Norway: Is It The Perfect Economy?

this is Norway Norway is a remarkable country that has time and time again being used as the poster child for a socialist capitalist mixed economy done right the country boasts one of the highest GDP s per capita in the world falling only behind Switzerland and a select group of micro Nations the country has a robust trade surplus one of the highest national life expectancies an extremely skilled workforce with one of the highest proportion of university graduates of any country in the world a very very low unemployment rate and international recognition as a place that is very easy to do business what is more remarkable is that Norway has achieved this while also being one of the most economically equal countries in the world after taxes a single individual from the bottom 20 percent of income earners in Norway still learns on average a quarter of what their top 20 percent income earner would now this still sounds pretty unfair but compared to the OECD average which has top fifth earners making an income ten times that of their bottom fifth counterparts this four times disparity is remarkably equal the good news keeps on coming when considering working conditions Norway has extremely robust workers protections meaning that social issues like working extremely long hours or people needing second jobs to support themselves is very rare in fact the OECD better life index notes that only 3 percent of employees work very long hours when compared to the OECD average of 11% or the American average of 33% all of this contributes to the citizens of Norway being some of the happiest in the world despite their country looking like this for half the year so what is this secret Norway by all standards should be the model that most citizens would want to replicate in their own countries so why haven't other countries adopted similar economic policies to those in Norway is this country just lucky outlier or could this success be replicated in other economies around the world well the truth is that Norway wasn't always this prosperous this is Norway in the 1960s it was an economy mainly based on fishing with a GDP similar in size to underdeveloped countries like Bangladesh or Nigeria now in fairness Norway's population was and still is far smaller than these other countries and the average Norwegian back then had a quality of life similar to their European neighbors in Spain Greece but Norway in the 1960s was still a far cry from the economic powerhouse it is today this all started to change though in May of 1963 when the Norwegian government asserted sovereign rights over natural resources in this area of the North Sea this was basically the government saying that this ocean here this is ours now oh if we happen to find any oil here that's ours too now fortunately Norway was a member of NATO and so it did not get the freedom treatment that other countries did when they tried out this nationalizing business in the 1960s but six years later in 1969 a ship called the ocean Viking struck oil in the North Sea and from that oil production in the region exploded because they found a lot of oil like a lot a lot like 1.6 million barrels a day a lot this meant that in the mid 1970s Norway produced more oil per capita than any other country in the world and even today it is only beaten out by q8 the United Arab Emirates and Saudi Arabia now I know what you are thinking this is not a story about another country that just got rich off oil and now everybody in the country is living like a freshly signed NFL player it is actually the opposite rather than getting drunk off the oil wealth they had discovered the Norwegian government was very prudent with the revenue from these finite resources the oil boom caused Norway's GDP to grow over five times in the 1970s growing from 12 billion to 65 billion dollars in this period but this newfound wealth was not being generated through private companies like shell Exxon or BP but rather a publicly run and owned company called stat all this meant that the profits from oil and natural gas sales were not going to fill the pockets of private shareholders but rather directly to the government this made the Norwegian government very very rich meaning that if they wanted to they could have easily gone on a public spending spree building fancy cities and public infrastructure while also reducing taxes just like many other countries have done in a similar position this kind of approach would have been very popular among citizens because short term it meant less taxes and a booster quality of life but they didn't and today income and business taxes in Norway are still among some of the highest in the world fortunately for Norway the government had the foresight to realize that oil wealth was not forever and that the citizens of Norway would not be satisfied if they had to go back to fishing in a generations time so the government invested the money into a piggy bank a very large piggy bank called a sovereign wealth fund in fact this is the largest sovereign wealth fund in the world beating out China's state investment corporation which is remarkable considering that China has a population 270 times larger than Norway's this is a fund that belongs to the people of Norway the rationale is that this oil and these natural resources were originally the property of Norwegian people and so it is they who should receive the revenue from the sale of those resources this means that every man woman and child who is a citizen of Norway essentially has around $200,000 invested into what is a giant hedge fund now this money is unfortunately not accessible by these citizens to spend on gold-plated