How Norway has avoided the 'curse of oil' 1

http://www.bbc.com/news/business-28882312

By Sarah Treanor
Business reporter, BBC News, Bergen

Bergen is not a place to go looking for supercars racing around

Hugged by mountains and perched on a stunning coastline of fjords,

Bergen, Norway's second-largest city, has picture-postcard views.

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.

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

Prof Alexander Cappelen

NHH Norwegian 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 NHH Norwegian 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," he told
BBC World Service's Business Daily programme.

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.

Norway'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.

Norway 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."

Norway 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.

It 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."

Norway'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 NHH Norwegian School of Economics, slightly uncomfortably, when asked
if they are concerned about jobs.

"We will work hard and we will get jobs."

Listen to more from Norway with Manuela Saragossa on BBC World

Service's Business Daily programme, here.
 How Norway has avoided the 'curse of oil'
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Posted by Guest Author on Monday, February 4, 2013 43 Comments

Written by Mark Provost

Guest Author
If Washington sincerely wants to reduce the budget deficit and national debt
while protecting the broader economy, it should learn from other nations
which have succeeded. One country stands out: Norway.
Norway has the largest budget surpluses in the developed world, no net
national debt, citizens enjoy a robust safety net, and unemployment is below
3%. (1) (2)

What is Norways secret, other than refusing to join the European Union?
Before the discovery of off-shore oil in the late 60s, Norways lackluster
economy earned the nickname Europes ugly duckling. But Norways
subsequent success has as much to do with public policy as their fortuitous
location near petroleum reserves.

Norways overall tax as a share of GDP is among the highest in the OECDfor
corporations, it is the highest. Norways corporate tax revenue as a share of
GDP is above eight percentthe highest in the world and four times higher
than the US. (3) By comparison, the US is the third lowest taxed country and
the second lowest for corporations. (4) In other words, if a US company
sought lower tax rates by relocating to another country, as they regularly
threaten, there is only one country in the world they could go: Iceland. (5)
Contrary to the myth of job creators, high rates have not crippled Norwegian
entrepreneurs. In fact, Norway produces more successful business start-ups
than the US. (6)

By far the largest source of Norways tax revenues is from off-shore oil and
gas development. In addition to the 28 percent corporate rate, the government
collects 50 percent surtax on oil and gas profits for a combined tax of 78
percent. (7) The majority of oil revenue is saved in a sovereign wealth account
estimated at $640 billionthe largest in the world. (8) Norway limits the
amount of oil revenue that can be spent on the annual budget to no more than
4 percent of the funds returns, although the government broke the rule during
the global recession to prevent a collapse in spending.

The US also possesses one of the largest oil and gas deposits in the world,
but profits from its development accrue in the accounts of Exxon and BP
rather than the public ledger.

Numerous polls show Americans want their representatives to focus on jobs

and the economy. Americans strongly oppose cuts to Social Security,
Medicare, and Medicaid. Two of the most popular proposals for reducing the
debt, aside from deep cuts in military spending, are raising taxes on
corporations, as well as a windfall profits tax on oil companies. Fortunately,
the solutions which are the most politically popular are also the most
economically effective and morally defensible.

Norways economic miracle proves that responsible fiscal management starts

with protecting the safety net and asking the people who have benefited the
most to pay their fair sharethe opposite of what the apostles of austerity tell
us.

1. Norways budget surplus largest in

OECD: http://www.gfmag.com/tools/global-database/economic-
data/10395-public-deficit-by-country.html#axzz2JxDKexTu
2. Norways net national surplus:
http://www.regjeringen.no/en/dep/fin/Selected-topics/economic-
policy/the-central-governments-outstanding-debt.html?id=443404
3. Norway: highest corporate taxes:
http://thinkprogress.org/economy/2012/03/30/456005/reminder-
corporate-taxes-very-low/
4. US third lowest tax rate in OECD:
http://www.nytimes.com/2012/01/20/us/politics/why-americans-think-
the-tax-rate-is-high-and-why-theyre-wrong.html?_r=0
5. US corporate tax, second lowest:
http://thinkprogress.org/economy/2011/07/05/260535/graph-corporate-
tax-second-lowest/
6. Norways entrepreneurs love socialism:
http://www.inc.com/magazine/20110201/in-norway-start-ups-say-ja-to-
socialism.html
7. Norways 78% oil tax: http://www.noreco.com/en/investors/analytical-
information/tax/norway/
8. Sovereign wealth fund: http://www.businessinsider.com/norway-bets-on-us-
housing-2012-11
Mark Provost is an economic journalist focused on income and wealth
inequality, his work has been featured in numerous publications including
Institute for Policy Studies, Truth-Out, and CounterPunch. Mark is also an
Occupy activist and organizer with US Uncut.