The Norwegian Welfare Bubble
Updated: Nov 10, 2020
Norwegians have a proud national history. Harald Fairhair united a significant number of petty Norse kingships into a single realm sometime between 870-900 when he defeated his enemies in the battle of Hafrsfjord (close to modern Stavanger). Old scriptures are not precise, and historians still dispute the exact year of the event but the national monument commemorates the battle of Hafrsfjord to 872. This makes the Norwegian kingdom the oldest kingdom in Europe before Denmark (935) and Sweden (970), and even the kingdom of England (927). The second oldest constitution is Norwegian and dated to 1814.
With a population of 5,1 million, Norway is insignificant on the world stage, contrary to former when Norway had a strategic NATO position during the Soviet era. American U2 spyplanes flew secret missions over Soviet territory from Bodø during the late 1950s and early 1960s, and Norway became politically embarrassed in the humiliating shoot down of Francis Gary Powers flight over Soviet territory in May 1960. Norwegian authorities had 14 months earlier declared to Nikita Khrushchev that Norway did not facilitate any missions to or from Soviet airspace. The Soviet leader promised to eradicate Bodø if missions failed to stop. The U2 missions then came abruptly to a halt, but that is a story for another time.
For better or for worse, Norway has drifted out of world attention. The most popular Google search (2018) for Norway is about the king penguin who became knighted in Edinburgh zoo in 2008. Norwegian mainstream media often gives the impression of being centerstage, and the national pride is easily offended by lack of foreign attention. The political call for attention is strong, and the tool to get it, is excessive generosity. Norway gave 1,05% of gross national income in foreign aid in 2019, only second to Luxembourg. By comparison, the US hands out 0,16%. Norwegian political elites are building personal global networks by handing out money east and west while they pay little attention to where the money finally ends up. The Palestinian authorities, a long term recipient of Norwegian tax money, is spending 7% of its budget on sustaining terrorists, martyrs and their families. African despots have also received their fair share enabling the acquisition of both weapons and lavishly equipped personal jets.
Norway is to most English speaking people the land of fjords, lovely scenery and high taxes, particularly on alcohol. The average price of a pint of local lager is about USD 11. The Norwegian stereotypes are reserved and modest, but loyal and reliable. Some say that a Norwegian friend is a friend for life. Norwegians are well known to appreciate year-round outdoor life. Foreigners can not easily comprehend why Norwegians for centuries have set out in all kinds of weather to trek a local summit twice a week, sometimes bringing grandparents and toddlers to endure hours of physical struggle. On the mountain peak, they eat a modest sandwich with brown cheese (a waste product from the production of white cheese) and flush it down with coffee from the thermos before they return home. Outdoor activities make perfect sense to most Norwegians, being the only thing left to be tax-free, and secondary; it brings good health. No European population smokes less providing an unbeatable combination for good general health.
There is a saying that the most vital Scandinavian family consists of a Swedish father for economic prudence - Danish mother for love and sensuality - and Norwegian kids joking around all the time. UN's Human Development Report ranks Norway at the top of 186 nations, indicating that Norwegians are disincentivised to change the way of living, even less the welfare system they have become so dependent on to make their lives whole.
Norway used to be one of Europes poorest nations. The Americans found vast oil resources on the continental shelf in 1969. Since then, significant fiscal revenues have been pouring into Norwegian coffers. From this time, the welfare system has snowballed with a public sector consuming more than 50 % of economic output. Norway is grooming its population with welfare and health programs matched by none. Fewer are working than ever before, but Norwegians are quietly placing their trust in a welfare bubble. As with all other bubbles, they will eventually be pricked by unforeseen events. There are already clear signs that Norwegians have been living beyond means for a long time, and particularly after the oil market crashed in 2014.
Official statistics from 2019 claim there is only 3,8% unemployment in Norway, but this is not the whole truth. 10,2% of the population between 18-67 receives disability welfare, while 4,7 % is on AAP (temporary disabled). Adding these numbers, and it is clear that 18,2 % of the population is not contributing to society while 14,9% is categorised as "too sick to work". Norwegians are healthier than most other comparable nations, but the number of people leaving the workforce due to disabilities is paradoxically increasing year by year. Social welfare is no longer a way of temporary help – Norway offers protection from cradle to grave.
Norway's conservative minority government took seat in 2013 on a promise to make political reforms creating jobs and economic growth with decreased government spending. However, there are few signs of conservative politics. Government spending is still on the rise, even when corrected for Covid measures. Labour is still the biggest party but has for many years been leaking voters to radical left parties. Similar to the UK, the Labour party has shifted to the left.
