From Bloomberg, July 24:
A contentious book argues that endless oil revenue and a sovereign wealth fund are making Norway increasingly bloated, unproductive and unhealthy.
In 1969, Phillips Petroleum was poised to abandon exploration of the Norwegian continental shelf when the company decided to drill one last oil well — and hit the jackpot. The discovery made Norway one of the world’s richest countries. Its sovereign wealth fund, established to invest the money, now manages about $2 trillion, equivalent to roughly $340,000 for every Norwegian.
For years, oil revenue and the wealth fund have helped this tiny nation to enjoy low unemployment, low government debt and a wide social security net guaranteeing a high standard of living.
But recently, cracks have been starting to show. Norwegians are taking much more sick leave than a decade ago, driving up costs for health services. Student test scores have worsened more than in other Scandinavian countries, and critics of the government say there are too many boondoggle tunnels and bridges to nowhere.
Amid creeping concerns that Norway is becoming bloated, unproductive and unhealthy, Norwegians have started to wonder: Can a country have too much money?
Norway “should be a magnet for possibilities and people. Instead it’s the opposite,” says Martin Bech Holte, author of The Country That Became Too Rich. “There is no ambition and that is 100% because of the oil fund.”
Bech Holte, an economist and former head of the Oslo office at consulting firm McKinsey & Co., has struck a nerve. His book, published in January, has sold more than 56,000 copies in a country of just 5.6 million people. (Last year’s most popular fiction title sold about 80,000 copies.) Its ideas are the subject of public debate, and Bech Holte has become an in-demand speaker at business schools, conferences and private gatherings. In August, he will be among four economists grilling Finance Minister Jens Stoltenberg at Norway’s annual political event in the seaside village of Arendal.
Wasteful Spending
In the book, the 46-year-old Bech Holte highlights examples of Norway’s wasteful public spending and misguided incentives. A subway project connecting a peninsula on the outskirts of Oslo costs six times what was budgeted. Tax breaks are given to offshore wind or oil field projects that otherwise wouldn’t have been profitable. Homeowners have loaded up on debt because they know the state will fund their retirement: The 220% debt-to-income ratio of Norwegian households is higher than any other OECD country.
The book has drawn plenty of criticism. Oystein Olsen, a former head of Norway’s central bank, said Bech Holte’s work is riddled with inaccuracies, including overstating the extent of the slowdown in productivity. Researchers at Norway’s Statistics Office said the book presents a deeply flawed version of economic history and pointed out that Norway is a small country, greatly influenced by external factors. Still others, such as economist Espen Henriksen, noted that while Bech Holte may have muddled some figures, he put his finger on how Norwegians are feeling. A title more in line with the spirit of the book, Henriksen wrote in an op-ed earlier this year, might have been: The Country That Should Have Been Even Richer.
Still, there is plenty of data to validate Bech Holte’s concerns.
Norway spends more on educational institutions than any other OECD country except Luxembourg: Annual spending per student from primary to tertiary education is about $20,000, compared with an OECD average of about $14,000. And yet standardized international testing shows outcomes for Norwegian schoolchildren are getting worse. Since 2015, scores for Norwegian 15-year-olds in the Programme for International Student Assessment have declined in math, science and reading, and now rank below the OECD average. Last December, Erna Solberg, leader of the country’s opposition Conservatives, said that Norway was “on the verge of a natural sciences disaster” that puts its economic future at risk.
Experts cite multiple factors: institutional complacency, a growing share of foreign-born students, rising mental health challenges and widening skills gaps driven by socioeconomic inequality.
Slow Growth
Norway also shells out four times the OECD average on disability and sickness benefits — around 8% of GDP — while those in full-time employment take 27.5 sick days each year on average, the highest level in the OECD. Some critics blame the high level of illness on the country’s generous welfare system: Norway grants full pay, capped at a level higher than the average wage, for up to 12 months of continuous sick leave, part of what the International Monetary Fund has called a “costly and distortionary social benefit system.”....
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