Norway is home to one of the most prosperous and well-managed economies in the world. Everyone from economists to politicians and regular everyday people point to the country as an example of how something should be done. And amusingly this praise often comes from both sides of economic, political and personal disagreements respectively. The country's small population of just under 5.5 million people were already some of the wealthiest people on the planet in every single measurable way, and yes economists do use many different ways to measure wealth. Norway enjoyed this immense economic prosperity before something really important happened earlier this year. In early July the country uncovered the world's largest supply of readily available phosphate. 77 billion tons of the material were found in the country's north, effectively doubling the world's supply of this rare resource. This discovery is enough to power the world's needs for things like fertilizers, electronics and most importantly high-performance batteries and solar panels for at least the next century. Conservatively the discovery is worth around 24 trillion dollars, which even after extraction and shipping costs could take Norway from a very wealthy and successful country to the undisputed richest place on earth, even beating out statistical outliers like Monaco or Lichtenstein. But will this actually happen? The discovery is undeniably a great thing, not only for the people of Norway but for the world as a whole that will benefit from the food and renewable sources of energy that could be made with this material. But it also introduces some major risks. There are countries that are already reliant on the export of this material that could be heavily impacted by this new supply. What's more is that phosphate is considered a strategic raw material by some of the most powerful geopolitical players in the world. And that's all to say nothing of the fact that this story isn't new. There has already been a country that discovered a large supply of phosphate and made its people the wealthiest population on the planet in just a few short years. But now, today, the country suffers from widespread poverty because it's poorer than when it first made its discovery. It's naive to think that this couldn't happen in Norway, and understanding the country's plans with this new discovery can teach us a lot about some of the most important economic issues in the world today, from the responsible management of natural resources, the economic philosophy of Norway itself, and what separates macroeconomic success from failure. So, how is Norway going to manage this new influx of wealth? How could too much of a good thing potentially be the miracle economy is undoing? And finally, what impact will this tiny country's decisions have on some of the most important areas of the global economy? Once we've done all of that, we can put Norway, the channel's long-time go-to for economic success comparisons, on the economics explained national leaderboard to see how it really stacks up. It's clearly going to do well, but will it get the top spot? I used to teach economics in university, but once I started making these video essays, I realised that I could teach a much bigger audience on YouTube, and I definitely couldn't do that without Storyblocks, the sponsor of this video. Storyblocks lets you find relevant and useful stock footage to make your videos pop without having to buy an expensive camera and go out to film a mini-documentary every week. 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To get started with unlimited stock media downloads at one set price, head to the link on screen or in the description below. There are four types of economies in the world today. Those that should be economic failures and indeed are economic failures. Those that should be economic failures but still manage to carry on. Those that should be economic successes but are still failures. And those that should be successful and are successful. Norway is a remarkable economy, and while it's understandable to think that it's easy for a country to be perfect when they're rich, there are many stories about exactly the opposite happening and rapid economic growth becoming a country's long-term undoing. This could have happened to Norway on more than one occasion. Before the 1970s Norway was not a particularly wealthy economy, especially by western European or Scandinavian standards. It wasn't poor by any means, because it did benefit from being able to trade directly with some of the wealthiest economies in the world at the time, but it certainly wasn't rich, relying mostly on fishing as its largest domestic and export industry. That all changed though when in the late 1960s the country discovered large and exploitable oil and natural gas deposits in the North Sea. Production began in the early 1970s operating primarily under Statoil, a company created by the Norwegian government for the purposes of extracting, refining, and selling the oil reserves that were discovered years earlier. Other private companies were allowed to operate in the fields as well, since a lot of them were responsible for the risky exploration work that found the deposits in the first place. But Norway mandated that the state must have 50% participation in every production license that was sold to private companies. The economic justification for this process was that the oil within the country's borders was the property of its people, so they are the ones that should be profiting from it. But without some kind of potential reward, no companies would take the risk to explore for even more oil and gas which could potentially make those people even more money. This balanced approach also made the country very popular for other oil investments. Statoil itself, which was later renamed Equinor, also went beyond just extracting and selling crude petroleum and natural gas because it also invested into refineries which processed all of these fossil fuels and made it possible to sell directly to consumers in Europe which was at the time the second largest market in the world for energy after only North America. Today the country has so much oil refining capacity that it actually imports even more crude petroleum from countries like Sweden and in the past Russia because their facilities are so efficient and well-managed that it's worth it to send unrefined oil there and then have them ship it or pipe it to end-users. The money the Norwegian government has made from these natural resources is immense. While the total operation might be relatively small compared to major oil producers like the gulf states, Russia and even the USA, Norway has historically kept a remarkably high share of those revenues for itself and its people. This is opposed to a lot of other countries where most of the money has gone to benefit those