Thomas Malthus, one of the greatest historical economists, traveled through the scenic but harshly climate-controlled Norway in the late 18th century. The small community there made a pitiful living off of their modest fields and whatever they could catch in the water. The amount of land suited for agriculture was minimal at best because the winters kept the area nearly in complete darkness for half the year. It was nearly impossible to move efficiently in this mountainous region, and the towns were far apart and without much access to education.
The time when Viking conquests brought wealth and spoils back with them is long gone. Norway was actually quite poor, not affluent. Things deteriorated worse in the decades that followed the visit as a result of wars, blockades, and embargoes.
In many ways, Norway was destined to stay undeveloped and inconsequential because its economy was in ruins and famines swept the nation.
However, if you exclude micronations, Norway is currently the second-richest nation on the planet. One of the happiest, seventh healthiest, and most democratic countries in the world. Norway ranks among the top nations in terms of prosperity practically everywhere, and all of its citizens are theoretically quarter millionaires.
Many countries have tried to do what Norway has done and ended up even more impoverished than before.
HOW DID NORWAY BECOME SO INSANELY RICH, WHILE OTHER NATIONS FAILED, AND IS NORWAY’S ECONOMY JUST TOO GOOD TO BE TRUE?
These are the countries with the world’s largest reserves of oil.
Despite only making up 7.9% of the global GDP, they collectively account for 84.9% of the remaining supply. Venezuela is the poorest nation in the western hemisphere while having approximately a sixth of the total. In actuality, the majority of the nations on this list have serious economic or social problems.
Saudi Arabia, Iran, Iraq, Kuwait, and the United Arab Emirates all experience severe inequality and human rights violations, while Russia has been deteriorating for decades and Libya has been in a state of anarchy since Gaddafi was toppled in 2011. In fact, it seems that there is a correlation between the nation’s lack of democracy and the amount of oil produced per person. This is referred to as the oil curse by many economists.
In the present day, 27% of all energy is produced using oil and gas. Oil will be required now and for a very long time to come, even while the world inevitably works to transition to better and cleaner sources of energy. You would assume that having a lot of oil would be good for the country’s economy given that it is almost at its highest price ever. Oil has the drawback of being like winning the lottery. Nations occasionally find themselves suddenly flooded with large sums of money, which they exploit to cut taxes and sharply boost spending. The oil business is beginning to engulf and eclipse all other industries as it grows to become the most potent component of the economy. The demand for the local currency rises as oil exports expand, boosting citizens’ purchasing power overseas but also harming domestic manufacturing.
Spending more money today rather than saving for tomorrow is a campaign pledge made by both new politicians and tyrants seeking to maintain their positions of power. The typical citizen suffers even though the government is frequently corrupt and wealth is diverted to a small group of people. But the oil curse appears to have one remarkable exemption. That nation is, as you would have guessed, Norway.
BUT WHY DIDN’T OIL DESTROY NORWAY’S ECONOMY, WHAT MAKES IT FUNDAMENTALLY DIFFERENT FROM
LIBYA, VENEZUELA, SAUDI ARABIA, AND ALL THE OTHER SMALL OIL EXPORTING NATIONS?
Approximately a century after Mathus’ arrival, Norway had just been independent from Sweden. It remained ignorant and impoverished. Its economy was based on the export of raw materials like lumber, fish, and minerals, and it shared nothing in common with its neighbors to the south, who were rapidly industrializing. However, it did offer certain advantages. In the previous 50 years, during the era of unrestricted global trade, Norway amassed the greatest merchant fleet in the world, earning tremendous experience in trade, technology, and shipping as well as serving as a significant foreign exchange provider. During its independence fights, Norway also developed a powerful parliamentary system, which led to the emergence of universal suffrage, workers’ rights, and significant social changes. Its extensive political power distribution and checks and balances acted as a solid foundation for future development.
Despite the difficult geography, it allowed for vast amounts of inexpensive hydroelectricity, which helped to lay the groundwork for industrialization. However, by this time, foreign corporations held over 3/4 of all hydropower. The new administration believed that Norwegians should possess the country’s resources and saw this as a concern.
A law was created that placed restrictions on any monopolization attempts and limited such foreign ownership. Later in the novel, this knowledge of managing natural resources would be crucial. But at the same time, new technologies were introduced, greatly easing the load of transportation. The inherent disadvantage that Norway faced in comparison to its European neighbors was significantly reduced by railroads, roads, and new communication technologies. These factors all sparked a surge in industrialisation and economic expansion. However, Norway stood out due to its very strong linkages to public services like welfare, education, and industry, which would subsequently benefit them.
Norway would mainly continue to grow, but due to its small size and dependence on international trade, it was engulfed in the geopolitical and economic upheavals of the early 20th century. It was formally neutral in both world wars, but the first one severely damaged its commerce fleet, and on April 9, 1940, the Germans invaded and occupied it for five years.
By the time it was all over, Norway, like many other countries, was left to reconstruct its government and economy. It became a member of numerous international organizations and one of the United States Marshal plan’s major recipients in terms of population. With a clean slate, the labor party grabbed the opportunity to impose rigorous social democratic governance that placed a strong focus on the public sector and centralized planning while allowing for the growth of the natural economic advantages of private competition.
Norway produced an extraordinarily consistent and powerful 3.3% gdp growth each year from 1945 to 1975. Despite paying some of the highest taxes in the world, Norway’s government invested heavily in education, creating one of the world’s most skilled labor forces. It had a robust safety net, and inequality kept declining more slowly than in other comparable nations. Unemployment was essentially nonexistent, and inflation was moderate. Although Norway’s economy was performing well at the time, it was still a long way from being the powerhouse it is today.
