Is Norway an economically overrated country?

The petroleum sector is about 21% of gdp and half of exports.  It’s not just that prices are down, rather quantities produced have been declining throughout the oughties.  (That is the less well known angle here.)  Currently Norwegian oil production is at about half of its 2000 level, and the sector is now bracing for 40,000 job cuts.

Here is from a recent internal economists’ critique of the country:

The group has documented how Norwegian politicians all too often have approved major investment projects that benefit far too few people, are poorly managed and plagued by huge budget overruns. Costs in general are way out of line in Norway, according to the group, while schools are mediocre, university students take too much time to earn degrees and mainland businesses outside the oil sector lack enough prestige to help Norway diversify its oil-based economy. The group mostly blamed the decline in productivity, though, on systemic inefficiencies and too much emphasis on local interests at the expense of the nation.

Is this entirely reassuring?:

Prime Minister Erna Solberg recently spoke of the need to invest in areas where people actually live…

After you adjust for wage differences, it costs 60% more to build a road in Norway than in Sweden.

There is this too:

“Approximately 600,000 Norwegians … who should be part of the labor force are outside the labor force, because of welfare, pension issues,” says Siv Jensen, the finance minister.

The country has largely deindustrialized, oil of course aside.  And there is a fair amount of debt-financed consumption.

The country has falling and below average PISA scores by OECD standards.

Not everyone admires Norway’s immigration policy, and there is periodic talk of banning begging in the country.  It seems there are only about 1000 beggars — mostly Roma — in a country of about five million, so you can take that as a sign they are not very good at processing discord.  Far-right populist views do not seem to be going away.

For sure, Norway will be fine.  Did I mention per capita income is over $100,000 a year and they have no current problems which show up in actual life?  Hey, the “over” in “overrated” has to come from somewhere!  The country also has the world’s largest sovereign wealth fund and owns about one percent of global stocks.  Still, the idea of a rentier economy makes me nervous.  When most people don’t “have to” do that well, often cultural erosion sets in.

They’ve made a new film : “Here’s a beautiful video of Iceland and Norway, time-lapsed and tilt-shifted to show the hustle, the bustle, and the beautiful splendor of Scandinavia from a more toy-like perspective. Called The Little Nordics, it was filmed by Dutch design team Damp Design. Happy Friday!”

Sorry Magnus, Karl —  I know you guys are still underrated.  It’s not for nothing that I used to call it “the Norwegian century.”

Addendum: Here is my earlier post on whether Sweden is an economically overrated country.  At least it is cheaper to build a road there.

Comments

Cultural erosion never looked so good. Sign me up.

Norway handled the "Dutch disease" better than any other resource rich country. On that, they are not overrated.

Well, Scandinavians are at the top of the genetic food chain. Should we be surprised?

Scandinavians eat DNA?

'Still, the idea of a rentier economy makes me nervous.'

Apart from living in one, of course.

"When most people don’t “have to” do that well, often cultural erosion sets in."

What are some examples of this? I would think abundant wealth and leisure would be a good thing for culture.

Examples? Just about any other country that relies on oil and gas extraction to the same extent.

I would also be interested in more examples and the line of argument here. One of the advantages of unconditional basic income list an expected increase in cultural activity, if proponents of the policy are to be believed.

The Arab oil states all seem to be cultural wastelands. Then again, that was already true before they had oil.

Starving artists are the best artists?

Kinda, yeah. Very little high quality output from artists/writers/musicians once they get rich.

Spain after obtaining gold from the New World.

The third generation of wealthy families, "codified" by the Chinese idiom: wealth does not pass the third generation. (All the Saudi kings, including this one, are second generation)

I'm not so sure the cultural erosion refers solely to arts, but to the society as a whole. Unearned wealth destroys low time preference.

I've also heard this about wealth:

First generation creates, second generation maintains, third generation squanders.

I pursue financial stability, but part of me wonders if it would regret achieving it.

In Italy for 30 years under the Borgias they had warfare, terror, murder, and bloodshed, but they produced Michelangelo, Leonardo da Vinci, and the Renaissance. In Switzerland they had brotherly love - they had 500 years of democracy and peace, and what did that produce? The cuckoo clock.

That comparison means entirely different things to (1) a person looking back 500 years later and (2) a father of 3 girls and 2 boys living then and there.

People with crotch fruit are boring, news at 11.