natural resource companies, with the state and ultimately the people getting whatever is left over. Ahem. Norway again also had a bit of luck on their side here because they were a member of NATO and didn't have the same geopolitical struggles that a lot of other countries that discovered vast natural resources in the decades after the cold war. We are in the process of working with geopolitical experts to create a new channel that will address this stuff in much more detail with much more expertise and real-world experience, so stay tuned for that because that's all I can say about it for now. It also must be recognised that Norway has an incredibly small population, so any revenues are not going to be split thin. Now making sure that natural resource revenues actually go to the people instead of a handful of oil companies or well-connected politicians is just the first step in making sure that they use responsibly to build a successful economy instead of being squandered and causing all kinds of problems. It's also, surprisingly, probably the easiest step. Norway did have some advantages here because when it found oil it was already a robust democracy, and while it wasn't rich it did have enough capital to create its own oil extraction infrastructure, where a lot of oil-rich countries in sub-saharan Africa for example are going to be more dependent on a foreign entity to fund their extraction and therefore be more beholden to their demands. Despite its advantages Norway still handled the rapid discovery of natural resources incredibly well because there are dozens of other advanced and democratic countries that have let themselves be bullied by resource companies into giving away more than a fair share of their natural wealth, again not looking outwardly at any country in particular. Now the hardest part was making sure that those revenues went towards genuinely improving the economy. There have been a few strategies employed by various countries around the world to varying degrees of success in the past. Venezuela for all of its problems did effectively, at least initially, turn a lot of its oil revenues over to its people through generous social programs and low taxes. But this created a strange anomaly in the market and made the country very unstable because it turned into a political race of who could give away the most money. These problems were in some ways the cause of and were in turn heightened by sanctions imposed on the country as well. The US state of Alaska also does something similar by paying its residents a share of oil revenues every year and levying no state income taxes. Alaska has the advantage of being a US state and it was already wealthy and politically stable so these policies didn't radically reshape its economy like it did in Venezuela. Other countries have used their oil revenues to fund lavish development projects with at least the supposed intention of encouraging the growth of tourism and international business operations in the country, which should in theory replace the oil industry when world's run dry or global demand for fossil fuels subsides. There is nothing inherently wrong with this kind of plan, although a lot of the countries pursuing this system have had transparency issues where it has become difficult to tell if sometimes completely unchallenged leaders are investing money into sports teams because they see it as a good long-term investment for their country's sports and tourism industry, or because they have practically unlimited money and just really like particular sports stars. This strategy also has the problem of just shifting natural resource benefits away from foreign oil companies and to any type of company because a key part of the development strategies of places like the UAE, Qatar and Saudi Arabia has been very low or zero taxes on businesses and individuals. If these tax laws didn't exist it's unlikely that a lot of businesses would bother to set up operations in these countries, and once oil revenues run out it's unclear if these countries are going to be able to sustain this combination of high spending and low taxes. Norway took a different approach. Even today its taxes on businesses, individuals and economic activities like sales and owning land are all very high. Its national income tax rate seems low, but after including regional taxes and other levies, even non-exceptionally high earners can end up paying more than half of their income to the government. That's also not including sales taxes or value-added tax. And Norway has one of the highest rates for this in the world, taxing 25% of the purchase price of most goods and in some cases even more for things like alcohol. Outwardly it's also very hard to see where all of this money is going. Norwegian cities are fine, but pretty basic. There are no kilometer-high skyscrapers or man-made islands, and that's because of course, as regular viewers of the channel will know, instead of directly giving their citizens money or spending it on big flashy infrastructure projects, it instead takes all of that money and puts it into a national savings account called a sovereign wealth fund. Today the total value of the government pension fund of Norway is over 1.6 trillion US dollars, which is an almost 50% increase from when we explored this country as the first video ever on this channel, or at least the first one that's still around. That increase has been helped by inflation, which has obviously not been insignificant over the past four years, investment returns which have also been very strong, and perhaps most importantly, because the invasion of Ukraine and the destruction of the Nord Stream pipeline was a golden opportunity for Norway to become Europe's almost exclusive natural gas provider. 1.6 trillion US dollars works out to be almost 330,000 US dollars for every man, woman and child who is a citizen of Norway. Which means if this fund was just directly handed over to everyone, Norwegians would be the richest people on the planet. Of course, that's not what the government does, and it doesn't directly spend it either, which has its advantages. Eventually this money is taken out to fund public spending, but before that it sits in the sovereign wealth fund, and the clue to why that's important is in the name of the fund itself. The government pension fund, or well technically the statens pension fund, oh sorry to any Norwegian speakers watching. Anyway, the pension fund is not actually to fund pensions, at least not exclusively, it's a fund to act as a pension when just like someone can no longer work, Norway can no longer rely on oil revenues. It's for when oil retires, not the people. The idea is that there will be enough invested there to make up for the lost oil revenues in investment revenues, and already they are pretty close. And that's the first big advantage, the state will