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How Norway has avoided the ‘curse of oil’

How Norway has avoided the ‘curse of oil’ thumbnail

As one of the centres of Norway’s booming oil and gas industries, it is also a very wealthy place.

Yet there are few displays of ostentatious spending – there are no supercars with tinted windows, no designer handbag shops, and no queues of people outside exclusive nightclubs.

For while other countries have struck oil and then binged on the revenues, by contrast Norway is continuing to invest its oil and gas money in a giant sovereign wealth fund.

Start Quote

We trust the government, we believe our tax money will be spent wisely”

Prof Alexander CappelenNorway School of Economics

The fund, worth about $800bn (£483bn), owns 1% of the entire world’s stocks, and is big enough to make every citizen a millionaire in the country’s currency, the kroner. In effect, it is a giant savings account.

And most Norwegians are seemingly very content with this – according to a 2012 study by New York’s Columbia University Norway is one of the world’s happiest countries.

“We had to invest a lot of money before we could spend anything,” says Prof Alexander Cappelen, from the Norway School of Economics, explaining why the country has apparently avoided the pitfalls of vast wealth.

“In other countries the oil is much easier to extract, so they got the money straight away.

“We were put in the right mindset by knowing it was a long-term plan.”

Trusting the government

So, no spending bonanza for Norway. In fact there is a closely followed guideline that only 4% of the surplus from the fund is spent or invested in public projects.

“Actually we are spending less than 4% currently – we are saving,” says Prof Cappelen.

A Norwegian oil rigNorway’s economy has been transformed by its oil boom

There are several reasons, he says, why Norway is happy to save its wealth and shrug off the temptations of a luxury life.

“For this kind of system to work, you need to have an enormous level of trust,” says Prof Cappelen. “Trust that the money isn’t going to be mismanaged – that it’s not going to be spent in a way you don’t like.

“As a result of social democracy and egalitarian policies it is a homogenous society and has built up an enormous level of trust.

Siv JensenNorway is in a fortunate position, says Finance Minister Siv Jensen

“We trust the government. We believe our tax money will be spent wisely. once you start trusting that others are contributing their share then you are happy to contribute yours.”

So is Norway rich because of Norwegians high level of trust, or are its citizens trusting because they are rich?

“I think it is both,” says Prof Cappelen. “High levels of trust make economic growth easier.”

Norwegian oil workersNorway is already planning for when its oil and gas reserves run out

But this oil boom is tailing off. So what’s next?

“Norway’s economy is in a very fortunate situation. We are talking about a gradual shift over the next few years,” says Norway’s Finance Minister, Siv Jensen.

“We have had a slower growth in productivity over the past few years, and for this government we have to look at a competitive tax level and reducing red tape to attract investment.

“But it is true we have a higher cost level than any comparable country.”

‘We respect hard work’

Those costs can be quite shocking for a visitor. In cafe overlooking Bergen’s fish market, while sipping a cappuccino costing almost $10, Tone Hartvedt from Business Region Bergen explains that costs are simply comparable to wages.

Drilling on an oil rigIt isn’t cheap for Norway to get at all its offshore oil and gas deposits

“It may sound surprising, but for us it is not too expensive,” says Ms Hartvedt. “We tend to have summer and winter holiday houses or cabins, and we can afford life here. It is comfortable.”

This is surprising to the uninitiated visitor – after a trip to the local supermarket revealed that the cheapest pasta, bread, cheese and chopped tomatoes would come to around $50.

But, says Ms Hartvedt: “We pay our workers a wage that means they have a good quality of life. That is not so much the case in places like London.

“Here we respect hard work, but we don’t believe that the highest paid worker in a company should earn vastly more than the lowest paid.

“This does mean that some very talented people leave for other countries where they will be paid more.”

So, do people in Norway regard themselves as rich? “No, we don’t think of things like that, it’s for the future,” she says.

Economic challenges

On an island half an hour from Bergen, is Coast Center Base (CCB), a huge support centre for the oil and gas industry. There’s a rig, fire engine red and vast, sitting in the harbour being checked over.