First, he makes a good point. Second, your comment is stupidly offensive.

Just look at Texas.

http://en.wikipedia.org/wiki/Nauru

Nauru boasted the highest per-capita income enjoyed by any sovereign state in the world during the late 1960s and early 1970s. When the phosphate reserves were exhausted, and the island's environment had been seriously harmed by mining, the trust that had been established to manage the island's wealth diminished in value. To earn income, Nauru briefly became a tax haven and illegal money laundering centre.

> After you adjust for wage differences, it costs 60% more to build a road in Norway than in Sweden.

The inhabited parts of Sweden are flat. Norway is one of the most mountainous countries in the world.

Exactly. If you want to build a straight road from point A to point B in Norway, you will have to build tunnels and bridges.

And yet they mantain the goal of being self-sufficient in food.

Expensive progressive tastes are no problem for 5 million people who own 1% of the worlds stocks.

That's not an unreasonable goal, if you get most of your protein from fish and whale.

Hustle and bustle? Looks like boring homogenous hell to me. Nordics need to emigrate to more chaotic places so they can occupy themselves with more exciting things. I recommend Latin America.

Swedish recolonization is the way to go.

Tyler,
Can you discuss why you don't like white people? I still feel weird about your response to the "who do you admire" thread.

Hmm here is an example of a drone who keeps droning on about the same thing. Actually I think Tyler was pretty reasonable in that post if only to try and get the commenters around here to expand their horizons beyond just admiring or learning about people who are "like them" and try to find things to admire in different walks of life. A lot of the commenters here just live in a bubble so it was a good attempt of Tyler Cowen's part.

Speaking of drones droning on… "A lot of commenters here live in a bubble". By which The Antidote means, "don't share my views."

But enough about that. It's been at least an hour since I've heard how great Obama is, Antidote. What's up?

I've long suspected his views on racial questions are not those that he openly claims.

Skeptic, can you discuss why you don't like non-white people?

One correction: the question of banning street beggars was recently withdrawn, and was not a suggestion from the far-right.
Furthermore, a quick Google-search found that the police had registered over 2000 full-tima Roma beggars, only in Oslo city center. As a person who has lived in Oslo, San Francisco and London, I can assure you that the frequency of beggars here are far higher than in those two cities. Moreover the begging is a form of organized crime, where the money is channelled to Roma monarchs in their home countries.
So, yes, not saying I agree with the policy. But aggressive begging here is probably the most visible I've seen in western countries, and it's almost exclusively organized. And the policy was briefly discussed, but withdrawn.

Also, I might add, unlike other European countries, Norway don't really have a far-right party. The Anti-immigration Progress party started out as an anti-tax, anti-government intervention party, and is quite moderate. The largest party polling nowadays is the labor party.

So yes, if you had just removed that one line, then I would have heartily agreed with you and spread the gospel to my Norwegian friends! :-)

When I last visited San Francisco a few years ago, I thought there were a lot of beggars there. No great matter: it's a bum magnet, after all. But after some time in Stockholm, SF doesn't seem so bad anymore. (And yes, I can confirm it's organized crime.)

People complain about NYC, but I found SF worse.

SF spends more on, and offers more services to, the homeless than most surrounding cities do. So there's an incentive for homeless people to relocate to SF.

Some rigour and perspective needed here: In 2012 Norway's working age population's employment rate was 76% against 73% in Germany and 67% in the United States (source: OECD).

Norway has a very high cross-gender workforce participation, which is really what carries the welfare state. The number of people on permanent disability is also above average. Both can be true because the non-disability, non-employed category is very very low. There are not many homemakers or housewives. Both genders work outside the home.

Norway wouldn't have most of that oil had not Harold Wilson, the worst-ever Prime Minister before Blair, given away much of the British zone of the North Sea to Norway. For that alone he deserves the Even-worse -than-Ted-Heath Prize.

«When most people don’t “have to” do that well, often cultural erosion sets in.»

What do you mean by "cultural erosion"?

- A "decadent" lifestyle, with a tedious life, high drug consuption, suicide, and a general sense that "life has no porpuse"? [when I read your post, I first thinked in something like that]

- Or low cultural activities and production (few literature, music, cinema, etc.)? [I think that was in something like that the above commenters were talking]

Some people celebrate their climb up Maslow's Hierarchy by picking fights with others.

