Norway: The Trilionaire who kept his job

Rodrigo Brigham

MAEG Undergraduate Student; President of IBC
Versão Portuguesa

1st october 2021

1 to 116 000 000. This is the probability of an individual hitting the EuroMillions. How many of us have not dreamed of everything we would do if we were the blessed winner?

For many, the first decision would be to say goodbye to their daily job potentially followed by buying one or more houses for their whole family, cars, luxury items and probably ending the week with a gigantic party to celebrate our lucky day. In any case, the general feeling would be that our lives have changed and that we will be forever secure. Few of us – perhaps none at all – would choose to keep our jobs, invest our money securely, and live the rest of our lives on little more than the interest earned on our investment. Well, this is the story of Norway – The Trillionaire who kept his daily job.

Norway is a country located on the Scandinavian Peninsula with just over 5 million inhabitants and spread over more than 230 thousand islands. It is world renowned for its landscapes of fjords and northern lights, the Winter Olympics, Munch’s Cry and its rich history of Viking descent. It is also recognized around the world as the prototype of a social-capitalist mixed economy done right.

Combining an extremely robust economy – a GDP per capita of €64 214.52, according to World Bank data for 2019, corresponding to the 4th position in the world ranking, an unemployment rate of only 5% even after the impact of the pandemic crisis and a highly qualified workforce with about 42% of the workforce with university education – to a social development like very few: 1st place in the world ranking of HDI, an average life expectancy of 82.76 years and 5th place in the world ranking of Happiness Index – remarkable for a country where there is no sun for more than half the year.

It´s also a country where we find a distinct socio-economic equality. On average, after taxes, an individual belonging to the poorest 20% of the population earns only 4 times less than an individual belonging to the richest 20%. This does not sound incredibly fair, but when compared to the average of OECD countries where this difference is more than 10 times, we better understand the reduced real income disparity in this society. The Norwegian economy also has extremely robust labor protection measures, which means that social problems such as precarious work or the need for a second job are very rare. Only 3% of the Norwegian workforce works more than 50 hours per week, with this figure being 11% in the OECD and 33% in the US.

The question then arises: How is it that an economy that in the 1960s was based upon fishing activity and that accounted for a GDP per capita at the level of nations like Nigeria and Bangladesh – despite the quality of life being more similar to European countries like Greece and Spain – it is now one of the main economic powers in the world?

Everything changed in 1959, when the discovery of natural gas off the coast of Groningen in the Netherlands led to the widespread belief that there was a great potential for the exploitation of natural resources – namely oil – on the North Sea Continental Plate. In May 1963, the Kingdom of Norway declared and exercised sovereign rights over an enormous area of this maritime region, in a move that, at the time, would hardly not have been condemned had it not been carried out by a member of NATO. This meant that all resources found in this region would belong to the King – and, in practice, to the government – and, as such, only the latter could grant exploration and production licenses to third parties. Over the next few years hundreds of licenses were issued to private companies in the Black Sea oil rush. The Norwegian oil adventure only really started in 1969, when the Philips Petroleum company’s Ocean Viking ship first struck oil in a hole drilled in the current Ekofisk field, starting production in 1971. This is still one of the most productive oil exploration fields in the world. Thereafter, numerous discoveries were made along the Plate, this initial work being developed mostly by private companies, with the participation of Statoil, a public company founded in 1972. During the 1970s, Norway produced more oil per capita than any other country in the world and even today is only surpassed by Kuwait, the United Arab Emirates and Saudi Arabia, producing around 2 003 747.53 barrels of oil per day.

On January 1st 1985, the Norwegian government’s participation was completely reorganized, with the latter becoming the main responsible for the exploration of the oil and natural gas fields on the North Sea Continental Plate. Statoil was partially privatized in 2001, being listed on the Oslo and New York stock exchanges, with the Norwegian government retaining the majority shareholder with 81.7% of the shares. In 2007 it merged with the main national producer of hydroelectric energy – Norsk Hydro – becoming StateOilHydro, changing its name again in 2018 to Equinor. The Norwegian government is still the main shareholder in the company.
The Norwegian government understood that this wealth would not be eternal and that its citizens would not be satisfied if, after a few decades of prosperity, they had to return to a predominantly fishing-based economy. The government used the profits from this exploration to create a public money fund – Global Pension Fund – which is currently the largest sovereign wealth fund in the world, surpassing in value Chinese foreign direct investment. The idea behind this is that the wealth acquired through energy exploration belongs to the citizens of Norway and it is for them that it should be used. Its main objective is to ensure the responsible and long-term management of the revenues from Norway’s oil and gas resources, so that this wealth benefits current and future generations. Another of the fund’s major macroeconomic objectives is to allow the Norwegian economy to stabilize, whether in the event of overheating or in case of the need for contractionary policies.
All essential services in the Norwegian economy are financed through the income earned on the fund’s investments and Norwegian public investment is legally limited to a maximum of 3% per annum of the fund’s value. It should also be noted that, although one of the main flaws pointed out to the Norwegian economy is the high cost of living – it is the 7th country with the highest cost of living in the world – no Norwegian will ever have to worry about high health costs, with indebtedness for education or lack of housing. The general feeling is that this is a fair price in exchange for the constant feeling of security throughout the population.
It is undeniable that Norway was blessed with the natural resources they discovered in its territory – they won the geographic lottery – but the way they managed that luck is commendable and the long-term vision they had – and still have – allowed this fortune to continue to be used to ensure the quality of life of all its citizens. They are the prototype of perhaps utopian conscious capitalism and, although it is extremely difficult to replicate this feat in countries that have not been kissed in the same way by luck, it is an example of how other economies based on the exploitation of energy resources could have taken advantage of their resources differently and with the good of the entire population in mind.

Sources:

– https://www.pordata.pt/

– https://biblioteca.informadb.pt/read/document.aspx?id=2623

– https://www.ilo.org/