“I remember the days when there were plenty of farmers and fish farmers in Norway. Life has changed for the average Norwegian,” says CCB’s chief executive, Kurt Andreassen.

“This base was started up in 1974, and there has been a tremendous change in those decades. The welfare is now very high. It is quite different to 40 years ago, many people are educated – things have changed.”

Shoppers in downtown OsloNorway’s shoppers are not often able to take advantage of a good bargain

As for when the oil does eventually run out, “Norway will survive, but it will be a challenge for all of us,” he says.

“Our challenge will be to utilise our expertise and use it in other areas.”

It’s a point of view echoed by Dag Rune Olsen, rector of Bergen University: “I worry we do not invest to a sufficient extent in other ways to generate income in the next decades.

“We are very well aware that the oil and gas resources are limited, and at least for Norwegian oil it will cost us more year by year to extract the oil,” he says.

“It is evident we need to find other sources of income, and now we have the ability to invest – it is crucial that we do.”

‘We will get jobs’

Perhaps this awareness that it won’t last forever goes some way to explain the second-hand Volvos circling Bergen’s winding streets, rather than the Porsches or Bentleys of wealthy parts of London.

Prudence and pragmatism rather than posing seems to be the attitude.

While there is an inkling of concern for what will become of Bergen, and Norway, when the oil runs out – most Norwegians remain confident about their prospects.

“We are in Norway, we are not worried about these things,” reply students at the Norway School of Economics, slightly uncomfortably, when asked if they are concerned about jobs.

“We will work hard and we will get jobs.”


16 Comments on "How Norway has avoided the ‘curse of oil’"

  1. paulo1 on Tue, 26th Aug 2014 8:54 am 

    Well done, Norway. I have always admired the country, although it is hard to sometimes tolerate that ‘Norwegians are always right’! (Lots of Norwegian fishermen here in the past).

    Of course, my attitude is just that of another commie pinko Canadian.


  2. Plantagenet on Tue, 26th Aug 2014 9:35 am 

    There is no “oil curse”. There is good government vs corrupt bad government. Plenty of countries with no oil have corrupt bad governments.

  3. noobtube on Tue, 26th Aug 2014 10:09 am 

    Isn’t it funny that when a country discovers oil (or other precious natural resources) the degenerate Americans and Europeans suddenly claim the government is corrupt and bad and NEEDS intervention (invasion) from the scumbag Americans.

    Zimbabwe is bad AND corrupt.
    Libya is bad AND corrupt.
    Iraq is bad AND corrupt.
    Iran is bad AND corrupt.
    Russia is bad AND corrupt.
    Venezuela is bad AND corrupt.
    North Korea is bad AND corrupt.
    Cuba is bad AND corrupt.

    Funny how this is never applied to the United States, Britain, Canada, or Australia (or the Scandinavian countries).

    You’d almost think it were all intentional… a sort of eugenics war.

  4. herrmeier on Tue, 26th Aug 2014 10:30 am 

    But but but noobtube. The same way you won’t label yourself an idiot although you clearly are, the USA won’t label itself evil and corrupt either.

  5. Pctech on Tue, 26th Aug 2014 11:28 am 

    Too bad that Norway is exception not the rule.
    What happens if there is total economic reset world wide? Want the fund become worthless in that case?
    Or is it invested in things that have “real intrinsic” value? Not just paper.

  6. noobtube on Tue, 26th Aug 2014 12:34 pm 

    That’s what amazes me about these articles.

    They act as if there is some magic, fairy-tale land after oil.

    When the oil is gone, how exactly are you going to run the Norwegian economy (or any economy) on a bunch of promises (fund) from bankrupt American/Anglo banks with worthless, fiat, reserve currencies?

    If the Arabs or Africans or Venezuelans realize that the United States military no longer has the fuel to terrorize the world, you are going to see all of West Asia (aka Europe) AND the United States in a world of hurt.

    Let’s see what exceptionalism gets you then when you have to go begging to Arabs and Africans for your daily bread.

  7. Davy on Tue, 26th Aug 2014 12:37 pm 

    I would be nervous owning 1% of all world stocks. Another issue is the size of that fund big movements could be hard to make in an illiquid market. If I ran Norway I would increasingly buy gold and other tangibles.

