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How Norway Got Insanely Rich - YouTube
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[Music]
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in the late 18th century one of the
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great historical economists thomas
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malthus toured the picturesque but
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climatically harsh danish controlled
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norway the tiny population that resided
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lived a meager existence subsisting off
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of their small farms and whatever they
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could catch in the sea the winters
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shrouded the country in near darkness
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for half the year and the amount of land
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suitable for agriculture was my newt at
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best efficient travel in this
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mountainous country was almost
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impossible towns were remote and
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isolated and its citizens were poorly
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educated if at all long gone was the age
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of viking conquests bringing their
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riches and plunders back with them
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norway was not rich but in fact very
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poor in the decades after the visit
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things got even worse plagued with wars
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blockades and embargoes norway's economy
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was in ruins and famines spread across
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the land norway in a lot of ways was
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destined to remain underdeveloped and
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unimportant
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yet today if you don't include
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micronations norway is the second
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richest country on earth one of the
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happiest the seventh healthiest and it's
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ranked the most democratic nation in
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almost every metric that measures the
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prosperity of a nation norway is near
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the top and all of its citizens are
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technically quarter millionaires but how
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many countries have tried to do what
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norway has done and ended up even more
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impoverished than before how did norway
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become so insanely rich while other
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nations failed and is norway's economy
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just too good to be true
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[Music]
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these are the countries with the world's
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largest reserves of oil collectively
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they account for 84.9 percent of the
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remaining supply yet they only make up
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7.9 percent of the world's gdp venezuela
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has almost a fifth of the total yet it's
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the poorest country in the western
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hemisphere in fact most countries on
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this list have severe economic or social
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issues saudi arabia iran iraq kuwait and
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the uae all suffer from human rights
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abuses and extreme inequality russia has
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been in decline for decades and libya
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has been in a state of anarchy since
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gaddafi was overthrown in 2011. this is
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what many economists call the oil curse
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today oil and gas accounts for 27 of all
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energy generation even as the world
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inevitably tries to move toward better
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in cleaner sources of energy oil today
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and for a long time will be a necessity
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with oil nearing its highest price ever
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you would think that having a large
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quantity of it would be a blessing for a
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nation's economy the problem with oil is
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that it's like winning the lottery all
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of a sudden sometimes overnight nations
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start to get inundated with mountains of
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money they use it to lower taxes and
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dramatically increase spending as the
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oil industry starts to snowball into the
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most powerful sector of the economy it
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starts to box out and overshadow all
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other industries as more oil is exported
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the demand for the local currency
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increases boosting citizens buying power
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abroad but also crippling domestic
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manufacturing new politicians promise to
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spend more to get elected and dictators
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do the same to remain in power choosing
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to spend today instead of saving for
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tomorrow often the government becomes
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corrupt the wealth is funneled to a
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select few and before you know it the
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economy is rich on paper yet the average
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citizen suffers but there seems to be a
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single extraordinary exception to the
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oil curse as you might have guessed that
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country is norway but why didn't oil
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destroy norway's economy what makes it
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fundamentally different from libya
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venezuela saudi arabia and all the other
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small oil exporting nations
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[Music]
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about a hundred years after malthus's
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visit norway had just gained its
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independence when it separated from
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sweden it was still uneducated and still
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poor its economy was centered around
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shipping raw resources like timber fish
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and minerals and it had little in common
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with its rapidly industrializing
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southern neighbors but it did have some
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things going for it over the prior half
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century in the age of free international
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trade norway built the world's fourth
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largest merchant fleet gaining them
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valuable expertise in shipping trade and
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technology and being an important source
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of foreign currency norway had also
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coalesced a strong parliamentary system
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during its struggles for independence
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and with it arose universal suffrage
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workers rights and strong social reforms
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its wide distribution of political power
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and checks and balances served as a
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strong backbone to future prosperity
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their geography while harsh also enabled
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immense amounts of cheap
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hydroelectricity laying the seeds for
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industrialization however almost 75
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percent of all hydro power was owned by
