How This Small Nation Became

Incredibly Rich
Deep within the rugged landscapes of Scandinavia lies a nation
that has defied all odds to become one of the wealthiest countries
in the world. Norway started as a backwards, poor country but
became a prosperous empire. Today, Norway is the second
wealthiest nation in the world if you disregard micronations. The
country's sovereign wealth fund is among the most significant
investment mechanisms globally. You might think its vast oil
reserves would be the reason for its wealth, but most oil-rich
small nations face severe economic and social challenges. So,
how did Norway avoid the oil curse to become the economic
powerhouse it is today? In this video, we will discuss when, how,
and why this Scandinavian nation got so rich.
Settlement in Norway started around 9000 BC, following the
conclusion of the initial ice age, which transformed it into a place
suitable for human habitation. The Norwegian economy was
historically centered on local farming communities and other
industries, such as fishing, hunting, wood, and timber
production. A domestic and international merchant fleet for trade
due to the country's topography and climate, communities in the
North and West relied more on fishing and foreign trade than
those in the South and East, which were primarily dependent on
agriculture.
During the onset of the Industrial Revolution in the UK and
continental Europe, Norway faced hardships. The harsh winters
presented challenges for farming, while the country's natural
terrain impeded travel, education, and the exchange of
information. Norway's economy relied partly on other
Scandinavian countries, and famines drove numerous families to
pursue a new life in the emerging United States.
However, during the final decades of the 18th century, the
Norwegian economy experienced growth due to the rise of
liberalism. Foreign trade of fish and timber had been significant
for centuries, and the merchant fleet was expanding rapidly.
Things only got better for Norway when the country achieved
autonomy from Denmark in 1814, following a long-standing
union of 417 years. Norway became a robust and equitable
nation with significant self-sufficiency in farming, fishing, and
hunting.
The newly emerging state did not have its own establishments,
business owners, or local funds. Nevertheless, because of its
abundant natural resources and proximity to the sea and the
United Kingdom, Norway, connected to Sweden through a loose
royal union, took advantage of its opportunities after a few
decades. By 1870, it had become a relatively prosperous nation.
In terms of GDP per capita, Norway was well above the
European average, ranking in the middle among the Western
European countries and surpassing Sweden by a significant
margin.
However, Norway faced more hardships due to the worldwide
economic decline following the Napoleonic wars, a constrictive
monetary policy, and trade restrictions imposed by the UK. After
the Second World War, the Labour Party developed a social
democratic economy with a substantial presence in the public
sector. The Norwegian economy received an additional $400
million from the US Marshall Plan. Norway established its
Central Bank in 1816 and introduced a national currency called
the Speciedaler, which was tied to the value of silver. The value
of the Speciedaler decreased notably during the challenging
initial years of economic recession in the 1820s.
Things looked up when the Norwegian Speciedaler gained its par
value to silver in 1842. Norway yet again saw a period of
significant economic growth up to the mid-1870s. This
impressive growth was mirrored in only a few other countries.
The growth process was initiated by high productivity growth in
agriculture and the success of the foreign sector. Adopting new
structures and technology and substituting arable for livestock
production increased labor productivity in agriculture by about
150% between 1835 and 1910. Exporting timber, fish, and, in
particular, maritime services achieved high growth rates.
Norway became a significant power in shipping services during
this period, accounting for about 7% of the world merchant fleet
in 1875. Norwegian sailing vessels were renowned for
transporting international goods worldwide at competitive
prices.
Then, Norwegians saw a boom from 1950 to 1973, often referred
to as the golden era of the Norwegian economy, characterized by
an impressive annual GDP per capita growth rate of 3.3%.
Foreign trade flourished, unemployment was nearly non-existent,
and the inflation rate remained stable. Many attribute this
prosperity to the substantial public sector and effective economic
planning. Even though this era was far from the economic
powerhouse that Norway is today, it was a period of economic
strength for the country.

