Economy of Norway

Economy of Norway
Currency	1 Norwegian krone (NOK) = 100 øre
Fiscal year	Calendar year
Trade organisations	OECD, WTO, European Economic Area and others
Statistics
GDP	$276.5 billion (2009 est.)
GDP growth	0.447% (2010)
GDP per capita	$53,269 (2009[update] est.) (PPP) (3rd)
GDP by sector	agriculture: 2.2%; industry: 45.1%; services: 52.7% (2009 est.)
Inflation (CPI)	2.7% (2011 est.)
Gini index	25 (2008)
Labour force	2.6 million (2009 est.)
Labour force by occupation	agriculture: 2.9%; industry: 21.1%; services: 76% (2008)
Unemployment	3.6% (October 2010)[1]
Average gross salary	35,200 NOK / 6,079 $, monthly (Sep. 2009)[2]
Main industries	petroleum and natural gas, food processing, shipbuilding, wood pulp and paper products, metals, chemicals, timber, mining, textiles, fishing
Ease of Doing Business Rank	6th[3]
External
Exports	$122 billion (2009 est.)
Export goods	petroleum and petroleum products, machinery and equipment, metals, chemicals, ships, fish
Main export partners	United Kingdom 27%, Germany 12.8%, Netherlands 10.4%, France 9.4%, Sweden 6.5%, United States 4.5% (2008)
Imports	$64.5 billion (2009 est.)
Import goods	machinery and equipment, chemicals, metals, foodstuffs
Main import partners	Sweden 14.3%, Germany 13.4%, Denmark 6.8%, China 6.4%, United Kingdom 5.9%, United States 5.4%, Netherlands 4.1% (2008)
FDI stock	$93.88 billion (31 December 2009 est.)
Gross external debt	$548.1 billion (30 June 2009)
Public finances
Public debt	60.2% of GDP (2009 est.)
Revenues	$206.9 billion
Expenses	$169 billion (2009 est.)
Economic aid	$2.20 billion (donor), 0.87% of GDP (2004) [1]
Credit rating	Standard & Poor's:[4] AAA (Domestic) AAA (Foreign) AAA (T&C Assessment) Outlook: Stable[5] Moody's:[5] Aaa Outlook: Stable Fitch:[5] AAA Outlook: Stable
Foreign reserves	US$54.504 billion (March 2011)[6]
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars

Norway's GDP, 1979 to 2004. Source: Statistics Norway.

The economy of Norway is a developed mixed economy with heavy state-ownership in strategic areas of the economy. Although sensitive to global business cycles, the economy of Norway has shown robust growth since the start of the industrial era. Shipping has long been a support of Norway's export sector, but much of Norway's economic growth has been fueled by an abundance of natural resources, including petroleum exploration and production, hydroelectric power, and fisheries. Agriculture and traditional heavy manufacturing have suffered relative decline compared to services and oil-related industries, and the public sector is among the largest in the world as a percentage of the overall gross domestic product. The country has a very high standard of living compared with other European countries, and a strongly integrated welfare system.

History

Pre-industrial revolution

Prior to the industrial revolution, Norway's economy was largely based on agriculture, timber, and fishing. Norwegians typically lived under conditions of considerable scarcity, though famine was rare. Except for certain fertile areas in Hedemarken and Østfold, crops were limited to hardy grains, such as oats, rye, and barley; and livestock to sheep, goats, cattle, pigs, and some poultry; in places this was complemented with hunting. In areas of Central and Northern Norway, the Sami subsisted on the nomadic herding of reindeer. Fishing all around the coast was dangerous work, though fish such as herring, cod, halibut, and other cold-water species were found in abundance. The introduction of the potato to Norway provided considerable relief for Norwegians.

All around the coast, the harvesting of fish (including cod, herring, halibut, and other cold water species) was an important supplement to farming and was in many areas in the north and west the primary household subsistence. Fishing was typically supplemented with crop-growing and the raising of livestock on small farms.