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foreign companies the new government saw
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this as a risk and believed the
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resources of norway should be owned by
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and for norwegians a bill was passed
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limiting such foreign ownership and
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putting constraints on any attempts at
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monopolization this experience in
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controlling natural resources would
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prove incredibly important later in the
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story but all of this coincided with the
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introduction of new technologies which
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significantly reduced the burden of
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transportation railways roads and new
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methods of transmitting communication
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greatly narrowed norway's inherent
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disadvantage against its european
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neighbors all of these forces
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kickstarted rapid economic growth and
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industrialization but one way in which
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norway differed was its very strong ties
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to welfare education and public industry
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that would serve them well later on
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norway would largely keep on growing but
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being small and reliant on international
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trade meant it was swept up in the
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global economic and geopolitical forces
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of the early 20th century it was
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officially neutral in both world wars
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but its merchant fleet took a massive
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hit in the first and on april 9 1940 it
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was invaded and then occupied for five
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years by the germans by the end like
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many other nations norway was left to
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pick up the pieces of its country and
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economy it joined many international
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organizations and was one of the largest
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recipients per capita under the united
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states's marshall plan the labor party
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seized the blank slate and worked to
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establish strict social democratic rule
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with a large emphasis on the public
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sector and centralized planning while
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also allowing the inherent economic
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benefits of private competition to
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thrive from 1945 to 1975 norway produced
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an incredibly reliant and strong 3.3 gdp
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growth per year taxes were some of the
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highest in the world but government
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spending on education shaped the
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workforce into one of the most capable
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on earth and had a strong social safety
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net and inequality continued to fall
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lower than comparable countries
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inflation remained subdued and
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unemployment was almost non-existent
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norway's economic performance during
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this time was strong and steady but it
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was a far cry from being the economic
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powerhouse it is today
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by the 1960s norway was no longer poor
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it had largely caught up with the other
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european nations but it was still just
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an average performer that was about to
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change with the discovery of large
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reserves of natural gas found in the
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netherlands speculation started to arise
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about oil being located in the north sea
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but there was a problem if there was
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vast amounts of oil beneath the waves
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whose was it after some back and forth
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norway asserted its claims over these
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waters the norwegian government was
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skeptical about the idea of oil residing
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on the continental shelf but it
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nevertheless started to divide up and
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sell licenses for oil exploration one
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such company phillips petroleum started
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drilling well after well try after try
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they continued to find nothing due to
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some technicalities in their contract
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phillips gave it one last shot but this
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time deeper at last in 1969 the first
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drops of north sea oil was extracted and
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not just a little but massive quantities
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of it a black gold rush quickly ensued
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and in less than a decade norway was
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producing more oil per resident than any
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other country on the planet the oil
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sector became a titan thousands of
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high-paying jobs opened sleepy fishing
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towns became petroleum powerhouses
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billions of dollars started rolling in
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and norway's economy was forever
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transformed but we have heard about this
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before the beginning of norway's oil
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story had many similarities with other
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oil-rich nations while foreign companies
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rushed into venezuela profiting
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handsomely and returning little more
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than propping up its dictatorship norway
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tried another way unlike in venezuela
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where absolute power was already in the
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hands of a single man norway's political
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power was already widely distributed
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making it impossible for a single person
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or group to benefit themselves at the
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expense of society therefore norway's
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government was not only able to but
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restricted in making decisions based on
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the utility to the whole nation norway
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had also watched the oil curse happen
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across the world it knew that oil luck
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did not mean permanent luck much like
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its battles with the hydro companies
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immediately after independence norway
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took the same approach with oil to the
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government the natural resources of
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norway belonged not to foreign oil
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companies but to the people of norway
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these companies could help explore drill
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and extract the oil but a majority of
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profits earned was to be funneled to the
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state at the same time its own public
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oil company statoil was to study
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replicate and eventually surpass their
