The Norwegian Dilemma

[Oyvind Snibsoer]

It would seem a luxury problem. With oil prices set to remain above the $50 mark per barrel for the foreseeable future, Norway is currently earning far more money than the state can reasonably spend. Since 1990, the surplus income from the petroleum sector has been salted away in the Petroleum Fund of Norway (http://www.answers.com/topic/the-petroleum-fund-of-norway).

Official forecasts value the fund at ~NOK 2 450 billion / $380 billion by 2010. That estimate, however, used a conservative oil price of less than $30/barrel. With the longest term oil contracts, for delivery in 2012, now selling at $50+, most analysts agree that a double of that estimate is far more likely.

Econ, an economic analysis company, estimated in a recent report that the Petroleum Fund may reach a value of NOK 5 200 billion / $800 billion by 2020. That would be twice the estimated Norwegian GDP in that same year. That's $180 000 salted down for each Norwegian citizen.

- "If the oil price stays over $50, it changes the entire political agenda in Norway. We'll have enough money for all national pensions, we'll be swimming in money. We can fulfill the dreams of all the political parties and still have money to burn", says Econ's Knud Nørve.

- If the $50-scenario comes true, Norway may ind itself in a situation where the policy isn't expansive enough, where the capital isn't set to work.

The classical experience of countries with large natural resources is that they end up with a slower growth rate than other countries. The so called "Dutch disease" is a very real possibility. In the gas-rich Netherlands of the '60s, a rapid and uncontrolled expansion of the public sector led to a serious hangover when the income started to decline.

[Bruce Hooke]

That does raise some interesting and challanging planning problems related to issues like how long your oil reserves will last, what is going to happen to oil prices in the coming decades, and how far out you try to project for planning purposes.

Another thing to watch out for is that governments that do not need money (in the form of taxes collected from the citizens of the country) can become less responsive to the demands of the citizens.

Still, I'd trade Norway's oil related problems for the USA's oil related problems any day!!! :D

[MarkC]

I was going to say spend a percentage on education - but Norway is already leading the PISA tests (or was that Finland?)...

I wouldn't spend it - the natural reserves cant last forever.

Its a pitty that some of it couldn't be used for Education, strengthening norwiegan industry and industry start-ups. But how would you check that the money is not mis-used?

Look at the mess Germany is in. The 'struggle' of the war generations encouraged work-ethic, development and market dominance. The 'children of the fat years' - a nice term i over-heard here - have blow it all.

[Bob Cleek]

Well, the Norwegians could start a pointless war in some godforsaken place and burn up all their surplus that way. It sure worked for us!

[Alan D. Hyde]

Research.

Concentrate your efforts on an important field, and do intensive and original research.

Your research must be pragmatically driven--- as was research done to put a man on the moon.

Don't dribble the money away in scattershot fashion.

A program of practical innovation and discovery must be disciplined by the practical constraints which are associated with an effort such as space exploration.

Alan

[mmd]

Buy books, food, and condoms and give them - free of all strings - to Africa for Christmas. Fund the UN-sanctioned armies necessary to protect the distribution of the gifts.

Altruism on a national level with a global scope... :cool:

[George.]

Buy up a big chunk of the Amazon, and preserve it - in part to make up for all the greenhouse gas your oil exports generate. I am sure you will take far better care of it than we do.

Then again, you can't seem to take good care of the whales ... :(

[Oyvind Snibsoer]

There is a broad political agreement, with some notable exeptions at the right end of the spectrum, that the ever increasing income from the petroleum sector should be used with care, and slowly increased. The rules are too complicated to explain here (and I probably wouldn't get it right anyways ;) ), but in brief only the real financial profit from the fund's investments may be used, estimated to be 4% p.a.

But of course, it's a huge and tempting pork barrel for the politicians to grab into. As national elections are coming up this fall, populist politicians will surely promise to draw more money from the fund to promote better schools and healthcare.

But according to the UN Statistical Division, we're already among the top spenders in both these fields. Will investing more money in schools automatically buy us brighter children? Not unless we develop smarter ways to teach, too, and that is a structural challenge that isn't necessarily met with just poutiring more money into the sector. In health care, only the US and Switzerland spend more money on health care per capita. and few countries have a better doctor to patient ratio. According to a doctor friend of mine, who doesn't necessarily voice the official opinion of the Norw. Medical Assn., there's more than enough money in the system to do everything that needs to be done, but the problem is often how that money is used. Again, these are structural problems that aren't addressed by pouring even more money into the health sector. That will only encourage more waste and inefficiency.

ANd the Petroleum Fund was also created for the benefit of future generations of Norwegians, who won't have the benefit of the oil to the extent that we have today. I like to think of it as my children and grandchildren's money.

Unfortunately, it's Finland that's leading the PISA tests. The Finns took a long and hard look at themselves way back in the '70s and realized that, all thigs considered, they really didn't have a lot going for them. It's a bit too cold and harsh for efficient agriculture, and although they do have large forests, that really wasn't enough to live off. Mineral resources are also fairly insignificant. So they decided that, in order to prosper, they needed to focus on education and high-tech industry. And they have certainly had a very high degree of success with that.

Research - yes, but I'm afraid that with a population of 4.5M, and assuming the same distribution of idiots and savants as in any other population, we're a bit short on human resources to pull off something as spectacular as the space program. But we could, and are AFAIK, increasing public spending on research.

WRT the Amazon, I'm afraid that there's a Norwegian businessman in Brazil, married to a Norw. princess, who's done far more than his share to decimate that forest over the years. I'll gladly discuss whaling, BTW, but that's a bit beyond the intended scope of this thread smile.gif

[yorgie]

How about subsidizing cultural programs teaching foreigners of norwegian descent skills such as,oh I don't know,oselver building ;) and thereby instilling a worldwide interest in Norway's language(s) and traditions.This might encourage reverse immigration and bring in skills and connections that would benefit Norway in the future.

Chris

[Andrew Craig-Bennett]

Have you considered buying Sweden? ;)

Seriously, Norway has a very nasty problem. Norway risks turning into another Switzerland - a place where foreigners park their hot money, with a sky high currency wrecking what little remains of local industry. Finland seems to offer an admirable example, but, from my limited knowledge of Norwegian politics, Norway has a populist streak that Finland seems to lack and that streak of populism is amazingly good at spending money.

Norway's fiscal and accounting regimes are those of a nation of 3 million honest, hard working, rather religious, people, and not those of a large nation. The potential for abuse is correspondingly enormous, and there have already been many scandals involving profoundly "un-Norwegian" behaviour by the super-rich.

On the whole, glad we don't have your problem (but wish we were more like Finland!) smile.gif