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May 11, 2014
The so-called “Model of Socialism” that exists in Norway is propped up by vast oil revenue. As more oil is pumped, it gets increasingly expensive. The oil that is the cheapest to mine, is always mined first. Eventual the cost of mining the oil will become as much as the market price and operations will cease.
Unfortunately for Norway, oil revenues are waning years ahead of schedule. The country has a massive currency reserve of $170k per person. However, even that much money won’t last long the way Norwegian government spends on welfare.
Noway has a rapidly growing immigrant population, in which the majority live on welfare. The country is also building a massive underclass that only works part-time and gets lucrative welfare benefits.
Norway’s energy boom is tailing off years ahead of expectations, exposing an economy unprepared for life after oil and threatening the long-term viability of the world’s most generous welfare model.
High spending within the sector has pushed up wages and other costs to unsustainable levels, not just for the oil and gas industry but for all sectors, and that is now acting as a drag on further energy investment. Norwegian firms outside oil have struggled to pick up the slack in what has been, for at least a decade, almost a single-track economy.
How Norway handles this “curse of oil” – huge wealth that bring unhealthy dependency in its train – may hold lessons across the North Sea in Scotland, which votes on independence from the United Kingdom later this year, relying at least in part on what it sees as its oil revenues.
Norway had the foresight to put aside a massive $860 billion rainy-day cash pile, or $170,000 per man, woman and child. It also has huge budget surpluses, a top-notch AAA credit rating and low unemployment, so tangible decline is not imminent.
But costs have soared, non-oil exporters are struggling, the government is spending $20 billion more oil money this year than in 2007 and the generous welfare model, which depends on a steady flow of oil tax revenue may not be preparing Norwegians for tougher times.
“In Norway, job security seems to be taken for granted, almost like it’s a human right to have a job,” says Hans Petter Havdal, CEO of car-parts maker Kongsberg Automotive.
Kongsberg Automotive has only 5 percent of its workers left in Norway, having moved jobs to places like Mexico, China and the United States, and keeping only high-tech, automated functions at home. It says it is struggling with high labor costs and even problems such as excessive sick leave.
“It’s a bit discouraging that the sick leave in Norway is twice the level of other plants,” Havdal said. “That is to me an indication that something is not as it should be.”
With per capita GDP around $100,000, the Norwegian lifestyle has become such that the work week averages less than 33 hours, one of the lowest in the world, and while unemployment is low, there is large underemployment, made possible by benefits.
In 2012, a new word entered the Norwegian lexicon – to “nave”, or live off benefits from welfare agency NAV.