OIL
(https://www.norskpetroleum.no/en/production-and-exports/
exports-of-oil-and-gas/)
In the late 1960s, Norway struck gold with the discovery of gas
and oil. The discovery of gas in Groningen, Netherlands, in 1959
prompted a reassessment of the North Sea's petroleum potential.
This discovery sparked excitement in a region heavily reliant on
coal and imported oil for energy. As a result, attention turned to
the North Sea in the search for more gas and oil. Despite initial
negative geological assessments, Norway's enthusiasm for
exploration grew after gas discovery in the Netherlands.
In October 1962, Phillips Petroleum applied to the Norwegian
authorities to conduct exploratory activities in the North Sea.
The company sought a license for the areas of the North Sea
falling within Norwegian territory, potentially encompassing the
Norwegian continental shelf, or better known as NCS. So, what
is the NCS? Simply put, it is a relatively shallow section of
seabed off the coast of Norway.
The company proposed a monthly payment of 160,000 dollars.
The offer was interpreted As an effort to secure exclusive rights,
which the authorities refused, as they were unwilling to grant
one company control over the entire shelf; if the areas were to be
opened for exploration, multiple companies would need to be
involved.
Ekofisk oil field, situated in the southern part of the Norwegian
sector in the North Sea, was discovered in 1969, marking the
beginning of Norway's oil industry. At that time, it was the
world's largest offshore field, and it had been in production for
over fifty years, with plans for production to continue for almost
thirty more years.
Significant amounts of oil and gas were subsequently discovered
in the northern North Sea, including the Statfjord, Gullfaks,
Snorre, Oseberg, and Troll fields. In 2010, over 400 million
standard cubic meter of oil were found in Johan Sverdrup,
making it the fifth most significant oil discovery ever on the NCS.
These discoveries highlight the North Sea's status as one of the
world's premier petroleum basins.
Norway may not be one of the largest oil-producing nations
globally, providing just 2% of the world's oil demand, but it is a
significant exporter. Most oil produced on the Norwegian shelf is
exported and contributes substantially to the country's revenue.
In 2019, crude oil worth 29 billion U.S. dollars was exported.
Additionally, in 2018, Norway exported about 61.1 million metric
tons of crude oil via pipelines and ships.
This significant discovery of oil promised great wealth and
significantly changed Norway's fortunes. Consequently, Norway
had to make a crucial decision. They thought about handling this
sudden wealth with care. The Norwegian government decided to
save the oil money for the future instead of spending it all at
once, following a similar approach to what it had done with
hydropower companies. This decision was based on the belief
that natural resources belonged to the people and that oil and
gas production should be a profitable activity, with the profits
being funneled to the state. In addition, the government
established a public oil company called Statoil, which aimed to
learn from and eventually take over foreign companies in the
long term. Norway also made substantial investments in
petroleum processing infrastructure and the education of
engineers. Essentially, the country prioritized long-term security
rather than investing in short-term popularity.
Not only that, but the politicians established the 10 Oil
Commandments to organize oil production. It was clear that
Norway had to establish its industry, develop its technology to
extract the oil and make the Norwegian state a key player in
managing the oil resources. To gain more control over their oil
production, foreign companies were gradually replaced by
Norwegian companies such as Statoil and Norsk Hydro. This
shift allowed Norway to retain a more significant portion of the
oil revenue for themselves. Today, these companies are global
leaders in the oil and gas industry, utilizing their own developed
technology for exploring and extracting oil worldwide, a process
that began in the 1970s.
Over the past forty years, petroleum activities on the Norwegian
continental shelf have significantly contributed to Norway's
economic growth and financed much of the welfare state.
According to government figures, the industry has created values
over NOK 12 trillion in current terms. According to the
government's official website the oil and gas sector contributes
to about 23% of Norway's value creation, which is more than
double the contribution of the manufacturing industry. Norway,
with a national population of only a fourth of New Delhi's, is one
of the world's top 10 largest exporters of crude oil and is the
largest to Europe. The sector contributes to 21% of all economic
investments and employs over 180,000 people directly and
indirectly. While the discovery of oil was purely by chance, how
Norway has managed and used the substantial funds generated
by the industry is a whole different story.
Before we get into the last part of the video, make sure to check
out the link in the description for my best recommendation for
further expanding our knowledge on a more personal scale!

Government Pension Fund Global

Another turning point for Norway's economy would be the
Norwegian Oil Fund, established in 1990, also known as the
Government Pension Fund Global. As the oil industry expanded,
prices rose, and Norway found itself with an abundance of
money. However, the 1980s oil price drop led to a recession, and
economic growth slowed. Although Norway hadn't squandered
its money, it needed a better plan. The Heritage Savings and
Trust Fund influenced the creation of this fund in Alberta,
Canada. The fund's purpose was to function as a financial
reserve and a long-term savings plan for future generations.
Norway made its first deposit into the Government Pension Fund
in 1996, and by 1998, it had a market value of about $23 billion.
Norway's sovereign wealth fund is the largest in the world, with
$1.36 trillion in assets. Norwegian law restricts the government
from withdrawing funds financed by oil revenue because that
money is intended for the people of Norway. The government can
only withdraw a 3% return earned by the fund during a year. As
of 2020, the fund had grown to an impressive $1.3 trillion,
making it one of the largest funds in the world. And by December
2021, the fund was worth about $250,000 per Norwegian citizen.
The money in this fund has been earned through investments in
equities, fixed income, and real estate. Through this fund,
Norway owns 1.5% of all shares in the world's listed companies
despite being a country of only 5.5 million people.
Beyond economic growth, Norway used oil revenue to strengthen
its societal welfare through the provision of social services and
support systems. A generous welfare state was established,
offering universal healthcare, education, and social security to all
residents. Accessible childcare, parental leave, and affordable
housing were made available to support families and promote
social inclusion.
Today, the oil and gas industry is of great importance in Norway,
adding value to the economy, generating government revenues,
encouraging investments, and boosting export value. This makes
Norway stand out as one of the countries that have managed to
avoid the negative effects of the oil curse. One of the major
factors contributing to the persistent poverty of many oil-rich
nations is their tendency to prioritize current spending over
saving for the future. They make their economy heavily
dependent on oil, and any oil price downturn puts it into crisis.
When countries discover large oil reserves, they tend to reduce
taxes on citizens and give more money to the people than before.
When government spending is financed by oil revenue, it can
decrease when oil prices decrease. This reduction can weaken
their economy's control as they cannot influence oil prices.
Consequently, when oil prices go down, their public spending
also decreases, thus slowing down the economy.
Oil companies employ a large part of the labor force in oil-rich
countries. When oil prices decrease, oil companies cut back on
expenses and lay off workers, causing economic crises in the oil-
rich country. Despite being blessed with huge oil and gas
reserves, Norway continues to finance its government spending
by imposing high taxes on Norwegian citizens.
The people are willing to pay high taxes for certain benefits, such
as the free quality education system, which has made Norway
one of the most educated countries in the world. Norway has
become Europe's largest producer of oil and gas, followed by
Russia. Worldwide GDP per capita in 2022 was approximately
$12,647. In comparison, Norway's GDP per capita reached
$108,729, totaling $593.35 billion for the entire country.
Consequently, Norway is currently ranked 24th among the major
economies.

Outro
Norway's journey to prosperity has been a remarkable story of
resilience, innovation, and strategic economic policies. By
leveraging its abundant natural resources, investing in
technology, and embracing a strong public sector, Norway has
defied the odds and emerged as an economic powerhouse. That
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