Norway: Lighting up Europe

Norway’s main natural resources such as natural gas, oil, copper, lead and timber have sustained a stable and resilient economy, but it is the prudent management of this resource wealth that differentiates Norway as a nation.

A shipping superpower, a seafood giant, and the world’s third largest exporter of petroleum. Poetically called the land of the ‘midnight sun,’ Norway stands as a colossus on the European stage – eclipsing neighboring countries to emerge as one of the richest, ‘most peaceful,’ and advanced nations. Norway’s beauty has always enamored travelers – from the awe-inspiring Northern Lights to the spectacular fjords¹ and tall mountains that seem to plunge into the sea. This land of tundra and freezing winters has almost no arable land. Yet, few realize that Norway’s people enjoy some of the highest living standards in the world, and that the country is the world’s seventh largest oil exporter. The lyrics in the Norwegian anthem, ‘Ja, vi elsker dette landet² ,’ echo the essence of Norway– a country boasting a stable economy and a content populace.

History

Land of Vikings

Norway was initially ruled by the fierce Norsemen or Vikings, whose periodic raids into Europe were finally put to an end after King Olav Tryggvason adopted Christianity in 994AD. Much of Norway slowly came under the influence of Christianity in the 10th and 11th century. In 1397 both Denmark and Norway were merged into a union that lasted more than four centuries. But in the Napoleonic wars, Denmark-Norway was defeated, forcing the country to cede to the king of Sweden in 1814. Swedish rule was battled in the years to come, with a surge in nationalism and a referendum in 1905 providing this Nordic country its long-awaited freedom. Although Norway remained neutral during World War I, its neutrality was ignored by Hitler’s army, which occupied Norway during the crucial World War II years between 1940 and 1945. This prompted King Hakon VII to flee to the United Kingdom. For the next five years, the Norwegian Parliament, the Storting, empowered the king to rule from abroad, and London became the center of the Norwegian-government-in-exile. Chafing under the German occupation, resistance in Norway grew more organized and unified, frustrating Hitler.

Predictably, the Nazi despot reacted with declarations of martial law, unilaterally imposing the death penalty for conspirators against his puppet government but to little avail. Once Germany was defeated in World War II, it paved the way for King Hakon’s return. The King then faced a daunting task: to resurrect an economy that had been ravaged, and to restore peace to a nation torn by strife. With the Labor Party winning the first post-war elections, Norway saw a period of comparative stability despite fears that the nation might succumb to communism much like Russia or Hungary. But those fears were displaced when Norway abandoned its policy of neutrality and joined the North Atlantic Treaty Organization (NATO) in 1949. Although the country struggled in the post-war years, the discovery of oil finally helped Norway turn the corner. Oil was the gold that helped transform Norway from one of Europe’s poorest countries to one of its richest. Today, that oil boom is still running strong, and Norway can boast of what the government terms the ‘most egalitarian social democracy in Western Europe.’

Culture

Of the sea, fish and wood

Norway’s medieval-era Stave churches have been remarkably well-preserved. Around 28 of these churches built after 1100 survive, illuminating the country’s rich past.

Today, almost 98% of the population of Norway is dominated by Norwegians, with a small sprinkling of Danish, British, Swedish and Pakistanis. Christianity is the major religion, which has influenced Norway’s architecture and art for centuries, especially the country’s reputed woodwork architecture. Norway is famous for its Stave churches – 12th century wooden churches which are richly ornamented and lavishly carved. These Stave churches are now a national treasure, an example of some of the finest craftsmanship anywhere in the world.

Much of Norway’s culinary history is obviously linked to its long coastline – and its most famous dishes all come from the sea. Common dishes include the Christmas special called lefse, a type of flatbread; lutefisk,a Scandinavian codfish delicacy; krotekaker, a traditional Norwegian flatbread; and smalahove, which is a sheep’s head.

