Norway: A Tale of Oil, Welfare, and Lessons for the Global Community

Opinion Policy Analysis by Roa Daher, Staff Writer

October 29th, 2020

The phenomenon happens so often that it has become somewhat of a rule of thumb and has even been given a name: the resource curse, or the paradox of plenty, refers to the tendency of states that are resource-rich to have higher rates of conflict and authoritarianism while having lower rates of economic stability and growth. The natural resources that are usually referred to in such cases are minerals, as can be seen in several African countries like Sierra Leone, gas, and oil, usually in Gulf states. ‘Dutch Disease’ was a term coined by the Economist in 1977 to describe how an increase in revenue from natural resources can actually harm the economy; specifically it refers to what happened in Netherlands, where large gas reserves were found in 1959, resulting in the soaring of Dutch gas exports, but a simultaneous five-fold increase in unemployment between 1970 and 1977 and a drop in investments in the private sector.

The reason behind these negative repercussions is because the rise in exports led to an influx of foreign currency which led to an increased demand for the Dutch guilder, thus strengthening it. This decreased the competitiveness of other sectors in the economy in international markets, as it pushed prices up, and shifted labour and capital away from non-resource sectors to the resource sectors, largely affecting the manufacturing sector’s output and its exports.

Despite all of the negative effects associated with a wealth of natural resources, be it authoritarianism, economic downturn, or even gender-based challenges, oil-rich Norway, which has the world’s richest sovereign wealth fund, has somehow managed to be the world’s best democracy for several consecutive years, according to The Economist’s Intelligence Unit, and has consistently been called one of the world’s happiest countries. In fact, Norway appears to be an exception to all of the consequences of the resource curse, despite the availability of natural resources other than oil. After all, Dutch disease for instance, can only happen in countries that would have had other means for economic development if it weren’t for the discovery of oil or gas reserves, which explains why Gulf states have not been afflicted with it, as their desert environment lacks any other resources. However, while Gulf states have avoided Dutch disease, they remain non-democratic rentier states that rely heavily on their oil revenue.

Thus, despite Norway’s supposed susceptibility to the negative impacts of the resource curse, it has managed to not only avoid it, but also flip it into a resource bloom that is economic, social, and political. 

Norway’s escape from the resource curse began in 1814, 155 years before the discovery of oil in the Ekofisk deal, with the establishment of the Norwegian constitution which marked the transition from a kingdom to an independent state. The constitution was inspired by the ideas of the Enlightenment period, and so was very focused on the idea of freedom and human rights. It was very egalitarian, much like modern Norweigan society, in that it featured the separation of powers such that there were two chambers of the parliament, or Stortinget, within the legislative branch. However, all the power was placed in one chamber so that the splitting of the chambers was nothing more than a formality. Unlike the House of Commons for instance, neither chamber was restricted to the elites or aristocrats; furthermore, the constitution gave Norway extremely liberal voting rights, for its time at least, in that it gave farmers who owned land the right to vote, and almost half of the farmers in Norway owned land at the time. In fact, a third of the constitutional national assembly were farmers, meaning that farmers played an active role in shaping the Norweigan constitution. More than two centuries later, Norway is a very successful and egalitarian democracy with a strong social security net, welfare, strong ties between state and society, and the world’s richest sovereign wealth fund. 

The latter is especially important: when oil was first found in the North Sea, it was decided early on that the revenue from oil exports should be used very carefully to avoid any volatility in the economy; therefore, the Norweigan parliament passed legislation in 1990 to create the Government Pension Fund Global where the revenue from the oil and gas sectors would be invested abroad, which explains why Norway has a 22% income tax despite its oil riches. The Pension Fund has invested in real estate and a variety of different sectors, as it owns 1.5% of all the world’s listed companies. A very small amount of the Pension Fund, which is taken from the return on the fund rather than the fund’s capital, is used annually, and it represents almost 20% of the government budget and any budget deficit is covered by the fund while budget surpluses are transferred to the fund. By investing its oil wealth in the future of the Norwegian citizens and maintaining a taxation system, Norway has managed to exemplify a democracy with excellent welfare and an egalitarian society with high levels of political engagement, as the public feels heard and represented. Checks and balances within the Norweigan system ensure that public funds are not used in high risk investments and that public servants exist to serve the state and do not actively engage in corruption. By making good on its social contract with citizens and providing security as well as excellent public healthcare, education, and retirement funds, the Norweigan government guarantees the public’s satisfaction and the citizens feel that their tax money is well-spent.

However, Norway is unfortunately not a utopia. It suffers from its own issues, namely racism, white supremacy, and islamophobia. On July 22nd of 2011, Anders Breivik orchestrated two attacks in Norway that resulted in the killing of 77 individuals. The first attack was a car bomb explosion in the executive government quarter of Norway, while the second was at a summer camp organised by the youth division of the Norweigan labour party. Later, it was found that he was an islamophobic right-wing extremist who expressed a deep hatred for Muslim immigration into Norway and saw himself as a knight who would cleanse the tide of Muslims entering Europe. On August 10th, 2019, Philip Manhaus entered the Al Noor Islamic Center in Bærum and began shooting but thankfully did not murder anyone as three of the men in the mosque tackled him. Later that day, Manhaus’ step sister was found murdered in their family home. Manhaus was also a right-wing extremist and white supremict with deeply rooted islamophobia, as can be seen by his choice to attack a sacred place of worship for Muslims. Thus, Norway has its own issues to reckon with, namely white-supremacy, right-wing extremism, and islamophobia that is at times perpetuated by the populist right-wing Progress Party that is explicitly anti-immigration and anti-Islam.

However, Norway has fared relatively well overall and so may have quite a few lessons for the global community about democracy, wealth distribution, and the government’s investment in the public’s future.