Aspects of Progress in Norway's Economic Development
In the past, according to analysts of the World Economic Forum, in Norway the salaries of its populations were published in a book, through a list of income, assets and taxes that had been paid and were available on the shelf of a public library. This transparency has been important for that country for a century and partly because Norwegians pay high income taxes: an average of 40.2% compared to 33% in the United Kingdom and higher that the European Union, according official sources, whose average is 30.1%.
In this way, there is information such as that of the Norwegian First Minister, who for 2015 appears with revenues of US196.000, her assets were valued at US256.000 and she paid US84.000 in taxes. Thus, there are some three million taxpayers who all report information in public networks, a taxpayer population that exceeds 60% of a total population of 5.2 million citizens.
Wages in many sectors are established through collective agreements and salary differences within those are relatively small. The gender pay gap is also small according to international standards. The World Economic Forum places Norway in the fifth position out of a total of 144 countries in relation to equal pay for men and women doing similar jobs.
Transparency International recently published its latest Corruption Perception Index, a global ranking of equity. The ranking of 180 countries is based on the level of corruption in the public sector in 2017, according to entrepreneurs, journalists and civic organizations. Countries with a higher classification tend to be free of corruption and have more freedom of the press, access to information on public spending and have independent judicial systems. Norway occupies the first places in scoring within this classification.
In the aforementioned Index, countries are given a score of up to 100, and those that obtain better scores are the least corrupt. Among the top 20 best ranked are the following in descending order: Japan with a score of 73, Ireland with 74, the United States with 75, Australia 77, Germany 81, United Kingdom and Canada 82, Switzerland, Norway and Finland 85, Denmark he ranks second with 88 and New Zealand first with 89 points.
In the year 1900, according to studies of the World Economic Forum, Norway was an underdeveloped economy, with a very hard climate for the winter and whose most powerful and income generating sector was fishing. It was a poorer country than Chile, Spain or Ireland. It also did not belong to the rich countries in 1970. In terms of purchasing power, per capita income did not reach half that of Switzerland and was 15% lower than that of the Federal Republic of Germany.
However, already at the beginning of this century Norway became the second country in the world (behind Luxembourg) in per capita income with a value of more than 60.000 dollars. Oil and above all an excellent economic income management are the keys that have led this country to become a model for other nations.
In effect, the authorities created the Government Pension Fund Global, a sovereign wealth fund with which the Government invests oil revenues in stocks, bonds and real estate to diversify the country's wealth. Fund that was left out of the management of public spending of the country and the swing of the policy makers.
In this way, Norway with this sovereign fund, has become a reference for many countries that have large natural resources but have not arrived to manage well them.
Norway has been able to avoid the "Holland sickness" that consists in the fact that the boom in the export of a raw material, in this case of oil, can plunge other sectors of an economy by the appreciation of the local currency. When the country begins to export a raw material in a massive way, the influx of capital appreciates the currency, this situation tends to corrode the competitiveness of other sectors of the economy that stop exporting. Holland was the protagonist of this evil after finding large reserves of natural gas in 1960.
However, in Norway, a large part of the income obtained by oil is quickly converted into foreign currency, which mitigates the effect in part. And it is that Norway with the largest sovereign wealth fund in the world, has allowed it to comfortably surpass the situation of the collapse of the oil price, which occurred from august 2014 until mid 2016, when that price began to rebound and currently continues with movements with an upward trend.
During the 1970s, Norway used oil revenues to stimulate the economy. However, the sharp increase in oil prices from 1980 to 2014 made it possible to save most of these benefits. Thus, in the early 1990s, Norway had been freed from external debt and oil revenues began to be invested in other assets.
On the contrary, other countries have suffered the "Holland sickness" due to inadequate management of income, such as Venezuela and Angola, where oil has focused all resources and other economic sectors have been damaged by the appreciation of the currency and the lack of productive investments. Even other Latin American countries such as Colombia and Chile also suffered in part from the deterioration of industry and agriculture as a result of the boom in raw materials such as oil and mining during the first decade of this century.
The approach to avoid the "Holland sickness" is to sterilize the sudden increase of foreign currency, avoiding repatriating them in one massive way, keeping all or a large part abroad in special funds. They can only be repatriated later in cases of export crises and will be gradual and progressive. This strategy will have a reduction in the public spending effect.
In developing countries this behavior could be politically difficult, due to the frequent pressures to immediately spend these currencies in order to reduce poverty, but this does not take into account the wide negative macroeconomic implications, such as the fiscal deficit, the appreciation of the local currency and the damage to the production and exports of industry and agriculture, with the consequent deterioration of these sectors in aspects such as the employment of workers.
In Norway has been different, the discovery of oil has actually boosted productivity for almost five decades throughout the Nordic economy, according to studies prepared by public and private entities. Through large current account surpluses and investments from the Norwegian Government Pension Fund, efforts have been made to prevent all resources from focusing on a few sectors that deteriorate from others, which would have reduced the long term potential growth of the economy, especially when oil loses importance.
Also, the country has mitigated the impact on the currency (Norwegian krone) by investing the dollars obtained by oil directly abroad, instead of investing them in the interior or distributing them among the citizens, which would have triggered the value of the Norwegian krone, inflation or both.
One of the keys may have been the decision to save a good part of the income derived from crude instead of spending it on subsidies or other discretionary spending by governments. This trend is present, as mentioned earlier, in developing countries such as Venezuela, with consequences of high inflation and fiscal deficit, which with other problems of recession and shortage of products have complicated the economic stability of the country.
Although Norway, according to private research organizations, needed large doses of investment and foreign loans to start the big oil industry in the late 1960s, it has since transformed large areas of its industry and has become a global supplier of technology for the oil and gas industry, through the export of machinery related to hydrocarbons and gas and other types of technology with high added value.
In that Nordic country, the sovereign wealth fund that reaches a value exceeding one billion dollars, coming as mentioned before, from the saving of oil revenues in the years of the boom, allows to ensure the social benefits of future generations and acts as a cushion for difficult times. In effect, the government resorted to the fund for the first time in 2016 after the country was affected (like all exporting countries) by the fall in the price of oil, but only to use the yields, at no time was it necessary to use the principal. Mechanism that is currently no longer required, given the recovery of prices especially in the current months of this year.
Norway also has one of its main objectives to reduce the dependence on oil as renewable energy gains strength and strengthen activity in other sectors of machinery and technology.
At the global level, among the sovereign wealth funds related to outstanding oil and mining, the following may be mentioned: the aforementioned Norwegian Sovereign Pension Fund, the Stabilization Fund of the Russian Federation, the State Oil Fund of Azerbaijan and the Fund for the Future Generations of the State of Kuwait.
It can also be affirmed that the boom in the production of shale, or current North American shale, which has turned the United States into a competitive exporter of oil and gas, does not present symptoms of "Holland sickness" in the North American country.
Norway is a reference country for developing countries such as Latin America and Africa, especially in aspects such as transparency in public (and private) management of resources and about taxation of citizens. Likewise, the lesson on the adequate management of the economic boom is highlighted when it is mainly caused by a bonanza (which are cyclical and temporary) in raw materials.
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Today, in terms of world markets, stock exchanges and futures are falling due to the resurgence of strong tensions due to the announcement of the increase in measures in the "trade war" between the United States and China, with tariffs on imports.
The price of oil after the rises of recent days, today registers a tendency to stagnation and possible decline, given the increase in global risks in trade and political tensions in relations with Russia. The WTI price remains above 63 dollars per barrel and Brent exceeds 68 dollars.
In Colombia, at the beginning of the day the peso devalues slightly to 2.791 per dollar against a TRM for today of 2.787.