How will developed countries, including the US, adjust to secular stagnation (or whatever you wish to call it)? The world economy has the ability to produce an almost unlimited supply of goods, but for what end if the goods won't be consumed. Previously Cowen posted data on the (premature) deindustrialization of the developing world, now it's the deindustrialization of the developed world. Cowen's explanation for the latter seems to be a cultural phenomenon, or some flaw in that culture or in the country's (too generous) social policies; Cowen didn't offer an explanation for the former other than to say he isn't sympathetic to industrial policy (the reference by Cowen was to Dani Rodrik's paper). I would expect countries with relatively high social cohesion to adapt better than countries that don't. Sweden and Norway and Germany and even Canada seem to be adapting. "If you build it, they will come" is the solution offered by Cowen and those similarly inclined. It worked in the past, so why not now? Good question. Why not?

I'll use a couple of metaphors. The world economy is treading water, waiting for some cataclysmic event, a financial collapse or world war, to set the economy back on its historic path of economic growth. Rather than treading water indefinitely, some prefer to hit the reset button, and let market self-corrections take their course quickly and set the economy back on its historic path of economic growth. Then there are the managers, who have the audacity to believe that, with their guidance, the world economy can tread water long enough for market self-corrections to work their magic and to set the economy back on its historic path of economic growth without having to endure a cataclysmic event or the harshness of hitting the reset button. Where does Cowen fit? I don't know. I do know that some of his colleagues prefer to hit the reset button.

More countries should aspire to being "economically overrated" by academic economists.

When most people don’t “have to” do that well, often cultural erosion sets in.

Is this a more politically correct way of really rich nations don't have enough access to cheap labor?

All this posts about Nordic decline are great examples of mood affiliation.

+1 I was in Norway this summer for a week and half. Walked many neighborhoods in major and minor cities, including walks through public housing and what some called "poor" neighborhoods. These people have it together. Mothers walking baby strollers, kids playing outside, everyone well behaved, no litter, happy in the summer sunshine. They treat their kids very well.

Visit and see for yourself.

However, you also have to recognize that, like Texas, Norway will have an oil problem.

But, I'd rather live in Norway having spent time in Texas for a project. That's my mood affiliation.

Norway is rich, and they fuel their socialist state off of fossil fuel sales and rent collecting. Your admiration for rich rentier socialists is hilarious.

Norway has a big wealth fund because that is where the oil money goes. The welfare state is fueled from taxes. like in Sweden and Finland -which runs the same welfare state with no oil.

The Nordic countries have a lot of household debt https://nexus.nordea.com/#/article/2582

@Tyler: what does "economically" mean? Growth rate? Growth potential? Net Wealth? Private wealth management?

If Mexico wants to drill for oil in Mexican deep water, it will rely on Norwegian firms using Norwegian technology. The Norwegian oil sector isn't what you think it is.

This is not too likely.

The Deepwater drilling rigs will be almost entirely Korean-made. Their drilling and subsea equipment packages will most likely come from the US's NOV and Cameron, although some kit from Norway's Aker Solutions could slip in.

The drilling contractors are most likely US, eg, TransOcean (Swiss for tax purposes), but there could be a handful of Norwegian rigs in the Gulf of Mexico.

Subsea hardware would be most likely from FMC and Cameron, both US. A couple of Aker trees might find their way to the Mexican seabed.

All support vessels will be Jones Act compliant, ie, all US.

Norway's market share in the Mexican Gulf will probably be less than 10%, indeed, less than 5%. Of course, the Norwegians are important players in offshore and Deepwater around the globe, but they are disadvantaged in markets easily served from Houston, easily the world's Deepwater capital.

Steven, have you not heard of Seadrill? They're as big as Transocean and bigger than Diamond Offshore.

That said, your last sentences are probably correct.

"The country has falling and below average PISA scores by OECD standards."

"Not everyone admires Norway’s immigration policy..."

You are clever, Tyler, very clever...

Please name a economic under-rated economy and why?

In terms of rating of a country economy, doesn't free trade in the long run evidently limit all countries ability to sell a range of goods? Long run all countries will be dependent upon one or two goods.

There has been an evolution in the northern democracies over the last decades. In the 80's the socialist spending model that had been implemented in the 60's and 70's hit a hard wall of expenses vs revenues. These economies reformed, primarily based on the Laffer curve (yes it is real folks). The government departments providing services needed the revenue, so policies of taxation and regulation were tuned to maximize both revenues and economic growth. A bit of luck helps, it coincided with a decade long worldwide economic good times, as well as high commodity prices.

