Politics of Power

Within the world of hydrocarbon producing nations, Norway is a both a behemoth and an outlier. It is the world’s seventh largest oil producer and third largest natural gas exporter, with incredible expertise in deep water offshore recovery operations. In this respect, it is often grouped with OPEC member states and other large hydrocarbon-producing nations like Russia and Mexico. Along with most of its fellow hydrocarbon producing nations, Norway has a massive Sovereign Wealth Fund (SWF) that is generated from the benefits of these huge petroleum exports. The fund, called the Government Pension Fund of Norway, is invested in global debt, equity and real estate markets around the world. Revenue for both the fund and state is generated through a combination of taxes, leases, permits and direct ownership in oil and gas companies. However, for all intents and purposes, this is where the similarities between Norway and other oil exporting countries ends.

Norway has developed a mixed, diversified economy with petroleum revenues constituting only 23 percent of national GDP and 30 percent of all state revenues. In comparison, oil production comprises 90 percent of state revenues in Saudi Arabia, 91 percent in Libya and a shocking 97 percent in Iraq. Norway ranks as one of the most open and democratic nations with the highest standard of living in the world. In comparison, many of the world’s oil and gas exporters consistently rank near the bottom of governance and transparency indexes with huge gaps in infrastructure funding and standard of living metrics. Though many of these countries have similar sized and structured SWF’s, they are often rent-seeking and controlled by a small sliver of the population for their own gain.

In fairness, I am making a somewhat unfair comparison between Norway and the rest of the world’s petroleum exporting countries. Norway was relatively late to the hydrocarbon game — production in the Norwegian Continental Shelf did not occur until 1971 — and Oslo already had well established liberal institutions and a strong Northern European civil society. In contrast, most of the world’s oil exporting countries have deep colonial legacies and a recent history of conflict which limits their ability to build the democratic institutions necessary to take advantage of their natural resource wealth.

What is remarkable, though, is not how much more efficiently Norway has used its energy endowment than other oil exporting countries, but rather, how successful Norway has been at maintaining this efficiency. Instead of falling into the classic resource trap or “Dutch Disease” — named after the collapse of the Dutch manufacturing sector following the discovery of natural gas — Norway has used its natural resources to build an incredibly wealthy society for all of its citizens. Though only constituting .07 percent of the world’s population, the $1 trillion Norwegian SWF, technically owned by every citizen, owns one percent of the world’s stocks. This breaks out to be nearly $200,000 for every Norwegian man, woman and child. However, the government can only draw down four percent of the SWF a year, with the rest of the money designed for future generations serving as a counterweight to the predictable collapse of their oil and gas industry. This is an incredible example of what strong governance looks like in conjunction with a system that actively fights the human bias of immediate gratification and pursues long term gain. Norway has entered into a kind of “end of history” status that is a spectacular example of what happens when strong institutions are paired with incredible wealth.