Lamborghinis or super yachts the money itself is actually not even accessible to the Norwegian government in fact only the profit generated from these investments is used to fund things like education shops to explain the very skilled workforce a very strong welfare system public infrastructure and of course reinvestment into the fund itself in 2017 the fund made an incredible 131 billion u.s. dollars from its investments now this fund is a very diverse portfolio of stocks bonds cash commodities but what it does invest in is not nearly as interesting as what it does not invest in the Norwegian government set up an ethical Council that oversees investing decisions of all of the fun and it has excluded investing in things like weapons manufacturers tobacco companies and companies that have caused severe environmental damage or companies that have breached workers rights and labor laws additionally in an effort to diversify where they get their money from the fund is also forbidden to invest in fossil energy companies perhaps most interesting of all is that there is one country on the planet that is expressly forbidden to invest and you could probably hazard a guess as to what that is yeah that's right it's good old not Norway this means that all the investments of this fund are actually in foreign companies Securities and commodities now despite the massive political power that gives Norway to influence foreign companies it also means that the funds performance is independent of the Norwegian economy now this fund was a fantastic piece of thoughtful by the Norwegian government and practically means that Norway is now the National equivalent of the guy that wins the lottery keeps his day job and invests his money into a stock portfolio it certainly is not as cool and it does not get as much attention as blowing it all on bombastic displays of wealth but it does mean that they will be safe and secure for generations to come to finish it up it is only fair to look at some of the economic issues that are present in Norway first and foremost is that it still has an incredibly high cost of living compared to wages given the very high taxes the average Norwegian worker is bringing home about thirty two hundred US dollars a month now this is far higher than the US average of two thousand seven hundred and thirty two US dollars per month but it does not go nearly as far because Norway is an expensive place a mid-range restaurant meal in America tends to run about fifty dollars for two people without drinks in Norway expect to be paying about ninety two dollars a monthly utility bill for u.s. gas electricity water and garbage is expected to be about a hundred and thirty dollars that same bill in Norway is a hundred and seventy six a new very basic family car such as a base model Volkswagen Golf can easily be had in America for around twenty thousand dollars in Norway that same car would cost you thirty six thousand four hundred and seventy three dollars which is particularly ironic given the proximity to where these cars are actually manufactured now the citizens of Norway do almost universally agree though that they are happy to put up with these high taxes and this incredibly high cost of living for everyday items because in return they do not have to worry about serious economic hardship nobody in Norway is gonna go bankrupt because of a medical situation nobody has to worry about taking on crippling debt to get an education and they do not have the fear of being homeless if they lose their jobs so is Norway really the perfect economy should it be what every treasurer hangs a poster above their bed to look at at night well no not really to anyone who has watched this channel before all two of you you will know that I am a huge fan of planned social democratic economic systems and Norway is a great example of such a system they have done everything right with the opportunities that they have been given but they were still extremely lucky and expecting that every country can get to where Norway is today just by copying and pasting their current government fiscal policies is foolish that been said if you do find yourself in charge of a country that has won the oil lottery or is riding the high of any other economic boom Norway really should be the framework that you are working off thanks for watching guys as always all of the references for this video are in the description along with my email if you have any other further questions about what has been said here [Music]

Channel: Economics Explained

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Keywords: the economy of norway, the economics of norway, the economy of norway explained, the economics of norway explained, norway economics explained, economics explained norway, norway economy explained, norway economy, norway economy economics explained, norway economics, how norway economy works, how the norway economy works, how the norwegian economy works, norwegian economics, norwegian economy, norwegian economy explained, norwegian economics explained, economics explained

Id: hKGwGAHznFQ

Length: 11min 53sec (713 seconds)

Published: Wed Jun 26 2019

Reddit Comments

[u/8008135__]

TLDW: Norway discovered shit tonnes of oil in the 60's and socialized the vast wealth it generated into one of the most well-thought-out sovereign wealth funds ever implemented. The oil and it's profit belongs to the people of Norway, not private companies and their shareholders.

My takeaway: Any prosperous nation should be able to turn economic booms into opportunities to invest in it's people and their futures.

[u/[deleted]]

Loveeeee this channel. strangely have just been watching its vids