Norway was no longer impoverished by the 1960s; it had largely caught up with other European countries, but it was still performing about averagely. That was going to alter. There have been rumors of oil in the North Sea ever since huge natural gas deposits were discovered in the Netherlands. There was an issue though—whose oil was it, if there was such a large amount under the waves? Norway established its claims to these waters following some back and forth. Despite having doubts about the existence of oil on the continental shelf, the Norwegian government began to divide and sell permits for oil exploration. Phillips Petroleum is one such business that has begun drilling. They tried and tried and yet couldn’t find anything. Due to a few contract-related complications, Phillips gave it one more try, but this time deeper.
The first North Sea oil was finally extracted in 1969, and not just a few drops, but enormous amounts. Following a brief black gold rush, Norway produced more oil per person than any other nation on the earth in less than ten years. We have heard about how Norway’s economy was irrevocably changed when the oil industry became a titan, creating thousands of well-paying jobs and transforming sleepy fishing villages into petroleum powerhouses.
The beginning of Norway’s oil tale shared many characteristics with those of other oil-rich countries. While foreign firms raced into Venezuela, making enormous profits and giving little in return other than supporting its dictatorship, Norway chose a different approach. In contrast to Venezuela, where a single man already held absolute power, political authority in Norway was already evenly distributed, making it impossible for one person or group to further their own interests at the expense of society. As a result, the government of Norway was not only able but also constrained in its ability to make decisions that would benefit the entire country. Norway, which had also observed the global oil curse, was aware that good fortune brought on by oil was not always the case. Norway approached its fights with oil firms in a manner similar to its early conflicts with hydro companies. According to the government, the Norwegian people own the country’s natural resources, not international oil firms.
These businesses might assist with oil exploration, drilling, and extraction, but the majority of earnings were to go to the state. At the same time, Statoil, the state’s publicly traded oil firm, was supposed to learn from these businesses, imitate them, and eventually surpass their knowledge. Norway was also aware that in order to fully capitalize on this opportunity, it would need to develop its own petroleum processing business in addition to extracting crude oil. That required significant infrastructure spending, meticulous planning at the federal level, and the development of its own engineering team. It could easily have reduced taxes, expanded social spending, and wasted its lottery winnings on popular initiatives, but it chose not to. It also feared that the petroleum industry would dominate the rest of the economy, so it set a cap of 90 million tons annually. Oil was to serve as a turbocharger rather than take the role of Norway’s economic engine. But not everything was ideal. Although Norway was aware that it wanted to use the funds to help its citizens, it was unsure of the best manner to proceed. The oil business grew, prices rose, and the government was left with more money than it knew what to do with.
Following the early 1980s oil price collapse and subsequent recession, which lasted for over a decade, economic growth became stagnant. a proverbial story concerning oil-based economies. Norway wasn’t wasting its oil money, but more needed to be done. Investment diversification is the answer when one commodity price controls your whole economy. Exactly what was done when Norway established its public pension fund in 1990. Other governments have tried this, but because to their political environments, they were able to transform into personal piggy banks for whoever was in control, negating their original intent to store for the time when oil no longer floods the economy with cash. Norway has a unique sovereign wealth fund that was designed by the government to prevent corruption. Only the amount of money the government anticipates making can be spent. In addition to adhering to rigorous investing guidelines, this means that new politicians cannot run on the platform of increasing expenditure now at the expense of future generations. It is prohibited from investing in energy corporations, immoral businesses, and perhaps most significantly, Norwegian businesses.
At first, this can sound weird, but the fund’s goal is to spread out the risk. Due to its lack of investments in Norwegian businesses, the fund would not experience a severe downturn in the norwegian economy, acting as a buffer against sudden domestic shocks. The fund now owns 1.5% of all publicly traded firms worldwide, making it the largest one of its kind in the world. At its peak, it had a value of $1.35 trillion, or $250,000 for each Norwegian, and it is predicted to continue to increase. While other Scandinavian nations were forced to cut back on social spending, Norway uses the interest from its oil revenue to give struggling families access to healthcare, education, and a safety net. Despite paying some of the highest taxes in the world, Norwegians never have to worry about covering unaffordable medical expenses.
Maneuvered and positioned itself for the foreseeable future. Oil contributes significantly to the Norwegian economy and keeps many other profitable businesses alive while also offering well-paying jobs. Norway would suffer if oil suddenly disappeared tomorrow, yet it would still manage to rank among the richest countries on the planet. Does this imply that it has a flawless economy or that other countries should try to emulate it? NO, is the answer. Norway is in a very fortunate position; not every nation has trillions of dollars’ worth of oil lying off its coast, but because of its reliance on the public sector, which has reduced competition and potential growth and has some of the highest living costs in the world, Norway has been given this incredible good fortune.
The economy of Norway is ideal for Norway, not for the rest of the world. What about other oil-rich countries, though? Unfortunately, it seems that a strong democracy must already be in place before receiving the gift of oil; otherwise, politicians and strong men will jostle for power, seeking immediate advantages at the expense of the long term. In addition, to fully exploit the potential of oil earnings, established productive industries and strong educational institutions must already be in existence.
While other countries waste their oil fortune on social spending, opulent homes, long motorways across the desert, and lining the wallets of politicians, Norway invested its money and now relies on the interest.
YOUTUBE VIDEO: How Norway Got So Insanely Rich
By: Miss Cherry May Timbol – Independent Reporter
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