  8. JuanP on Tue, 26th Aug 2014 1:15 pm 

    Davy, I agree. I would be selling those stocks like crazy, while I still can. This is not a smart investment in the long run. Now is the time I would get out of the stock market if I had a penny there. I would purchase commodities and other real assets if I were Norway.

  9. Speculawyer on Tue, 26th Aug 2014 2:18 pm 

    Norway and Canada seem like the only countries to largely avoid the oil curse. In most other places, there is lots of corruption.

  10. Perk Earl on Tue, 26th Aug 2014 2:39 pm 

    I always think it is incredibly phenomenal when wealth from a particular sector does not end up in the hands of a select few. The nature of humankind in regards to resources is usually to shank the masses, but in Norway’s case they actually ‘SHARE’ the wealth. Truly an incredibly rare event in which the rest of the world should take example from and drop to their collective knees in reverence for and ask why this cannot be a more widespread attitude?

  11. noobtube on Tue, 26th Aug 2014 2:53 pm 

    Americans and Europeans have this collective blindness (stupidity?) that somehow they magically discovered “sharing the wealth” as if societies all around the world haven’t been doing it since the beginning of time.

    In the mind of the scumbag Americans and Europeans, it is actually STRANGE for everyone to share… which is why these idiots marvel at Norway.

    But, if you look at Libya (before the European and American degenerates destroyed it), their people had the highest standard of living in Africa… free homes, quality healthcare, clean water, education, electricity… but the Americans and Europeans NEVER, AND I DO MEAN NEVER have anything good to say about anyone unless they have blonde hair and blue eyes. It is always just genocide and mass murder.

    Look at the Native tribes before the degenerate Europeans invaded. The Taino, the Arawaks, the Pacific Islanders, the Hawaiians, the Tasmanians, the Aborigines all shared the wealth.

    Not until the scumbag, murderous, homicidal, filth from Europe arrived, did the lands turn to s*it.

    Have Americans and Europeans gone anywhere, in their entire history, and shared with anyone? EVER?

  12. Davy on Tue, 26th Aug 2014 3:47 pm 

    Noob, if you were a kid on a playground you are the type that gets his ass kicked because your basically nothing more than an asshole. Asshole is and asshole does.

  13. redpill on Tue, 26th Aug 2014 7:28 pm 

    Who knew, Libya was the Norway of Africa.

    Hard to imagine how such a paradise could have so many people that don’t like each other. That is, unless all this free stuff dummy talks about was only free for the in crowd.

    Sounds like someone misses being part of the in crowd.

  14. rockman on Tue, 26th Aug 2014 8:40 pm 

    Earl – Another perspective:”I always think it is incredibly phenomenal when wealth from a particular sector does not end up in the hands of a select few”. In Norway’s case the wealth did end up in the hands of just one…the Norwegian gov’t. Just as it did in Venezuela. Now contrast the manner in which the two gov’t handled that wealth.

    Now consider that the US gov’t controls a significant portion of the country’s energy wealth. In fact oil/NG/coal royalties generate the second largest revenue stream for the feds. How much of the hundreds of $billions the gov’t has received from those rights has the gov’t socked away? Not only $zero but we’ve borrowed a great deal beyond that income. Of course, the vast majority of the US energy wealth belongs to private citizens. I found one estimate of their royalty income between $20 to $30 billion per year. Of course being private citizens how they save/spend that wealth is no one’s business.

    Now consider the actions of another governmental organization’s approach to it’s oil/NG wealth…Texas:

    “Resurgent oil and gas production in Texas could fill the state’s rainy day fund to capacity within the next four years. New projections show the fund would soon replenish record balances even if voters approve two constitutional amendments that would authorize using billions from the fund for water infrastructure and roads.

    “While the Legislature is asking Texas voters to weigh in on using some portion of the fund or its revenues to help fund the state’s infrastructure needs, those additional uses should not threaten its financial vitality,” wrote Dale Craymer, a former chief revenue estimator for the state. Voters will consider a ballot measure in November setting aside $2 billion from the fund for water infrastructure, such as reservoirs and water pipelines. Next year, they will decide whether to redirect half of the oil and gas production taxes — about $1 billion — to transportation projects.

