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Now the easy times are over, Norway must rediscover its Viking spirit
Oct 10th 2015
IT IS a capitalist country but it is dominated by state-owned enterprises; it
is an oil giant but it eschews conspicuous consumption. For decades this
unusual economic model has served Norway well: in 1970 it was in Europe s
middle ranks as measured by income per head. Nowadays, Norwegians are richer
than everyone in Europe except the Luxembourgers. However, the model is
beginning to run out of fuel.
Norway s rise to glory began when the first oil was extracted from its
continental shelf in 1971. The energy industry sent ripples of prosperity
throughout the economy, turning Bergen from a fishing village into an
industrial hub, creating companies that specialised in extracting hydrocarbons
from beneath a stormy sea and filling hotels with oil workers. The ripples got
ever bigger as the oil price lurched upwards from $10 a barrel in the late
1990s to almost $150 in 2008. Oil and gas now account for about a quarter of
Norway s GDP and almost half of its exports.
But the recent fall in the oil price to around $50 has put this into reverse.
Statoil, the national oil company, has seen its profits and share price plunge.
Oil firms have laid off 10% of their workforce and may lay off another 20%.
Just as worrying for a country that excels at producing equipment for
extracting oil from deep beneath the sea is the rise of a fracking industry
that uses different technology to blast oil and gas out of shale beds.
The oil bust is exposing two weaknesses in the Norwegian model. One is
bureaucratisation, born of Norway s enthusiastic embrace of state capitalism.
The government owns about 40% of the stockmarket, with large stakes in Telenor,
a big telecoms operator; Norsk Hydro, an aluminium producer; Yara, a
fertiliser-maker; and DNB, a bank, as well as Statoil. That leads to a
monochromatic corporate culture. The Norwegians like to boast that they lead
the world in corporate diversity because firms are legally obliged to reserve
40% of board seats for women. But sexual balance does not make up for cultural
uniformity: many of the country s most senior businesspeople studied together
at the Norwegian School of Economics, and still live in each other s pockets.
The second weakness is the over-ripe welfare state. The public sector employs
33% of the workforce in Norway, compared with an average of 19% for the OECD
countries. The state is undermining the work ethic: most people enjoy a 37-hour
working week, and three-day weekends are common. In 2011 Norway spent 3.9% of
GDP on incapacity benefits and early retirement, compared with an OECD average
of 2.2%. Norwegians have coined a verb, to nav , meaning to get money from
NAV, the state benefits agency.
The country still has a lot going for it. The Norwegian Pension Fund Global is
perhaps the most impressive example of long-term thinking by any Western
government. Rather than squandering its oil riches, Norway is saving them in a
sovereign-wealth fund that is now the world s biggest, at $873 billion.
Norway has fish as well as oil in its waters, and exports around $10
billion-worth of them a year, a decent sum for a country of just 5m people.
Thomas Farstad, the boss of Norway Seafoods, a (private-sector) fish trader,
says that Norway s refusal to join the European Union has made things difficult
for his industry. Fishing companies are forced to concentrate on volume because
they have to pay high tariffs on exports of processed fish into the EU. But
this also means that they have a free hand to manage their own fisheries which,
he adds, have never been healthier. Despite the emphasis on volume, the
industry has changed dramatically. Aquaculture has gone from nothing in 1970 to
accounting for 70% of Norway s total catch. Traditional fishermen are also
moving up the value chain, using more efficient ships to reduce manpower and
dredging up stuff from ever deeper in the ocean, including plankton which can
be used in health foods.
Norway can still produce swashbuckling entrepreneurs, such as John Fredriksen
in shipping, Kjell Inge Rokke in property and oil services and Bjorn Kjos in
aviation. These men define themselves in opposition to the cosy civil servants
who oversee so many of Norway s other businesses. They started their careers
with nothing but two empty hands , as Norwegians say. Mr Rokke began as a
fisherman who had dropped out of school, Mr Fredriksen was the son of a welder
and Mr Kjos the son of a sawmill owner in a tiny town. They rejoice in breaking
the tight rules that govern Norwegian life. Mr Fredriksen lives in London,
holds a Cypriot passport and has a most un-Scandinavian relish for splashing
his money about. Mr Rokke used complex financial engineering to turn a rundown
shipyard in Oslo into a bustling shopping district. Mr Kjos has taken on Norway
s powerful unions by, for example, basing planes in Spain and using Spanish
flight crews. Norwegian Air has been more consistently profitable than its
rival, SAS, and gets better ratings for service.
Attractive Swedish model
With the oil price looking as if it may remain depressed for some time,
however, Norway desperately needs to give corporate Vikings like these more
room to grow. It also needs to apply the same enterprise to reforming its
welfare state. The country s reaction so far to the oil-price drop has been to
embrace socialism more firmly: in local elections on September 14th the left
made big gains in most of the country s big cities, including Oslo and Bergen,
on a programme of higher spending and zero reform.
Harder times are likely to prompt more serious thought. Norway is fortunate in
that it can learn from neighbouring countries, with similar cultures, that have
implemented wide-ranging reforms. Sweden, in particular, has reinvigorated its
model by shrinking its state, allowing private firms to run its schools,
hospitals and surgeries, and reducing its tax burden. During the oil boom
Norway got used to importing young Swedes to serve in bars and restaurants. Now
its best chance of continued prosperity lies in importing not just people from
Sweden but ideas, too.