The economic conditions in Norway did not lend themselves to the formation of feudal system, though several kings did reward land to loyal subjects who became knights. Self-owning farmers were—and continue to be—the main unit of work in Norwegian agriculture, but leading up to the 19th century farmers ran out of land available for farming. Many agricultural families were reduced to poverty as tenant farmers, and served as the impetus for emigration to North America.

Industrial revolution

Capital formation 1865 – 2003 Source: Statistics Norway

Aside from mining in Kongsberg, Røros and Løkken, industrialization came with the first textile mills that were built in Norway in the middle of the 19th century. But the first large industrial enterprises came into formation when entrepreneurs politics, leading to the founding of banks to serve those needs.

Industries also offered employment for a large number of individuals who were displaced from the agricultural sector. As wages from industry exceeded those from agriculture, the shift started a long-term trend of reduction in cultivated land and rural population patterns. The working class became a distinct phenomenon in Norway, with its own neighborhoods, culture, and politics.

Social democratic reforms and state ownership

Public vs. private consumption Source: Statistics Norway

The roots of the socialist movement in Norway were based on dangerous working conditions, exploitative labor relations policies, and the demand for collective bargaining. As socialism became part of the mainstream labor movement, it also became part of the mainstream political discourse.

The state has large ownership positions in key industrial sectors, such as the strategic petroleum sector (Statoil), hydroelectric energy production (Statkraft), aluminum production (Norsk Hydro), the largest Norwegian bank (DnB NOR) and telecommunication provider (Telenor). The government controls 31.6% of publicly-listed companies. When non-listed companies are included the state has even higher share in ownership (mainly from direct oil license ownership).

After World War II, the Norwegian Labour Party, with Einar Gerhardsen as prime minister, embarked on a number of social democratic reforms aimed at flattening the income distribution, eliminating poverty, ensuring social services such as retirement, medical care, and disability benefits to all, and putting more of the capital into the public trust.

As a result, the public sector grew as a percentage of the overall economy. Highly progressive income taxes, the introduction of value-added tax, and a wide variety of special surcharges and taxes made Norway one of the most heavily taxed economies in the world. Authorities particularly taxed discretionary spending, levying special taxes on automobiles, tobacco, alcohol, cosmetic items, and so on.

Norway's long-term social democratic policies, extensive governmental tracking of information, and the homogeneity of its population lent themselves particularly well for economic study, and academic research from Norway proved to make significant contributions to the field of macroeconomics during this era. When Norway became a petroleum-exporting country, the economic effects came under further study.

Petroleum and post-industrialism

Oil-exporting country

Main article: Energy in Norway

Oil production, Norwegian sector; Source: Statistics Norway

In May 1963, Norway asserted sovereign rights over natural resources in its sector of the North Sea. Exploration started on 19 July 1966, when Ocean Traveler drilled its first well. Initial exploration was fruitless, until Ocean Viking found oil on 21 August 1969. By the end of 1969, it was clear that there were large oil and gas reserves in the North Sea. The first oil field was Ekofisk, produced 427,442 barrels (67,957.8 m³) of crude in 1980. Since then, large natural gas reserves have also been discovered.

Against the backdrop of the Norwegian referendum to not join the European Union, the Norwegian Ministry of Industry, headed by Ola Skjåk Bræk moved quickly to establish a national energy policy. Norway decided to stay out of OPEC, keep its own energy prices in line with world markets, and spend the revenue – known as the "currency gift" – wisely. The Norwegian government established its own oil company, Statoil, and awarded drilling and production rights to Norsk Hydro and the newly formed Saga Petroleum.

The North Sea turned out to present many technological challenges for production and exploration, and Norwegian companies invested in building capabilities to meet these challenges. A number of engineering and construction companies emerged from the remnants of the largely lost shipbuilding industry, creating centers of competence in Stavanger and the western suburbs of Oslo. Stavanger also became the land-based staging area for the offshore drilling industry. Presently North Sea is past its peak oil production. New oil and gas fields have been found and developed in the large Norwegian areas of the Norwegian Sea and the Barents Sea, including Snøhvit.

