Saturday, November 24, 2012

Norway, Scotland, and why I was wrong about the arc of insolvency


   I have often regretted coining the phrase “the arc of insolvency” in this column in 2008 to describe the financial crisis as it afflicted Iceland and Ireland. It was only ever one side of the story. While some neoliberal small nations exploded because of their irresponsible banks, the rest of the Nordic arc - Denmark, Sweden, Finland - passed through the eye of the storm largely unscathed. Certainly, in Norway, where I have been hanging out this week, there is no sign of any financial hangover from the great crash.

Oslo is, as usual, a building site. There can be few cities outside South East Asia that are so obviously booming. Unemployment here is very low, salaries are very high, beer is ruinously expensive at eight pounds a pint – though that doesn't seem to stop people going to the pub. Even the banks are doing well in Norway, largely because they didn't get caught up in the property madness that exploded Iceland and Ireland.

Deficit? Non existent – Norway has the largest budget surplus of any AAA rated nation in the world. Growth is “only'”3.7% ; inflation is 1.4% ; unemployment at 3.3% is the lowest in Europe and poverty is almost too low to measure. This is a country which regularly tops the global quality-of-life indexes. So what is the secret? Why have economies like Norway been largely immune to economic crisis that left countries like Britain as debt zombies, kept going only by zero interest rates and money printing?


Well, oil for a start. Norway is Europe's largest exporter. Mostly the revenues have been parked in the Norwegian sovereign wealth fund, which is now the third largest in the world and worth $500bn. The government is only allowed to take a tiny amount out each year, so this wealth accumulates without generating inflation.

When you visit Norway you really appreciate how giddily altruistic the Scots were in in the 1970s and 80s - giving their oil away in exchange for the Barnett handout and a couple of savage industrial recessions. The Scottish people were the ultimate ragged-trousered philanthropists: the only nation, region, principality or state in the world to have discovered oil and never to have directly benefited.

The oil is running out of course, but there's still “enough” as Norwegians like to say, and gas is all over the place. Norway is now the second largest gas exporter in the world. There is much anguish in Scotland about how North Sea oil is a “sunset industry”, and how no country can depend on a diminishing natural resource. But it can be a pretty long sunset. However, it might surprise people in Scotland to learn that Norway does not put its economic success down to natural resources but to social solidarity.

Norway is one of the most egalitarian of countries. In 2010, 95% of Norwegians earned less than £50,000 a year, and they have one of the flattest income distributions in the world. They look with horror on countries like America and Britain where millions are in poverty while the top 1% get richer and richer. They believe that low wages damage the economy – and they are right.

In Norway, pay is still mostly negotiated centrally by a tripartite arrangement of unions, government and business. It sounds like something out of the 1970s and probably is. But Norwegians feel that this corporatism works well in a small country of 5 million people and that social solidarity is not incompatible with economic dynamism. The state in Norway doesn't have to spend billions on tax credits to subsidise low pay because firms pay decent wages. And because labour costs are inelastic, Norwegian companies have a strong incentive to grow by innovation and productivity. Compare and contrast with Britain where productivity is flat-lining as employers cut wages to keep going through a triple downturn. .

Also, consumer demand in Norway is steady and predictable because people feel secure and able to spend for the future. Thus you don't get the debt cycle of boom and bust that happens in Anglo-Saxon countries like Britain and America where people had to borrow to maintain living standards and are now cutting back, burdened by debt. Effective demand is stable in Norway so companies can invest with greater security.

There are so many lessons for Scotland here, it's hard to know where to begin. Obviously, if Scotland had benefited from its oil wealth since 1970 it would be a very different country to the one it is today. It is doubtful whether we would still have some of the worst mortality rates for middle aged people in Europe, as the Glasgow Centre for Population Health reported this week. Also, Scotland is not backward or naïve in favouring collective solutions like free higher education and elderly care, which are all regarded as essential pillars of the Norwegian welfare state. The 'feel' of Norwegian society is very much like Scotland, in terms of social expectations and outlook. Looking at Norway today, it is hard to argue that Scotland could fail to be an extremely successful independent country, were the Scots to vote Yes - though they don't seem to minded to take this optionOnce independent, Scotland would probably find a place as one of the energy rich small nations of the true arc of Nordic prosperity.