Norwegians have also traditionally distinguished themselves in the arts. Perhaps the most reputed symbol of Norwegian art is the haunting painting of existential angst called The Scream by Edvard Munch. Classical music composer Edvard Grieg fused traditional Norwegian folk music to create exquisite impressionistic pieces, and Norwegian poet/dramatist Henrik Ibsen was considered the father of realistic drama. Norway’s best-known minorities are the Sámi- and Finnish- speaking groups, as well the gypsies and taters that have remained an integral part of Norway’s society for centuries.

Economy

Shipping and oil create a powerful economy

Mountainous and with high levels of precipitation, Norway’s natural environment is conducive to hydroelectric power (HEP) use. 99% of Norway’s electricity is supplied by HEP, with the country representing 5% of the world’s HEP production.

Through skillful use of its immense resources and a mindset focused on constant improvement, Norway has not only become one of the wealthiest countries in the world, but one of the best places in the world to live in. Norway’s economy boomed after 1905 when the country won independence from Sweden. Coinciding with the industrial revolution that swept through Europe and America at that time, Norway grew to be a manufacturing giant. Although its traditional industries of farming and capital-intensive fisheries were still the country’s biggest sector, it was becoming increasingly clear that Norway’s path to riches and glory lay in utilizing its immense natural resources. Its rich forest cover provided timber, its many beautiful fjords attracted tourists in droves, and almost all of Norway’s electricity needs were able to be supplied by hydroelectricity.

Other resources such as iron ore, copper, zinc, aluminum, nickel and lead provided Norway with the rich sustenance to build one of the world’s most stable economies. A little known fact about Norway is that the country is also one of the world’s leading exporters of metals. Once the country managed to reach a certain level of political stability, attention was focused on the economy, resulting in Norway’s “golden years” between 1950 and 1973. This period was highlighted by the discovery of oil, first found in the Ekofisk field in 1969. Foreign trade grew in leaps and bounds as the world’s hunger for oil increased. Backed up by virtually non-existent unemployment and low inflation, the Nordic economy ensured social security and an even distribution of wealth. By the mid-1990s Norway had risen to become the world’s second largest oil exporter after Saudi Arabia. Much of Norway’s oil trade has been driven through exports to the European Union. The country’s principal trading partners are the U.K., Germany and Sweden, who import Norway’s products including oil, fish and metal products. For its part, Norway mainly imports food products, vehicles, and iron and steel. Despite the accent on industry and oil, the Norwegian government has emphasized the development of the country’s nascent services industry. And the sector has responded: over the last two decades of the 20th century, the services sector has grown by more than 60%³ and now accounts for around 56% of the country’s gross domestic product. By the late 1990s, Norway’s per capita GNP was among the highest in the world, a remarkable achievement for a nation so young in terms of independence.

With oil revenue bringing in almost $68 billion to the state’s coffers, there is no question that oil has been a major driver of Norway’s economy. Yet what distiguishes Norway is how it has utilized its oil revenue frugally – the country has put in place legislation that ensures that oil wealth is funneled directly into its sovereign fund. The result? Norway has one of the largest sovereign funds in the world. The government is allowed to spend only 4% of that money in a year although there have been a few exceptions. Yet oil is not all that makes Norway. It is the prudent utilization of its resources that makes the country’s economy resilient and stable.

Much of Norway‘s wealth, a per capita income of $65,509, comes North Sea oil. But Norway has been prudent in the spending its oil money – putting more than $400 billion into an investment fund.

Prudent planning creates stable economy

In the early 1990s, Norway tightened the leash on its banking sector, making banks lend more cautiously, resulting in a country that has been virtually unscathed by the credit crisis or housing bubble. Although housing prices more than tripled in the past decade in Norway, unlike in the U.S., there was never any real estate crash that bought down the country’s economy. Despite an almost 15% correction in prices last year due to the global recession, the real estate market in Norway remains stable, with no mortgage lending excesses. Banks account for just around 2% of the economy and Norwegian banks have never been known to jump into the kind of risks taken by their counterparts in countries such as Iceland.

Norwegians are known by nature to fiercely value their independence, and it is that innate quality which prompted the country to reject membership in the European Union (EU) during a referendum in 1994. However, Norway is a member of the European Economic Area and contributes in no small measure to the EU budget. Under the framework of this agreement, Norway adopts and implements most EU directives despite not embracing a full-fledged membership in the EU.

