Thursday 27 September 2007

Pic of the day: "Let's get rolling!" While this picture is from the Japanese anime Karin, the text and attitude fits the Norwegian consumer to a tee. For now.

Norway's economy

The casual reader may not be aware that I am Norwegian. After all, I write more about the United States than Norway or even Europe. This reflects the fact that the USA is important. Norway is not, and Europe somewhat less than the USA, at least for now.

Still, with my close-up knowledge of the Norwegian economy, I think it is fitting for me to spare some words for the curious reader. After all, some people outside of Norway have heard rumors about it. It sounds like some fantasy kingdom where everyone lives like a prince or princess, does it not? Well, it will sound even more so for a little while yet before it changes, I'm afraid.

Yesterday the Norwegian central bank, "Norges Bank", increased interest rates with 0.25 percentage points. This is rate hike number eight, and it happens virtually at the same time as the US Federal Reserve starts lowering its rates. While a number of economists advised against raising the interests, it was not exactly a shock: The currency markets barely reacted at all, a sign that most traders had already positioned for that move.

Inflation has been low in Norway for years now. In fact, it has been lower than the bracket which the central bank has been mandated to keep. But this is mainly due to the cheap imports, especially from China and recently also from other rapidly growing barely industrialized countries. Mostly China though. Wage raises only partially bleed through into the prices, because of our small and open economy. The more we earn, the more we import, and the more the imported goods press down the prices. Meanwhile, the prices that actually do rise are not included in the official price index: Fuel and property. House prices have risen at almost American speed until just recently, but the widely published sensational stories from the USA have dampened the fire for some weeks now. Business property stays hot though, thanks to the nationwide continual shopping spree. (It is not just me!)

Wages and salaries have increased dramatically over the last few years, though more so in the private than public sector. At the same time, unemployment is "shockingly low" as one financial paper puts it. Of course most people don't worry about low unemployment, only high unemployment. But for businesses, it means they will have to pay more to get workers. And such raises are hard to reverse if the boom stops.

The boom is going to stop. We who have lived a while should have noticed that Norway is very much like America's wagging tail. When things go well over in the States, they go exceedingly well here. When things go bad in America, they go even worse in Norway. Well, not for the ordinary people perhaps, but for the stock markets. And to further accentuate the "tail" part, there is a delay from America to Norway of 6-18 months, typically.

"Not this time!" says the economists to Dagens Næringsliv (Daily Business, the leading Norwegian business newspaper). This time, even if America should take a nosedive, there is China and India and the other emerging markets. They will grow that much faster when they don't have to compete with America for raw materials, most notably oil. Norway is already trading more and more with these, so we will be fine. The oil price in particular will stay high, just not quite as extreme as now. And the EU, which is on our doorstep, will not go down with the US. It has its own inner market now, after all, which should give it the necessary stability to plough on at its own steady rate. We can trade with them - we are part of the Common Economic Area after all - and we don't need America.

Yeah, right. If I'm still around in two year's time, ask me. If I'm not right, I will at least have a really good excuse. ^_^

In the meantime, how about coming here to work? The thousands of Polish workers certainly seem to like it here. In fact, I just read that many of them return as tourists, bringing their families with them to show off the country. Unlike the Swedes, the Poles insist that they like the people, not just the nature. Of course there is the possible explanation that the Swedes actually understand what we say: Our languages are similar enough that we can understand each other if we really want to. Anyway, the Swedes are not working here anymore; they have gone home to their own jobs. The Poles might too, if the global boom continues. But that's a mighty big if.

Anyway, it almost goes without saying: When Norway's economy grows 6% a year, there is simply no way we can keep it up with the same people. That would mean making people 6% more productive. That's easy enough when you take them from the 11th century to the 21st overnight, as in some developing countries. But Norway is already one of the most thoroughly modern countries on Earth. Robots abound in the factories, computers in the offices, and the median education level was the highest on Earth last I read. (Not the average level, though, the US had this, as they have more people with extremely long education.)

One thing we could have done, though, would be to "release" some of the people now on disability pension. Like all economies, our goes in waves. During each downturn, a number of people are unable to find job despite trying for a long time. In Norway (like the rest of northern Europe) these people will eventually be diagnosed with some kind of chronic illness and get disability pension. Obviously they must be sick since they cannot work! And who doesn't feel pain or fear or depression sometimes? So we sweep them under the rug. But now when we need them, we can't get them back out. For them to work now would amount to admitting that they weren't so sick after all. They probably (rightly) fear that they would be asked to pay back the pension they have received in the past. At the very least, they are unlikely to get a pension again the next time the economy turns down and they are laid off, unless they amputate a limb or two.

What would be nice would be a kind of "trial employment", in which the disabled are allowed to work temporarily with a maximum income and duration. If they earn little, they should keep their pension. (Actually this is already the case, but the amounts are negligible.) Obviously if they earn anything near normal wages, the pension should be suspended for the duration. I don't really see a problem with this. Even if you really have a chronic illness, you could do things for a month or even half a year that you could not do for decades. It took me till I was almost 40 to develop chronic RSI (repetitive stress injury) for instance. There are probably many more jobs where you could work for the duration of an economic frenzy and then rest your weary bones when the "anti-panic" was over. Or even before, if it started to hurt too badly. Every month helps.

But since none of this is politically possible, we need some helping hands from elsewhere. And there are still some idle hands in the world, so this may be a good thing overall. As long as they don't do anything crazy, like being Muslims. We may not officially be part of the War against Muslims, but we are not so sure the Muslims know that. Pretty much anyone else is welcome, though. At least until our economy crashes again. If earlier experiences are anything to go by, it should be around a year after the USA.