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expertise norway also knew that to
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squeeze everything out of this
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opportunity it needed to not only
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extract crude oil but to create its own
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petroleum processing industry that meant
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massive investment in infrastructure
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careful central planning and the
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generation of its own engineering
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workforce it could have easily slashed
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taxes and blew its lottery on popular
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policies but it didn't it also worried
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about the petroleum sector dominating
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the rest of the economy so it set a 90
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million ton per year limit oil was not
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to replace the norwegian economic engine
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it was to become its supercharger but
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things were not perfect norway knew it
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wanted to spend the money to benefit its
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people but it was not entirely sure how
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best to do this the oil industry
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expanded and so did prices more money
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came in then the government knew what to
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do with it then in the early 80s oil
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prices plummeted and a recession began
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economic growth stagnated for almost a
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decade a time old tale about economies
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based on oil norway was not squandering
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its oil revenue but it needed to do
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something more
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when your economy is at the mercy of a
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single commodity price the solution is
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to diversify investment this is exactly
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what norway did when it created its
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government pension fund in 1990. other
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governments tried this but their
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political climates enabled them to
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become personal piggy banks to whomever
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was in charge voiding them of their
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initial intended purpose to save for
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when oil no longer showers the economy
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and money norway's sovereign wealth fund
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was different and the government
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structured it in such a way as to not
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become corrupted the government can only
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spend the profit it expects to generate
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that means that new politicians cannot
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run on the promise of spending more
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today at the expense of tomorrow and it
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also follows strict investing rules it
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cannot invest in oil companies nor
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companies that follow unethical
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practices and maybe most importantly it
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cannot invest in norwegian companies
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this might seem strange at first but the
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purpose of the fund is to diversify risk
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if the norwegian economy was to hit a
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steep recession the fund wouldn't
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because it's not invested in norwegian
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companies and therefore it provides a
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safety net to short-term domestic shocks
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today the fund has become the largest
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such in the world owning 1.5 of all
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public companies in the world at its
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peak it was valued at 1.35 trillion
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dollars enough for every norwegian to be
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handed 250 000
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and this amount is expected to keep on
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growing while other scandinavian
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countries have had to reduce their
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social spending norway is using the
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interest of its oil revenue to provide
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health care education and a safety net
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to families hit by hard times norway
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still has some of the highest taxes in
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the world but its people never have to
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worry about paying medical bills that
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they can't afford
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norway has managed to get lucky but it
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maneuvered carefully and set itself up
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for the foreseeable future oil is a
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massive part of the norwegian economy it
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provides high-paying jobs but it still
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maintains many other productive
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industries if oil went away tomorrow
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norway would hurt but it would still
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manage to be one of the wealthiest
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nations on earth does this mean it has
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the perfect economy or one that other
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nations should seek to replicate the
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answer is no norway has been given an
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incredibly fortunate situation not every
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country has trillions of dollars of oil
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sitting off its coasts but its reliance
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on the public sector has reduced
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competition and potentially growth and
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its cost of living is among the highest
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in the world norway's economy is not
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perfect for the world it's perfect for
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norway but what about all the other
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oil-rich nations unfortunately it
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appears strong democracy needs to have
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already been established before being
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blessed with oil otherwise politicians
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and strong men jockey for power seeking
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short-term gains at the expense of the
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future not only that but established
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productive industries must already be in
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place along with strong educational
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institutions to fully utilize the oil
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revenue's potential for a more in-depth
[921]
look at how oil can destroy nations
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check out my video on how venezuela went
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from being the fourth richest nation on
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earth to one of the poorest norway in a
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lot of ways got lucky but luck alone can
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often be fatal for a nation while most
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nations squander their oil lottery
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dumping money into social spending for
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votes buying luxury villas or sprawling
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desert highways and stuffing the pockets
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of politicians norway invested its money
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and now lives off the interest economics
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is the study of scarcity everything is
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scarce particularly luck nations that
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know this tend to thrive
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[Music]
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