Economic Lessons in Norway's History

Exploring Norway's historical events shaping its economic success

Time and time again, Norway has been praised as having the ideal economy. It is a successful example of a socialist capitalist mixed economy. Norway ranks among the countries with the highest GDP per capita globally, trailing behind only Switzerland and a few wealthy micro-nations. Notably, it is one of the most economically egalitarian nations, as evidenced by the fact that someone in the bottom 20 percent of income earners in Norway still earns around a quarter of what the top 20 percent earns. With a remarkably low unemployment rate, Norway is internationally renowned as a business-friendly environment, boasting a highly skilled workforce with the highest percentage of university graduates compared to any other country in the world.

A Concise History of Norway: Norway did not always enjoy its current prosperity. Back in the 1960s, Norway's economy relied heavily on fishing, with a GDP comparable to that of underdeveloped nations such as Bangladesh or Nigeria. It is worth noting, though, that Norway's population was and still is significantly smaller than that of these countries. At that time, the average Norwegian's standard of living was akin to that of their European counterparts in Spain and Greece, albeit still distant from the economic powerhouse that Norway has become today.

The shift began when the Norwegian government claimed sovereign rights over the natural resources in the North Sea region, signaling their ownership of the ocean and its findings. Being a part of NATO facilitated this move. In 1969, The Ocean Viking struck oil in the North Sea, leading to a surge in oil production, reaching 1.6 million barrels per day. By the mid-1970s, Norway surpassed all other nations in oil production per capita, except for the UAE and Saudi Arabia. Unlike many others, the Norwegian government chose to manage their oil wealth prudently, recognizing the finite nature of these resources. Instead of lavishly spending the oil revenues, they invested wisely. As a result, Norway's GDP increased fivefold in the 1970s, from $12 billion to $65 billion. Notably, the oil wealth was managed by a nationalized company called Stat, ensuring that the government benefitted from the oil resources rather than private entities.

Numerous other countries facing a similar situation opted to use their funds for public spending and tax reductions, essentially embarking on a spending spree to develop infrastructure and luxurious cities that would have been well-received by the Norwegian populace. In contrast, the Norwegian government chose to allocate its resources to a sovereign wealth fund, now the largest globally, surpassing even China's State Investment Corporation despite China's population is 270x larger. This fund functions like a massive hedge fund, beyond the reach of Norway's own government. Only the profits derived from these investments are utilized to support education and state expenses, contributing to Norway's skilled labor force and robust public infrastructure. Just the reinvestment alone yielded $131 billion. Notably, the fund avoids investments in arms manufacturers, tobacco firms, fossil fuel companies, entities causing substantial environmental harm, or those with multiple labor law violations. This strategic approach grants Norway substantial influence over foreign enterprises and considerable political sway. Analogously, Norway can be likened to someone who wins the lottery but continues to work a regular job and invests in a diversified stock portfolio. Despite maintaining high taxes and a costly standard of living, Norwegian citizens willingly bear these burdens in exchange for ensuring economic stability for future generations.