Friday, January 27, 2023

Norwegian success: how a poor country became one of the richest in the world

Norway is a country of more than 5 million inhabitants, where the conditions of living, development and well-being are among the best in the world. And of course, with a flourishing economy that places it among the richest countries, using almost any index we can think of. They are the states that everyone dreams of being in.

But it was not always like this. When Norway became independent from Denmark, in 1814, it was a rural country with 90% of its population devoted to agriculture, on land that was not particularly easy to cultivate. The country’s economy didn’t start to pick up until the end of the 19th century, thanks to the Industrial Revolution, agricultural reform, the expansion of livestock… and above all, control of the seas. They became a maritime transport power, which allowed them to export iron, coal, timber and fish, and they had a naval fleet that represented 7% of the world’s total.

However, the First World War, despite the fact that they remained neutral, mainly led to the complete stoppage of their economy their dependence on the United KingdomAt that time it was its main trading partner.

Norway was always seen as the poor cousin of the Scandinavian countries. Some ‘hillbillies’, farmers and fishermen, were always looked down upon by Sweden and Denmark, much more urban. With the economy at a standstill, and without opportunities, Hundreds of thousands of Norwegians moved to North America In the first half of the 20th century, for both the United States and Canada. In fact, after Ireland, it was the country in Europe with the largest number of migrants as a proportion of its population.

A family of farmers in Norway at the beginning of the 20th century.

As if the situation wasn’t complicated enough, World War II and the German occupation ended any signs of recovery in Norway’s economy.

After the war, Norway faces the challenge of reviving its battered, antiquated fishing economy, Faced with a future they did not see at all clearly, the Labor government, led by Einar Gerhardsson, initiates a series of social democratic reforms And clearly with a Keynesian approach. The aim of reducing poverty was to improve the redistribution of wealth.

social democratic path

The recipe implemented by the executive went through the imposition of high and progressive taxes, creating a type of VAT and imposing additional taxes on discretionary products such as alcohol, tobacco, cars or cosmetics.

The income the state receives in this way allows it to develop a social security system, which guarantees pensions and, among other benefits, the coverage of medical care for the entire population.

The situation in Norway is finally improving, and many expatriates have returned, but this still does not make it a prosperous country. That jump takes place in the 1960s. The country’s experts did not even believe that there could be hydrocarbons under its seas. But earlier that decade, the Netherlands found gas off its shores, which inspired research in the rest of the North Sea. Private companies are the first to approach the government to request permission to conduct this exploration, but the executive, judiciously, first develops the appropriate legal framework.

Furthermore, in 1963, Norway negotiates with the United Kingdom and Denmark for the distribution of the seabed of the North Sea, obtaining a profitable settlement, which gave it a greater basis than in applying the Geneva Convention. It benefited from Britain’s haste to launch an investigation and the Danish foreign minister’s inability to negotiate.

they find oil on their shores

With rules developed and territorial boundaries clarified, exploration begins. companies in charge, all foreign at the time, Find multiple oil reserves, But small in size and difficult to exploit. It is 1969 when the fever breaks out. Phillips Petroleum Company finds a large deposit in the Ekofish area, which is shallower and with better climatic conditions than the rest of the area, facilitating extraction.

This is when the authorities begin to believe in the importance of the oil sector and the importance of investing in this sector. In 1973 he founded the state oil company Statoil, However, net profits were not automatic: the large capital investment required to develop the oil industry delayed profits until the 1980s.

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Oil platform in the North Sea.

The oil industry transformed Norway’s economy immediately. In 1975, it was already one of the main sources of employment in the country, which practically managed to eliminate unemployment. Difficulties to locate and drill in the North Sea prompted the rebuilding of a number of technology and construction companies, which took advantage of their experience of moving in the heat of the fever for black gold.

In spite of everything, the officers do not go mad. first Reinvest oil profits to stimulate the economy and in improving the quality of life of its citizens. When oil prices skyrocket in the 1980s, they decide to start saving some of the profits from crude oil. And when the 1986 oil price crash drags down the national economy, they don’t lose perspective.

Norwegian Sovereign Wealth Fund

Going a step further, in the 1990s he created the Government Pension Fund Global, the largest sovereign wealth fund in the world today, with the government investing oil revenue in stocks, bonds and real estate to diversify the country’s wealth. Does This recipe applies to avoid the ‘Dutch disease’ it is known as the ‘disease’ that can sink a country’s economy due to the appreciation of its currency. When it begins to export raw materials on a large scale, the inflow of capital causes the currency to appreciate, eroding the competitiveness of other sectors, which are forced to stop exporting. The Netherlands was the protagonist of this evil because, as we remarked, it had found large reserves of natural gas in the 1960s.

Norway quickly converted most of its crude revenue into foreign currency to reduce this effect. The fund also allows you to mitigate the consequences of economic crises, as was also seen in the pandemic.

The officers have never lost focus, regardless of the color of the party in government. Despite the various oil price crashes in recent decades, he has not neglected his sovereign wealth fund. Furthermore, no executive has balked at populist measures that can be undertaken with large amounts of capital available, and despite the fact that a section of the population claims to be saving less and spending more. He has always thought in the long term, and tried to guarantee the well-being of the next generations.

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Oil tanker off the coast of Norway.

Today, Norway has a strong and prosperous economy. Oil still represents 20% of its GDP, and it expects to achieve a record revenue of more than 130,000 million euros next year, due to a rise in prices due to the invasion of Ukraine and sanctions on Russia.

He will allocate a quarter to the budget, and the rest will go to his pension fund, which is the largest in the world, and whose capital exceeds $ 1.3 trillion.

These are the pillars on which the Norwegian economy is based and which explain how it has become such a prosperous country. and how it faces problems such as demographic change and future pension payments with less fear than many other European countries.

Nation World News Desk
Nation World News Desk
Nation World News is the fastest emerging news website covering all the latest news, world’s top stories, science news entertainment sports cricket’s latest discoveries, new technology gadgets, politics news, and more.
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