Friday 20 July 2007

Pic of the day: After the oil is gone?

Norway's oil - boon or bane?

I mean for Norway - obviously it is a great thing for the sane part of the world that one of the main oil producers is on their site. It would have been very disturbing if all of the world's oil were in the hands of crazies. Then again, there are a lot of crazies in the world. But Norway is one of the freest, most democratic countries around. Simply the best, according to ourselves, but in any case we've been on the side of the good guys for a couple centuries now so we're as dependable as they come.

But for Norway itself, I am more and more leaning to the view that we would be better off without the oil and gas in the North Sea. It is a bit late for that now, of course. And it is possible that if not for the oil, we would not have been better off without it. But now that we have it, we would be better off without it. Still confused? Not after the next paragraph…

I have the benefit of being an economist of sorts, and having been alive since before it was common knowledge that there was oil and gas under the North Sea. I remember it when it was little more than rumors. People joked about us all becoming sheiks. At the time, Norway was much poorer than today. Then again, at the time, pretty much everyone was poorer than now. The growth of wealth in the free world since my childhood in the 1960es is little short of miraculous. But even with that, Norway has seen more than its share of the growth. I may slightly exaggerate this because I grew up in one of the poorer parts of the country, and out in the countryside at that, while now I work in one of the fastest growing cities. Still, the change is astounding.

At first, we did not know how to handle our new role. People took the "oil sheik" thing way too seriously, and all the oil revenue (and then some) was channeled straight into the national economy. Government created thousands of new jobs all over the country, where mainly women swarmed into the public bureaucracy. Then credit was de-regulated and private investment and consumption took off. The trees were growing into the sky, or so it looked. And then it all blew up. Confused, we found that we weren't all that rich after all. So we went back to doing what we do best here in Norway: Pull together in hard times.

Today the lessons from the hard 90es are forgotten. They weren't all that hard anyway, but it was the shock of not being sheiks after all. Most of the oil revenue is now invested abroad; inflation is kept in check; public sector is constantly squeezed to keep it from growing, despite new demands. But private consumption is in the manic phase again, as usual following the lead of the USA with ridiculously overpriced housing used to borrow more money. Even with only a trickle of the oil revenue channeled into the Norwegian economy, it is still overheating. If we had a government with courage or even common decency, we would not spend a cent of the oil revenue until the economy came back to its senses.

It is nice to have a huge economic "shock absorber" in the form of the petrol fund (now officially "pension fund"), but it also encourages reckless policies. The populist Progress Party, frequently our largest political party, is a hopeless spendthrift. Its answer to pretty much every problem is to throw money at it, it doesn't matter how much. Low taxes, high pensions, free healthcare, massive state-financed road building in all urban areas. There is unlimited money, after all. The fact that this rubbish gets a large fraction of the votes shows just how many Norwegians are still delusional. It is after all not uncommon to hear news reporters mixing millions and billions. I am sure it is much the same to many people. "It's more than I have so it is enormously much" is probably how they think, if they think at all.

Now imagine someone invents cheap, safe fusion energy. It has after all been 20 years off for 50 years now… There is enough deuterium in the world's oceans to cover the world's energy needs for millennia to come. It will take a few years to fully replace all the gas-driven cars, and planes will probably still use gas. Oil is also a raw material in plastics, so some demand will still exist. But not more than can be easily filled by one of the Middle-East countries where you can pump the oil right up out of the sand. Production in the North Sea would cost more than you could possibly hope to get for the oil, so would be closed down almost overnight. What would Norway do then?

We would do what we have always done, find some other demand and fill it. Population will continue to grow for another generation, culminating at around 10 billion people, so fish farms would probably lie as close as hygiene regulations allowed. And with the world's most or second most educated work force, we are quite well poised for brain-intensive work like software development or international finance. We'd have to give up the illusion of being born to be rich, and might no longer expect foreigners to scrub our toilets. But it would be a saner future, and we would be no worse off than other rich countries. Quite the opposite, we would still be in the top team.

Would we be in this enviable position if we did not have the oil in the first place? I think so. I believe that much of our economic growth stems not from the oil revenue (which, as I just explained, almost ruined us) but rather from the creeping Americanization of our country. More freedom, lower taxes, limits to growth on public sector. All this would probably have happened anyway, and quite likely more of it.

And not least, the idea that our affluence depends on fate, like some kind of lottery, is bound to have a bad influence on us. America is also endowed with many natural resources, although more diverse than ours, but except for Thanksgiving Day the prevailing mood there is that their riches come from their own hard work. This is how we should think too, not just fatalistic sit down and hope that the oil price remains high. Since we don't have Thanksgiving over here, we should probably use our National Day to be thankful for having had the oil: Not as a crutch, but as a stepladder, to boldly go where we have not gone before.