Reservations about European Union

Exports and imports in Norway

On 24 and 25 September 1972, the Norwegian parliament put to a referendum the question whether Norway should join the European Union. The proposal was turned down with a slim margin. The Norwegian government proceeded to negotiate a trade agreement with the EU that would give Norwegian companies access to European markets. Over time, Norway renegotiated and refined this agreement, ultimately joining the European Free Trade Association and the European Economic Area.

Although Norway's trade policies have long aimed at harmonizing its industrial and trade policy with the EU's, a new referendum in 1994 gave the same result as in 1972, and Norway remains one of only two Nordic countries outside the EU, the other being Iceland.

Although much of the highly divisive public debate about EU membership turned on political rather than economic issues, it formed economic policy in several important ways:

• Both politicians and the public came to terms with the fact that Norway's economic development was dependent on taking advantage of its comparative advantage by specializing in certain areas for export and relying on import for everything else. This has had a significant effect on Norway's agricultural policy, which has been reshaped to address population patterns rather than self-sufficiency.
• The proceeds from oil revenue could not fuel private or public consumption if Norway were to sustain its prosperity when oil reserves run out.
• In order to participate in European markets, Norway has had to open its domestic markets to European imports. Although some pricing and distribution issues (e.g., alcohol and automobiles) remain unresolved, Norway's consumer, capital, and employment markets are increasingly approaching those of Europe in general.

Norwegians have sought accommodations on a range of specific issues, such as products from fish farms, agricultural products, emission standards, etc., but these do not appear to differ substantially from those sought by bona fide EU members. It is expected that the issue of membership will be brought to a referendum again at some point.

Post-industrial economic developments

GDP growth 1865–2004

Several issues have dominated the debate on Norway's economy since the 1970s:

• Cost of living. Norway is among the most expensive countries in the world, as reflected in the Big Mac Index and other indices. Historically, transportation costs and barriers to free trade had caused the disparity, but in recent years, Norwegian policy in labor relations, taxation, and other areas have contributed significantly. However, these measurements can be misleading. Compared to the high income level of most Norwegians the country can be said to be one of the cheapest in the world (i.e. the number of hours one has to work to buy goods).
• Competitiveness of "mainland" industries. The high cost of labor and other structural features of the Norwegian environment have caused concern about Norway's ability to maintain its cost of living in a post-petroleum era. There is a clear trend toward ending the practice of "protecting" certain industries (vernede industrier) and making more of them "exposed to competition" (konkurranseutsettelse). In addition to interest in information technology, a number of small- to medium-sized companies have been formed to develop and market highly specialized technology solutions.
• The role of the public sector. The ideological divide between socialist and non-socialist views on public ownership has decreased over time. The Norwegian government has sought to reduce its ownership over companies that require access to private capital markets, and there is an increasing emphasis on government facilitating entrepreneurship rather than controlling (or restricting) capital formation. A residual distrust of the "profit motive" persists, and Norwegian companies are heavily regulated, especially with respect to labor relations.
• The future of the welfare state. Since World War II, successive Norwegian governments have sought to broaden and extend public benefits to its citizens, in the form of sickness and disability benefits, minimum guaranteed pensions, heavily subsidized or free universal health care, unemployment insurance, and so on. Public policy still favors the provision of such benefits, but there is increasing debate on making them more equitable and needs-based.
• Urbanization. For several decades, agricultural policy in Norway was based on the premise of minimal self-sufficiency. In later years, this has given way to a greater emphasis on maintaining population patterns outside of major urban areas. The term "district policy" (distriktspolitikk) has come to mean the demand that old and largely rural Norway is allowed to persist, ideally by providing them with a sustainable economic basis.
• Taxation. The primary purpose of the Norwegian tax system has been to raise revenue for public expenditures; but it is also viewed as a means to achieve social objectives, such as redistribution of income, reduction in alcohol and tobacco consumption, and as a disincentive against certain behaviors. Three elements of the tax system seem to attract the most debate:
  • Progressive taxation. At one time one of the most aggressive in the world, the top marginal tax rate on income has been decreased over time. In addition, Norwegians are taxed for their stated net worth, which some have argued discourages savings.
  • Value-added tax. The largest source of government revenue. The current standard rate is 25%, food and drink is 14%, and movie theater tickets and public transportation 8%.
  • Special surcharges and taxes. The government has established a number of taxes related to specific purchases, including cars, alcohol, tobacco, and various kinds of benefits.
  • Svalbard. People living on Svalbard (Spitsbergen) do not pay taxes, nor is value-added tax collected there. This is mainly because the government wants the island to be more attractive to live on. Although food is more expensive there than at the main land (mostly due to the cost of shipping) other things like vehicles, tobacco and alcohol are significantly cheaper because of the absence of taxes. For example, a pack of tobacco that may cost 170 NOK^{[citation needed]} on mainland Norway, costs around 25–30 NOK on Svalbard.
• Environmental concerns. A number of political issues have had their origins in ecological concerns, including the refineries at Mongstad and the hydroelectric power plant at Alta.