    Tapping the rainy day fund has become a politically touchy issue for Republican legislators in recent years as the balance has ballooned from $405 million in 2006 to an expected $11.8 billion by the end of 2015. After much wrangling, legislators eventually approved spending about $2 billion to clean up some of the leftover budget mess from 2011 in addition to the $2 billion water measure. Craymer’s estimates suggest the fund would reach its maximum of 10 percent of the budget — or $16.1 billion — by 2017 if both of the constitutional amendments fail. If the amendments pass, the fund would still have $11.6 billion.”

    So it would seem the “curse” isn’t the source of the wealth but who controls it and how they manage it.

  15. Makati1 on Tue, 26th Aug 2014 10:08 pm 

    “Norway to Cut Oil-Production Forecasts as Costs Delay Projects”

    Hmmmm….trouble in fairy land?

    1% of the world’s stocks? Looks to me like paper wealth and quite worthless without buyers when you want to sell. What is 1% of zero?

    Amazing how many hypocrites we have as commenters here. Some prefer to put down anyone who does not share their world view. While I respect some for their obvious experience in their field, most here have no better picture of the real world than anyone else. Some show faux patriotic flag waving as they try to defend their corrupt country or cornucopian visions of a world they have been promised by millions of ads but will never experience.

    It is obvious. from the variety of humans represented here. that we will never attain even 10% of the human potential before we exterminate ourselves. Intelligence requires wisdom to have any value and we are sorely lacking as a species.

  16. Davy on Wed, 27th Aug 2014 6:15 am 

    I am amazing when commentators here make a comment criticizing other comments here when in fact the comment describes to a “T” the commentator. Hypocrites claim hypocrisy to cover their own hypocrisy.

    Here is some research on the subject since this is a boring morning on the board.

    Hypocrisy is often defined in social psychology as not “practicing what you preach”, “saying one thing and doing another”, or publicly upholding moral norms, especially for others to follow, but personally violating them in private
    . The Oxford English Dictionary defines hypocrisy as “the assuming of a false appearance of virtue or goodness, with dissimulation of real character or inclinations, esp. in respect of religious life or beliefs; hence in general sense, dissimulation, pretence, sham.”
    Not Practicing What One Preaches: Moral Hypocrisy as Behavioral Inconsistency
    Moral Posturing Without Paying the Price
    Ascribing Hypocrisy to Others Who Do Not Practice What They Preach
    The Consequences of Not Practicing What One Preaches
    Bad Faith and Ulterior Motives: Moral Hypocrisy Without Behavioral Inconsistency
    Moral Hypocrisy as Applying a Double Standard
    Strategic Moralization: Moral Hypocrisy as Jealousy with a Halo
    Strategic Demoralization: Moral Hypocrisy as the Denial of Virtue
    Suspicion and the Ascription of Bad Faith and Ulterior Motives to Others
    The Complexities of Moral Life: Inconsistency Without Hypocrisy
    Weakness of the Will and Unrealistic Intentions
    Giving More Weight to One’s Moral Intentions
    Redemption and the Possibility of Positive Change
    Moral Licensing, Moral Credits, and Moral Balance
    Behavioral Inconsistency and Construal Levels
    The Struggle for Moral Integrity
    In this chapter we have attempted to deconstruct the notion of “not practicing what one preaches,” which is a common working definition of moral hypocrisy, as a way of questioning the link between hypocrisy and inconsistency, and as a framework for reviewing recent research bearing on this issue. This strategy gave us license to analyze the two novel categories of hypocrisy without inconsistency and inconsistency without hypocrisy. The first, hypocrisy without inconsistency, broadens the scope of moral hypocrisy research to encompass the bad faith invocation of moral claims by actors whose real motivation is self-serving, or the toning down of moral concerns when they threaten the self. The second category, inconsistency without hypocrisy, drew our attention to the complexity of moral life, and the fact that individuals constantly face moral inconsistency without necessarily feeling like hypocrites or being perceived that way by other people.

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