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	$0.5 trillion (2013 est.)
GDP rank	23rd (nominal) / 45th (PPP)
GDP growth	0.7% (2013 est.)
GDP per capita	$66,937 (2014 est.) (PPP) (3rd)
GDP by sector	agriculture: 2.2%; industry: 45.1%; services: 52.7% (2009 est.)
Inflation (CPI)	2.7% (2011 est.)
Gini coefficient	25 (2008)
Labour force	2.8 million (2015 est.)
Labour force by occupation	agriculture: 2.9%; industry: 21.1%; services: 76% (2008)
Unemployment	4.3% (July 2015)[1]
Average gross salary	508,000 NOK / €53,000/$59,000, yearly (2014) [2]
Average net salary	372,000 NOK / €39,000/$44,000, yearly (2014) [3]
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[4]
External
Exports	$0.2 trillion (2012 est.)
Export goods	petroleum and petroleum products, machinery and equipment, metals, chemicals, ships, fish
Main export partners	United Kingdom 25.6%  Germany 12.6%  Netherlands 12.0%  France 6.7%  Sweden 6.3%  United States 5.0% (2012 est.)[5]
Imports	$0.1 trillion (2012 est.)
Import goods	machinery and equipment, chemicals, metals, foodstuffs
Main import partners	Sweden 13.6%  Germany 12.4%  China 9.3%  Denmark 6.3%  United Kingdom 6.1%  United States 5.4% (2012 est.)[6]
FDI stock	$0.1 trillion (31 December 2009 est.)
Gross external debt	$0.5 trillion (30 June 2009)
Public finances
Public debt	30.3% of GDP (2012 est.)
Revenues	$0.3 trillion (2012 est.)
Expenses	$0.2 trillion (2012 est.)
Economic aid	$2.2 billion (donor), 0.87% of GDP (2004)
Credit rating	Standard & Poor's:[7] AAA (Domestic) AAA (Foreign) AAA (T&C Assessment) Outlook: Stable[8] Moody's:[8] Aaa Outlook: Stable Fitch:[8] AAA Outlook: Stable
Foreign reserves	US$55 billion (March 2011)[9]
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 state-ownership in strategic areas. 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. Norway's modern manufacturing and welfare system rely on a financial reserve produced by exploitation of natural resources, particularly North Sea oil.^{[10][11][12][13][14]}

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 (in the 18th century) 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) and telecommunication provider (Telenor). The government controls 31.6% of publicly listed companies. When non-listed companies are included the state has an 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.

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, cosmetics, etc.

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

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

The Labour productivity level of Norway is one of highest in Europe. OECD, 2012

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.
• 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 15%, 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) pay reduced taxes due to "Svalbardtraktaten".
• 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

Norway Exports Tree Map (2009)

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 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.^[15] 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.^[15]

Regional variation

	Region	GDP per capita 2013
		in euros	As % of EU-28 average
European Union		26,700	100.0%
Norway		49,300	184%
Richest	Oslo og Akershus	51,800	194%
	Agder og Rogaland	40,100	150%
	Vestlandet	39,400	147%
	Trøndelag	34,400	129%
	Nord-Norge	32,400	121%
	Sør-Østlandet	29,000	108%
Poorest	Hedmark og Oppland	27,500	103%

Source:Eurostat^[16]

Notes

1. Arbeidskraftundersøkelsen - SSB. 23. September 2015
2. https://ssb.no/en/arbeid-og-lonn/statistikker/lonnansatt
3. https://ssb.no/en/arbeid-og-lonn/statistikker/lonnansatt
4. "Doing Business in Norway 2013". World Bank. Retrieved 2012-10-22.
5. "Export Partners of Norway". CIA World Factbook. 2012. Retrieved 2013-07-23.
6. "Import Partners of Norway". CIA World Factbook. 2012. Retrieved 2013-07-23.
7. "Sovereigns rating list". Standard & Poor's. Retrieved 26 May 2011.
8. Rogers, Simon; Sedghi, Ami (15 April 2011). "How Fitch, Moody's and S&P rate each country's credit rating". The Guardian. Retrieved 31 May 2011.
9. "International Reserves and Foreign Currency Liquidity - NORWAY". International Monetary Fund. 9 May 2011. Retrieved 31 May 2011.
10. http://home.bi.no/a0310125/Bjornland_SJPE_1998.pdf
11. http://www.offshorecenter.dk/filer/files/Project/Internationalisering/OCD%20report%20(Norway).pdf
12. http://www.sv.uio.no/tik/forskning/publikasjoner/tik-artikkelserie/Ryggvik.pdf
13. http://books.google.com.tw/books?id=jZIOAAAAQAAJ&pg=PA221&lpg=PA221&dq=north+sea+oil+supports+norway+welfare&source=bl&ots=usTy9E4R8J&sig=6cdM3-tZTYAzS-C9vRVaSEQ2jWg&hl=zh-TW&sa=X&ei=YVbdULqbHuiOmQXvo4CIBw&redir_esc=y#v=onepage&q=north%20sea%20oil%20supports%20norway%20welfare&f=false
14. "The rich cousin". The Economist. 1 February 2013. Retrieved 1 February 2013.
15. Aldridge 2008
16. http://appsso.eurostat.ec.europa.eu/nui/show.do?query=BOOKMARK_DS-513634_QID_4B285805_UID_-3F171EB0&layout=TIME,C,X,0;GEO,L,Y,0;UNIT,L,Z,0;INDICATORS,C,Z,1;&zSelection=DS-513634INDICATORS,OBS_FLAG;DS-513634UNIT,PPS_HAB;&rankName1=UNIT_1_2_-1_2&rankName2=INDICATORS_1_2_-1_2&rankName3=TIME_1_0_0_0&rankName4=GEO_1_2_0_1&sortC=ASC_-1_FIRST&rStp=&cStp=&rDCh=&cDCh=&rDM=true&cDM=true&footnes=false&empty=false&wai=false&time_mode=NONE&time_most_recent=false&lang=EN&cfo=%23%23%23%2C%23%23%23.%23%23%23

See also

• Economy of Europe
• Nordic model

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), pp. 58, 60, ISSN 1935-472X, OCLC 77706455, archived from the original on 3 January 2010, 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
• World Bank Summary Trade Statistics Norway
• Tariffs applied by Norway as provided by ITC's Market Access Map, an online database of customs tariffs and market requirements