Some news about Norway today offers a glimpse at a unique collision of economic clichés: the “resource curse” hitting the “welfare state.”
Apparently, the Norwegian government is considering slashing the prices that it charges shippers to transport gas through its pipelines. Investors in those pipelines—and they’re a powerful bunch—are really annoyed at what this will do to their profits. What’s more, the government is risking legal reprisals, investor flight and higher future borrowing costs on its infrastructure projects.
What would make Norway’s government crazy enough to earn comparisons to Venezuela or Russia?
For one thing, its oil production has fallen by around half in the last decade, and it needs to keep raising gas output to offset that. Lowering the tariff encourages gas producers (which are dominated by Norway’s Statoil) to explore more gas deposits and get more out of them.
But more generally, Norway needs to up its gas production to support its economy. Though the country’s non-energy GDP rose more than its overall GDP did last year—3.5%, compared with 3.2%—its workers are becoming less productive and its economy less competitive.
A lot of that is due to the knock-on effect of oil and gas investments, which have driven costs for all other businesses sky-high. (Some take this as evidence that Norway is suffering a form of “Dutch disease,” a decline in competitiveness caused by natural-resource wealth, despite setting up an oil fund to prevent that very problem.) It’s gotten so bad that non-energy companies like Norwegian Air Shuttle and Kvaerner are considering leaving Norway in order to compete globally, reports Reuters.
But Norway needs more workers to bring those costs back down. And that’s proving tricky.
Norway has the lowest income inequality rate in the world. This means unskilled work is well paid compared to other countries, but skilled work isn’t. So while Norway continues to draw unskilled labor, skilled laborers have emigrated elsewhere—such that, by 2016, the country will face a shortage of some 6,000 engineers.
One reason for Norway’s egalitarian wage distribution is its fantastic social welfare system. But this is expensive to maintain. As Reuters points out, the Norwegian government recently reported that the country’s workers will soon produce less than the government spends on them, requiring it to start dipping into state savings. Workers will need to up hours by 10% to prevent this from happening, the government found.
Which brings us to another problem: Norway now also faces declining productivity—its wages are rising almost twice as fast as GDP, says Reuters. But there’s no easy fix to this since the upshot of the social welfare largesse is that you don’t need to work all that much.
Of course, much of this can be filed under “nice problems to have.” But that doesn’t mean they’re not going to keep getting harder for the Norwegian government to manage.
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