Economic structure and sustained growth

The emergence of Norway as an oil-exporting country has raised a number of issues for Norwegian economic policy. There has been concern that much of Norway's human capital investment has been concentrated in petroleum-related industries. Critics have pointed out that Norway's economic structure is highly dependent on natural resources that do not require skilled labor, making economic growth highly vulnerable to fluctuations in the demand and pricing for these natural resources. The Government Pension Fund of Norway is part of several efforts to hedge against dependence on petroleum revenue.

Norwegian exports in 2006

Because of the oil boom since the 1970s, there has been little extensive government incentive to help develop and encourage new industries in the private sector, in contrast to other Nordic countries like Sweden and particularly Finland. However the last decades have started to see some incentive on national and local government levels to encourage formation of new "mainland" industries that are competitive internationally. In addition to aspirations for a high-tech industry, there is growing interest in encouraging small business growth as a source of employment for the future. In 2006, the Norwegian government formed nine "centers of expertise" to facilitate this business growth.^[7] Later in June 2007, the government contributed to the formation of the Oslo Cancer Cluster (OCC) as a center of expertise, capitalizing on the fact that 80% of cancer research in Norway takes place in proximity to Oslo and that most Norwegian biotechnology companies are focused on cancer.^[7]

Notes

1. ^ Euro area unemployment rate at 10.0% - Eurostat. 01. February 2011
2. ^ http://www.ssb.no/lonnansatt_en/
3. ^ "Doing Business in Norway 2012". World Bank. http://www.doingbusiness.org/data/exploreeconomies/norway/. Retrieved 2011-11-22. 
4. ^ "Sovereigns rating list". Standard & Poor's. http://www.standardandpoors.com/ratings/sovereigns/ratings-list/en/eu/?subSectorCode=39. Retrieved 26 May 2011. 
5. ^ ^{a b c} Rogers, Simon; Sedghi, Ami (15 April 2011). "How Fitch, Moody's and S&P rate each country's credit rating". The Guardian. http://www.guardian.co.uk/news/datablog/2010/apr/30/credit-ratings-country-fitch-moodys-standard. Retrieved 31 May 2011. 
6. ^ "International Reserves and Foreign Currency Liquidity - NORWAY". International Monetary Fund. 9 May 2011. http://www.imf.org/external/np/sta/ir/IRProcessWeb/data/nor/eng/curnor.htm. Retrieved 31 May 2011. 
7. ^ ^{a b} Aldridge 2008

See also

• Economy of Europe
• Social Model
• Whaling in Norway

References

• Aldridge, Susan (1 June 2008), "Norway's Oncology Efforts are Coalescing", Genetic Engineering & Biotechnology News, Clinical Research & Diagnostics (Mary Ann Liebert, Inc.) 28 (11): 58, 60, ISSN 1935-472X, OCLC 77706455, archived from the original on 3 January 2010, http://www.webcitation.org/5mVo7jP2S, retrieved 3 January 2010 

• Economic history of Norway EH.net encyclopedia article by business historian Ola Honningdal Grytten, professor at NHH
• OSE ALL SHARE GI
• A substantial part of this article has been copied from the Bureau of Public Affairs, U.S. Department of State, country overview for Norway.
• Norway in CIA World Factbook
• Statistics Norway

External links

• OECD's Norway country website
• OECD Economic Survey of Norway