Well, whilst Norway were very tactical in their financial decision-making, they were also quite lucky with the discovery of large oil reserves, which obviously cannot occur with every nation in the world. In the event that a country does hit the jackpot, then there is no doubt that they should follow a similar path.
Overall, Norway is a country which has managed to attain a secure long term financial position despite the tempting high income made from oil exportations. This is a country that, through prudent and sensible economic decisions, will prosper not only in the present generation but in the future decades to come as well.
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