   As for the debate about Scotland in Europe, Norway is of course not a member of the European Union and has its own currency, the krona. The Norwegians stayed out of the EU largely on the grounds that it was too right wing – a proposition that astonished the Tory eurosceptic former defence secretary, Liam Fox, on a visit here last month. Norway is one of a block of Nordic currencies including Denmark and Sweden that kept the krona though they are in the European single market. Which confirms that there are many ways small countries can relate to the European Union, and to neighbouring countries.

Norway isn't that much engaged with Scottish independence. Most people here still call the UK “England” - the country that helped liberate Norway from the Nazis. They are intrigued however at the prospect of a referendum on independence. In 1905, the Norwegians voted to dissolve he union with Sweden by a margin of 99.5%. Only 184 people voted No. So, perhaps a little way to go yet, Alex.

10 comments:

SuperGeemac said...

Great optimistic but realistic article , which gives all of us hope as we struggle with imposed austerity .

tris said...

I used your article (with full credits) on my blog Iain.

It is indeed inspiring. People are bound to ask, why them? why not us?

The answer is their oil money was shared with a relatively poor relatively rural, population of 5 million, by a government whose main aim was to run Norway well.

Ours had to be shared with a post industrial population of 55 million and rising, by a government which was determined to maintain its position as a nuclear power at American's right hand.

I truly wish I had had the good fortune to be born Norwegian.

Last Fish said...

Scotland could if it wanted learn a lot from Norway. We could again have healthy seas & a healthy inshore fishing industry like Norway. We just need the political will to copy Norway's ban on Trawling within all inshore waters. In favour of more sustainable Creel & Line fishing.
Question is can the SNP govern for all Scots & not just the North East favoured fishermen's Ass' Ripping the arse out of the seabed eventually catches up with us both environmentally & economically. Scottish government have total management control of inshore fishing policy unlike the offshore problems with CFP. The big question the SNP need to answer after 5 years of government what's their record of management of our inshore waters. Answer pretty dire so far.
HW

Anonymous said...

Ian, as one of the more objective journos, you appear to be one of those federalists who, denied that option in the referendum, are now slipping quietly into the Yes camp. Is this a trend and in your opinion, is it enough to win the referendum?

David Shaw said...

Good article, thank you for the read.

I feel if we had at least a fraction of the oil money we could put it all into 'Natural Resource Farming', such as wind and wave farms, we could sell the excess energy and it could be a boom for Scotland's economy giving us a yearly unlimited income, as it does not run out, like the aforementioned oil.

I watched a documentary that there *could* be oil resources to keep us going until 2050. the earliest I heard was 2025. Surely we could have a natural farms in place by then.. giving very cheap electricity to all Scottish home, hopefully run by a government body/company, to ensure cheap for us and well priced but competitive to sell to others.

England and Wales do not do naturals farms in kind of way I have heard of and certainly not to the same extent as Scotland's interest.. this seems like a good trade off to me.

Ideally, I would like to see free electricity for Scotland once the whole thing was in place and paid for. but this is just an idea.

We in Scotland have LOADS of power in the north, the wind up there is ideal for wind farms, and I, personally, think the the windmills are amazing looking and i like them, I don't feel they spoil the natural landscape and are a sight to behold. once in place its all free and never ending.. wow..just think of that!

Dava

Anonymous said...

Thank you Iain. The kind of writing that is missing everyday from Scottish newspapers.
Please write more articles like this one, that represent the real current of Scottish opinion and not shoring up the outgoing tide of unionist desperation.

SteveB said...

Great Article Iain,
my question would be, why has it taken you so long to print this?
How about doing an article on Iceland now, with their new invigorated democracy and their fast diminishing debt.
Please Iain, dont stop now, you are on fire.
we desperately need people like yourself to get the truth out there to our fellow Scots.
P.S Thank you.

Anonymous said...

Not perhaps as successful a society as you make out given that it produced Anders Breivk.

cynicalHighlander said...

Anonymous said...

Not perhaps as successful a society as you make out given that it produced Anders Breivk.


Or UK Blair or Brown!

We have been sayining it for decades Iain but the MSM and journo's have been ignoring us as we didn't fit the established order whose only interest was themselves and not serving the majority of people on these Isles who contributed their wages. Truth wins in the end.

Anonymous said...

There are really a lot of things and scenes to see during corryvreckan cruising. It's one experience that you should try in Scotland. It's ideally great for groups of people. You'll definitely have a lot of fun.