States can be Effective

How did Norway fund the investment and make sure it was done properly?

Since I am a Norwegian who has worked in Norwegian oil industry for years and with an interest in history, I might be able to give some answers.

If the government does anything it will screw it up for sure. You need private business to do anything properly.

I think the problem here is that many American generalize the American situation across all other nations. You think the way government and private business operate is universal.

The truth is that America was from the beginning founded as a nation with a weak and unprofessional state. This has led to a poorly functioning government through all American history cementing the American belief that a state cannot do anything effectively.

So how did this come about? It is part of American culture. From the beginning the state was deeply distrusted and this led to very many positions early on being elected positions rather than being based on merit, expertise, education and competence. This attracted people to government institutions with low skill level. Government also has low prestige in America which means it attracts the lowest performers. Why would a state manned by people of the lowest skill produce an effective state? Of course I am generalizing, there are many people in the US government today, which are highly professional and competent. Yet it is important to understand the historical context of the American state.

Don’t take my word for it though. However this has been the observation by Gunnar Myrdal, Noble Prize winning economist when he spent years in the US analyzing American society, and comparing it in particular to Northern Europe.

Nordic countries follow an entirely different bureaucratic tradition which has been known for running effective states for hundreds of years. Rather than being elected positions have historically been merit and competency based. As democracy developed our political leadership would tend to pick the most competent people in positions rather than those ideologically aligned.

The Discovery of North Sea Oil and Political Actions

Search for oil in in the North Sea began under the leadership of democratic socialist leader Einar Gerhardsen. Despite being a socialist and committed to transforming Norway to a socialist society, he still employed conservatives in his government who where known to have very high qualifications and talents in their area. E.g. the socialists knew they did not have great economists and utilized economists from the political right to help grow the economy.

However his anti-capitalism instincts did also serve him well. Norway’s government was deeply distrustful of large American oil companies. Which proved to have been a very good thing as they repeatedly tried to screw us over and get full control over the oil. The democratic socialists would repeatedly play the big international oil companies out against each other. They would ask one for advice, and use that as ammunition when asking a second one for advice.

They where also willing to sacrifice short term gains for political control. American companies tried to twist our arm by insisting on fast decisions giving they major gains. A populist government eager to get quick gains would have easily fallen for this ploy. But Einar Gerhardsen was willing to sacrifice short term income for long term gain.

A lot of effort was put into doing oil exploration the right way rather than getting short term profits.

Perhaps it was similar to the way the original AT&T or the Utilities companies worked where the profit was split with the government and the government oversaw or regulated it. This must be part of the story.

I don’t know this model, as I don’t know American history well enough. But that sounds very different from what we did in Norway.

The Norwegian idea was to split government involvement into the Oil Directorate and a State Oil Champion: Statoil currently known as Equinor.

Usually the function of the Directorate and the State Oil company is mixed. E.g. if you look in the middle East. In Norway the Directorate was tasked with treating Statoil like any other company. This was so we could attract foreign companies with knowhow and investment which could help us grow the industry. The idea was for them to feel like they where competing on equal terms with Statoil.

The clear political stated goal by Norwegian democratic socialists was to build up a Norwegian oil industry, against the advice of our conservatives who did not believe in active industrial policy.

To achieve this we basically invented what you probably know as the Chinese system of capitalism. It meant foreign companies had to partner in different ways with Norwegian companies, and utilize a certain amount of domestic services. Big tax breaks was given to research and development done at Norwegian institutes and universities.

The oil was nationalized, meaning the state owned all the oil. If you extracted the oil, you basically got a finders fee. So you got about 20% of the value of the oil. Essentially this meant a very high tax of 80% for oil companies. However this tax rate could be reduced by investing in research, development and exploration in Norway. All these policies pushed the development of a domestic high tech Norwegian oil industry. Money poured into research and technology got transfered from foreign companies. Today Norway is the world leader in offshore oil tech.

The Chinese came to us in the 1970s to learn. They had also suffered exploitation by foreign companies in the past. Before communism almost all their industry was owned by foreigners. They did not want to suffer the same fate again while at the same time, just like Norway they wanted to attract foreign investment and know-how. They need a policy that would make investment attractive for foreigners while at the same time benefitting the Chinese state.

Socialists are collectivists. They saw the oil wealth as something for all the people, not for just some capitalist companies drilling for it. Hence they saw a need for a long term perspective for the whole Norwegian people. Thus they made requirements such as a demand for twice as high extraction rate from oil wells as what was normal at the time. It meant Norwegian oil wells had to be far more strongly monitored and controlled to be able to extract all the oil. In short term this is more expensive as you need more planning and more measuring instruments installed. However it also allowed us to produce from wells longer.

I know e.g. in the US, there are no such requirements and a lot of oil is simply wasted. From a capitalist perspective this is the way to do it. You think in individualistic terms. For that particular company, they save money by extracting in the cheapest way. Yet from a national collective perspective, you are wasting precious national resources.

While Statoil was government owned and run, it followed Nordic tradition of effective and merit based government. Competent leaders where installed rather than yes-men or people adhering to a particular ideology. This has been a problem in many other countries. Political partisanship and short term thinking has dominated.

Norway was historically had almost no aristocracy. Hence the elite was typically the educated government administrators. Hence those in power was there primarily due to competence. As democracy developed these traditions lived on.

You can see this also in Sweden today e.g. in how they handle the Corona crisis. They picked the wrong strategy IMHO, so perhaps not a great example, but it does demonstrate something quite different from say the US, where the response was extremely political. In Sweden the crisis was handled almost entirely by professionals. There was not very many press briefings by the prime minister in Sweden.

Norway is a bit more political, but also here professionals have a strong say. All states are founded on some ideals. When modern Norway was founded, the government central bureau for statistics played a central role. Our founding fathers believed that important state decisions should be based on reason and data more than ideology. Thus the Norwegian state saw it as important early on to collect data and use that to inform decision making.

We are all products of our history. America is in many ways a product of lofty ideals and deep seated suspicion towards the state.

One can see how key decision in the US are decided by supreme courts interpreting the US constitution as some sort of holy scripture. It seems like an excercise in religion. “What did the founding fathers really think?” Could almost be rephrased as “What did Jesus really mean?”

The Norwegian constitution plays a much more marginal role in Norwegian politics. Instead here it is all about commissions. Government comissions tasked with gathering data and studying an issue before giving a recommendation. Thus key political decisions tend to be based on thorough study of the subject matter.

Even populist parties find it difficult to push any of their agenda without having some sort of cover from the central bureau of statistics. Hence our equivalent of the Republicans. Not our conservatives which are quite respectable, but their right wing populist coalition partners tried to politicize and undermine the central bureau of statistics. They did not like their conclusions going against their ideology.

Final Remarks on Hyperbole

Keep in mind many of my characterizations here are somewhat exaggerate to clarify my point. I am well aware of that things are not quite as black and white as I may have presented them.

The intention was really just to drive home the point that how effective a government is at doing its job is profoundly influenced by statecraft, and that will vary between country. It is greatly influenced by history and tradition.

You cannot simply assume what seems true in your context to be universally true. Norway is a very different country from the US, with a very different history and political tradition.