Norway has escaped the ravages brought on by the global financial collapse. What’s Norway’s magic formula? Share the wealth.
By Sam Pizzigati
Amid our world’s economic wreckage, today’s New York Times marveled, at least one developed nation seems to be doing just fine. That nation — little Norway — actually grew economically last year. Norwegians today haven’t just sidestepped the recession. They face no national debt. And Norway’s banks? They remain, the Times observes, “largely healthy and prudent.”
What explains this remarkable Norwegian success? Why hasn’t the global meltdown brought Norway the same debt and despair that’s blanketing nearly every other nation? The Times analysis offers a few possibilities. The “quirky contrariness” that defines the Norwegian national character, the Times suggests, helps Norway go its “own way.” As does oil. Norway has plenty of it. The country’s oil revenues last year totaled $68 billion.
What sets Norway apart? The special difference just may well be equality. Few nations have a distribution of income and wealth anywhere near as even as Norway’s.
But plenty of other nations have “quirky” national characters — and abundant oil. So what, then, truly sets Norway apart? That special difference just may well be equality. Few nations have a distribution of income and wealth anywhere near as even as Norway’s.
A few stats: In 2006, the most recent year with comparative data available, the most affluent 10 percent of American households collected 41.6 percent of the nation’s total income. In Norway, only 20.6 percent of the nation’s total income went to the top 10 percent.
Norway works hard to stay on an even distributional keel. The wealthiest Norwegians pay a 47.8 percent tax on income over $105,368. The top income tax rate in the United States: just 35 percent.
The tax-the-rich contrast between Norway and the United States runs deeper than the simple difference between these two tax rates. Norway’s 47.8 percent top rate applies to both ordinary salary income and capital gains income from the buying and selling of stocks and bonds. Wealthy Americans pay only a 15 percent tax on their capital gains.
Still another difference between the two nations: Norway discourages tax cheating by making the taxes Norwegian households pay a matter of public record. Newspapers can and do highlight how much Norway’s most financially fortunate are actually paying in taxes.
But nothing probably demonstrates the contemporary Norwegian commitment to egalitarian values more than Norway’s approach to handling its considerable oil abundance.
A national abundance of a valuable natural resource, economists have often noted, can be more curse than blessing. Huge concentrations of oil or minerals have often distorted and stunted healthy economic growth and ended up nurturing much more corruption than social progress.
Norway has neatly avoided this “resource curse.” Economists Ådne Cappelen and Lars Mjøset, in a new study from the United Nations University’s World Institute for Development Economics Research published last month, explain just how.
Norway is working from the assumption, note the two researchers, that the nation’s oil “resources fundamentally belong to the whole nation and not to any private company or group of people.”
In 2001, all the government’s oil revenues — both the taxes levied on private oil companies and the profits from direct state ownership of oil resources — began flowing into a “Petroleum Fund.” The government invests the entire sum of these revenues in foreign financial securities, then annually transfers into Norway’s annual budget the expected real rate of return from this investment, about 4 percent per year.
In effect, Norway is converting “petroleum wealth” into “financial wealth” and using this wealth to ensure a stable social safety net for all Norwegians. One benchmark of Norway’s success: Only 4 percent of Norwegian households with children, one study of developed world economies reported last October, rank as poor. The comparable poverty rate in the United States: 18 percent.
In short, note Cappelen and Mjøset in their United Nations University analysis, Norway has “secured broad distribution of the benefits from oil production.”
Securing broad distribution, that’s what nations that take equality seriously do. And that’s why they do better economically, in good times and in bad.
Sam Pizzigati edits Too Much, the online weekly on excess and inequality.