What Happens to Norway Without Oil Income?

There is a common perception that Norway as we know it today is unsustainable and will radically change once oil runs out. But is that true?

The Purpose of Exports

We are used to thinking about exports as something you want to do as much as possible of. However, this is a flawed thinking. Exporting means you are shipping goods out of your country. Naturally, you want goods and services shipped into your country, not out of it.

What Happens When There is a Trade Imbalance?

In reality, there is never really a trade imbalance. If a country such as the US buys more goods and services than it sells, what happens is that foreigners get a lot of dollars that they do not actually use to buy things in the US.

Getting the Facts About Norwegian Economy Right

Before we can discuss exports, imports, deficits or surpluses, we need to get the facts about the Norwegian economy. Let us look at what Norwegian business newspaper E24 says in this story: Norway less oil dependent than during last crisis.

  • Only 14% of the GDP is oil and gas related.

How To Replace Oil Exports

It is easy to assume that if the oil industry is gone, Norway needs to find another industry to replace the 33% of its exports which are suddenly gone. But this is simply not true.

  • imports of 757.9 billion NOK
757.9 - 914.7 × (1 - 0.33) = 145

The Oil Fund to the Rescue

This is where Norway having been prudent and saving a lot of the oil money over many years pays off. Norway has over 10 000 billion NOK in foreign assets. This is in the form of stocks, property and other valuable assets, all of which naturally appreciate in value every year because the businesses owned naturally expand and grow. The average index fund gives a return of 7% annually. That is a very conservative estimate of how much the oil fund can make each year.

This Sounds Too Good to Be True!

It may seem incredible that Norway can stop pumping oil without consequence. But that is not entirely true. While Norway is pumping oil the oil fund would keep growing faster each year than it would be doing without the oil income.

You don’t see a lot of gold plated luxury cars in Norway, because that is not how Norway spends its oil wealth.

How Norway Spends Money

Norway doesn’t look opulent for several reasons:

  1. Norway spends a lot of money on things which are not readily visible and which is not very glamorous.
A Norwegian “barnehage”. A pre-school / day-care in Norway for children from 1 to 6 years old. Norway likes to spend resources of creating good environments for children.
Images from Halden prison in Norway. The worlds most humane prison.

Conservative Intolerance of Norwegian Success

Part of the reason I write this story is because I so frequently encounter conservatives on social media who want to insist that social democracy is unsustainable. Their idea is that the human nature of social democracy with socialized health care for all, free college, etc., is some sort of luxury indulgence that cannot last.

The Oklahoma oil boom has left public finances in ruins and teacher fleeing the state. Freewheeling capitalism combined with an oil boom is a toxic mix best avoided.
Margaret Thatcher used north sea oil revenue to break the unions and give tax breaks to the rich.

Geek dad, living in Oslo, Norway with passion for UX, Julia programming, science, teaching, reading and writing.

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