eventually make even more money than it would if it had spent its oil revenues directly. Another advantage is the stability it gives the country. Natural resource-dependent economies often find themselves in a position where their economy can only be as good as the price of their export materials in international markets, which can fluctuate wildly on even an hourly basis, let alone the years and decades over which good economic planning should take place. By putting all of its revenues into a wealth fund, the Norwegian economy has effectively given itself a shock absorber to these wild swings. If oil prices are high and the country makes lots of revenues it can put money into this fund, putting it on track to be independent of even needing those oil revenues at all in the future. If oil prices drop and revenue falls then it can always dip into this fund to pay for services without taking on debt or otherwise disturbing economic functions. Thanks to its relatively high tax rates it hasn't ever really needed to do this, but it gives the country a lot of security to know that it is possible. Those taxes also contribute to economic stability in less obvious ways as well. Taxes can be used to control an economy. If it needs a boost, governments can lower taxes leaving more money for people to spend and invest, giving a helping hand to businesses and ultimately employment. If an economy is running a little bit too hot, and things like inflation or inequality are becoming a problem then a government can raise taxes or adjust tax brackets to address these issues directly. If a government doesn't raise taxes because it can fund its expenditure through other revenue sources then it gives up this control, which even the most libertarian economists tend to acknowledge is a major weakness. Beyond that, taxes also create something of a social contract between the government and its people. If people pay taxes they naturally become more engaged with what their government is doing with their tax dollars, so things like corruption or government officials embezzling funds to enrich themselves become far more heavily scrutinised. The model that Norway has used to collect and capitalise on its natural resource wealth has obviously been a winner, but that doesn't necessarily mean that it's as easy as copying and pasting this strategy onto any country that discovers a massive reserve of natural resources. There may be no clearer demonstration of this fact than what Norway does with its newly discovered trillions. The discovery of the country's phosphate reserves has the potential to make north sea oil and natural gas almost insignificant by comparison. For scale, the estimated value of these phosphate deposits is slightly greater than the value of oil reserves in Saudi Arabia at current global prices. Where Norway is just one of dozens of major players in the fossil fuels market, a market that despite organised monopolies is still very competitive, Norway would be one of only two countries in the world to control the supply of phosphate. What's more is that while countries around the world try to shift away from fossil fuel dependency, demand for phosphate is probably only going to grow because it is a vital material that gets used in a lot of the very same products that the world is going to need to shift away from oil. Phosphate is refined and used in everything from high-performance batteries to solar panels, in addition to its primary use as a fertiliser to feed the world's 8 billion people. Before this discovery, phosphate only really existed in one other country, Morocco, and its abundance of this natural resource made it of keen interest to a lot of major powers around the world that wanted to make sure that their economies could produce all of these phosphate-dependent technologies, and would potentially even prefer it if their global rivals couldn't. The EU, the USA, and China all classify phosphate as a strategically important material. What that means is that just like rare earth metals and uranium, it can't be traded internationally to just anybody. Norway is not a member of the EU, but given this discovery it is going to become a country of keen interest to most of the major economic powers in the world, which is just as much of an opportunity as it is a potential risk. The country that this is obviously worst for though is Morocco, which was not a wealthy country to begin with, and almost 25% of its total economic activity and international trade was centered around the export and processing of this one material. If Norway starts to extract and sell this material in bulk, it will inevitably drive prices down in international markets and offer a more stable, more business-friendly alternative to countries and companies that want a consistent supply of this highly coveted resource. This is great for Norway and the world, but that all unfortunately comes at the expense of Morocco. It's too early to say for sure yet, but the revenues from the extraction of this resource will likely also be directed into the government pension fund, which could conservatively triple its value over the coming decade, meaning every single Norwegian citizen would have a million US dollars indirectly invested on their behalf. It would be expected that such a massive boost to the country's economy would make national headlines, but in our research and consultation with locals in the country, we could only find two articles talking about the discovery at all, and one of them was mocking all of the other international news outlets for making such a big deal about natural resources. Now, the country's almost comical disregard for one of the largest natural resource discoveries per capita in history is in many ways down to something that a lot of economists, especially macroeconomists, tend to overlook. Culture. Now, as much as we try and focus on hard data and well-defined market policies when studying economics, it's important to remember that economics is a social science that studies above all else how people interact with things of value. So it stands to reason that those people's values are very important, and Norway's economics is perhaps the greatest example of this inaction. Norway alongside the other Scandinavian countries infamously have a very egalitarian culture that has in a lot of ways permeated into their economic systems. A lot of the economists and commentators will point out that Norway technically does not have a mandated minimum wage, but that's only because workers unions in the country are incredibly strong, and almost every worker earns a relatively high wage. The trade-off to that is that highly skilled workers don't earn very much compared to what they could make in other Western European countries and especially in the USA, and that difference becomes even larger when considering taxes, which are higher in Norway.