But this scheme requires vigorous economic growth to sustain. A few other curves start playing, demography which increases the costs and diminishes production capability. Commodities either running out or dropping in price. Immigration policy, implemented to bring young workers in to replace the aging population but bringing challenges to the finely hewed social agreements that made the whole thing work.

As well the very nasty competitive pressure for manufactured goods from Asia, where the overhead of the social programs and taxation make your industries uncompetitive. There is a reason why these economies who were able to are characterized by natural resource development.

I would agree with Tyler that these economies are overrated. For a picture of what these places would look like visit Montreal. A beautiful city, cosmopolitan but decaying. The infrastructure is awful, all the core economic drivers have one by one moved elsewhere. The vibrancy and opportunity that characterized that place in past years has moved to the resource rich regions of the country where all the ailments of decay don't exist.

decades long.

Stagnation continues in the realm of editing comments.

"The country also has the world’s largest sovereign wealth fund "

If only they had Open Borders. That would be a great combination.

Why dont Tyler give us his thought about sovereign wealth funds and immigration?

I think it's entirely reasonable to say that Norway is a wonderful place to live and say that the rest of the world could never hope to copy their economic model.

Probably true, small homogenous first world population gets a bunch of oil revenue out of the blue (sea). Hard to copy.

Sweden, Finland and Denmark seems to do well with it.

Norway has a sovereign wealth fund valued at about $1 trillion and owns about 1 per cent of the world's shares. It is the largest sovereign wealth fund in the world. Not bad for a wee country near the artic circle.

It's not bad for a country with trillions of dollars in oil wealth*

You can't tell the story of Norway without talking about oil just as you can't talk about the economic development of Northern England without talking about cotton mills.

I was in Norway last week, and I met at least one of those 40,000 workers who is no longer employed. The sense is they're cutting foreign workers (including Americans) first because they're easier to fire than native Norwegians.

It's stunning that Solberg hasn't cut the nearly trillion-dollar sovereign welfare fund into two entities that can compete for higher returns. If you should expect anything from a center-right government, you should expect that, at a minimum.

I'm an even bigger fan of Tyler's "Norway-went-straight-from-VIking-paganism-to-cultural-secularism" theory after visiting, and like Tel Aviv or Reykavik, there's something very "not Europe at all" underneath the veneer of Norwegian life that I haven't feel in Denmark or Sweden.

Arguably, the drop in oil prices should benefit Norway by jolting it, every so slightly, to think about the day when the oil wealth is gone. In the short-term, the drop in the value of the krone has made Norway much cheaper for tourists, and it's a chance for Norway's non-oil exports (to the extent they still exist) to compete in the European and global marketplace: http://suffragio.org/2014/12/17/could-norway-benefit-from-the-oil-price-decline/

Every Norwegian I've met is on a disability pension (I live in Thailand). Their only visible disability is alcoholism - but hey I'm not an expert.

Norway, one of the richest countries on earth that has turned its citizens into debt slaves: http://www.ecpofi.com/2014/01/norwegian-debt-slaves-and-bloated.html#.VN32V_nF__E.

Meanwhile, the oil wealth, of which mostly public employees, government contractors and the unemployed benefit from the ca 4% of the fund distributed every year, is placed mostly in government bonds and equities around the world addicted to further money supply growth.

Watch the Netflix show Lillyhammer. All you need to know.

Norway has a big wealth fund because all the oil income goes there. Has for decades. The budget, and welfare state is run of taxes, like Sweden, Finland etc. that provides similar benefits without oil. This means that unlike for example Russia and Venezuela, the budget is not affected by the oil price.

Yes, established oil fields production is declining. New fields are discovered apace. And gas production keeps going.

Erna Solberg laments investment in the more populated areas because that is where the voters are, by definition. However, after oil, Norways biggest industries are in order fishing, mining and metals, and heavy industry and electricals. None of which is co-located with the big population centers. Which means that investment is going to keep happening in the areas where the economic activity is, and infrasturcture projects are going to keep targeting places with few people and large export-directed industry, like salmond.farming fjords that actually need to transport the salmon to the market before it starts to smell.

The prime minister knows that, but she also knows that the votes are in the cities.

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