Ranked as the world’s 28^th freest on the 2009 Economic Freedom Index, Norway was praised for what the Index termed its openeness to global commerce, but criticized for its heavy state ownership in various industries.

Economic marvel needs new model to continue

This natural gas liquefaction project in Hammerfest Norway will contribute to the nation’s status as the world's third largest exporter of natural gas after Russia and Canada. The second largest exporter to Europe after Russia, Norway boasted 81.7 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2009.

For a relatively small country with a population of around $4.6 million, Norway has managed to confound its critics time and again, clocking an economic growth of just under 3% in 2008 at a time when almost every major European nation was knee deep in the pangs of recession. Crucial to Norway’s continuing success as a developed economy over the last several years has been its relative lack of corruption. Yet recently, the country has dropped several notches in Transperency International’s Corruption Perception Index (CPI), dipping to a score of 7.9 in 2008, from 8.7 in 2007. Reflecting a deeper problem in the private and public sectors in Norway, serious scandals have surfaced recently, including a hedge fund scandal, and a growing number of cases are being investigated and prosecuted. The government continues to control the oil sector, with large, public sector companies dominating the industry. In fact, the state continues to hold large stakes in not just the petroleum sector but also in hydroelectric and aluminum production, as well as in banking and telecommunications.

Yet, oil is a perishable resource, and Norwegians worry about a future that doesn’t revolve around oil. Norway is hoping that declines in oil production revenue may be offset by increasing revenues from natural gas extraction. New natural gas resources discovered in fields like Snohvit and Troll may contribute to a significant rise in revenue if or when petroleum resources are close to exhaustion. At the same time, the country is still in the process of liberalizing and consolidating the banking and financial services sectors. Despite the advantages that oil has provided Norway, the precious resource also remains one of the biggest stumbling blocks on Norway’s path to becoming a diversified economy. Norway is working to achieving that balance by developing a well-rounded technological industry. On the positive side, the country’s healthcare system is considered to be one of the best in the world and education is free.

According to OECD statistics, Norway, with a population of 4.8 million people, had the third-highest income tax among industrialized countries in 2007, behind Denmark and New Zealand.

New Prime Minister Stoltenberg is also hoping that Norway will finally agree to becoming a member of the European Union. There are changes that Stoltenberg must consider. While foreign and domestic investments are treated equally under the law, regulations, standards, and practices often favor Norwegian, Scandinavian, and European Economic Area investors, as noted by Transparency International. The country also has to work on revamping its labor system, which has often been criticized for being too rigid, hindering employment and productivity growth. Companies often face difficulties in dismissing an employee, and work hour regulations have been restrictive, according to Transperency International.

Richness is no barometer for improvement

Clearly, Norway has shown that being a prudent and careful manager of its rich resources has created undeniable wealth for the nation. Norway is a country that is content, and its people are happy. Notably, Norway did not face much of the turbulence that rocked its European counterparts in 2008 and a major part of 2009 as well. The country has shown that financial discipline can be the key to success and has ensured that systematic planning can help overcome gaps in the future. Norway’s economy remains buoyant and domestic economic activity is expected to be the main driver of growth along with oil, of course, and rising consumer confidence. Understandably, there will always be a few clouds to spoil the sunshine. The country was forced to introduce a stimulus package as the economy slowed in 2009 and unemployment is rising. Yet, the fact remains- Norway still in a better position than many countries – its current account balance and government finances are solid, including the banking sector.

Norway has shown the world that it pays to spend wisely. Norwegians, by nature, are sceptical about debt, and careful not to depend on future income. The playwright Henrik Ibsen, one of Norway’s most famous exports, is reputed to have said that the “strongest man is he who stands alone in the world.” By judiciously saving when the rest of the world was spending, Norway stood alone. By being Aesop’s industious ant and not a spendthrift grasshopper, Norway’s stance has paid off. Yet, Norway knows that while it is living a dream, the dream may not last forever. The future may not be paved with gold but if history is any indication, the hard-working Norwegian may already be preparing for it.