Some say that oil has made Norwegians lazy and complacent, and this claim holds water. The Global Innovation Index shows that Norwegians are consistently less innovative than other Scandinavians, but also compared to the US, UK, and Germany and France. Norway has fallen to 20 in 2020 while Sweden is still rated second after Switzerland. History teaches that economic crisis brings deleveraging, but this did not happen after the 2008 financial crisis. Norwegian Government debt increased from zero in 2014 to 40.6% of GDP in 2019 with declining revenues from the oil industry. As with most Western nations private debt has also escalated rapidly over the last decade and figures for Norway suggest that Norwegians are not tightening their economic belts, let alone accepting any form of austerity. Credit cards are running hot. Private Norwegian debt has risen steadily from 198% of GDP in 1995 to 289% in 2019 only surpassed by Luxembourg, Ireland, and Sweden. There is little doubt that low interest rates have created a significant credit bubble, not only in Norway but throughout the Western world.
A welfare state does not come free, although many Norwegians seem to believe so. Taxes are high, and the future political majority calls for even higher taxes. The most successful and productive Norwegians have already left the country after a Labour government significantly increased the Wealth Tax in 2009. The political left has been waging war on the (few) wealthy for decades. Most of the population is politically misguided into believing that the Wealth Tax is doing good. Both foreign and national (independent) research concludes the opposite. Capital flight, lost jobs and less net fiscal revenue is the consequence.
Dogmatic environmentalism has led to massive political attacks on the oil industry. Left-wing liberals are demanding a ban on oil production before 2030. Enforcing such a policy would bring devastating consequences to the economy. The 2021 national budget deficit would increase from 18% to 30% without income from oil. Then the extra burden from the unemployed oil-workers is not included.
A spoiled and highly educated young generation is increasingly favouring left-wing ideology. Greta Thunberg is highly popular with the youngest and 60% of Norwegians between 16-19 support a ban on the oil industry. Demographics alone suggest that the next election will give a parliamentary majority to a shrinking Labour supported by growing radical left parties (MDG, SV, Rødt) all advocating a full stop to oil production. The narrative is that green jobs will replace productive oil jobs. MDG's political manifesto states that "MDG will create 150 000 new jobs". These figures precipitate from ideology, not reality. Facts show that the emerging green industry by no means can survive without state funding or subsidies, let alone create the number of jobs required to replace the 225 000 (2019) productive oil jobs. Some believe that higher education will lead to more innovation and creativity. This argument has already proven false. Higher education has failed to increase innovation and economic growth. Instead, Norway has produced young graduates with minds marinated in woke issues and left-wing ideology. Consequently, also Norwegian elite classes have become increasingly politically correct with ideas not supported by the working man or woman.
The local elections of 2019 shifted the political centre of gravity even further to the left. Non-conservative coalitions are running Norway's eight largest cities. The capital Oslo has for 2021 budgeted huge sums on political symbolics based of environmentalism and social justice. High taxes and tolls are demonising all forms of fossil-fueled transport. There is even allocated money to "urban farming" which is just as absurd as it sounds. The city is honest enough to tell that city debt will rise from 49% in 2019 to 87% in four years. Norway's second-largest city Bergen will suffer similar economic consequences. The 2019 debt was 115% of city income growing to 151% in 2024. Political elites are favouring expensive virtue signalling over sustainable politics.
The Norwegian Central Bank suggested in 1983 to channel surplus fiscal oil revenues into a state-owned investment fund. The petroleum fund was established in 1990 and values today to 6,6 times the national (2021) budget giving strong economic manoeuvrability. The fund is by most considered to be a blessing, but it is also the devil in disguise. Norwegian politicians have the most straightforward job in the world, allowing them to play politics with urban farming and cycling rather than making tough decisions that can bring economic growth.
The welfare system was originally designed to care for a homogeneous population with strong cultural incentives to work and contribute to society. Norwegians used to relate welfare programs to shame and humiliation. The situation would have to be pretty darned bad before you even thought of claiming benefits. Globalism has changed this conservative attitude. Not claiming your "entitlements" is now considered an act of stupidity. Open border politics is exerting tremendous pressure on welfare states.
Working only four weeks in Norway will grant you all welfare benefits. Some of these are free health care and 12 months sick leave with 100% salary. Permanent disability will give you a full disability pension to the end of your life. One-third of all disabled is diagnosed with psychological illness, a number that has risen significantly from 2010. Just being fed up with your boss can qualify for sick leave and ultimately disability if you so wish to walk that path.
Milton Friedman claimed that a welfare state is not sustainable with open border politics. Norway's welfare system is flawed with many loopholes and can easily be exploited. Getting a straw into the system will provide you for life. Norwegian elites act to save the world while they decline to help mum taking out the garbage.. Business owners, job creators, and ordinary working people, the one who provides the foundation for the welfare state are a shrinking group deprived of gratification for the contributions to welfare of others. Norway's welfare system is under pressure not only from immigration but also from a general cultural decline spawned by failing elites, aiming to save people from all harms of life. I think it is fair to say that the Norwegian welfare state has failed and it is no longer sustainable. It will eventually implode to the pressure from the rapidly growing number of benefit claimants. When this happens is anyone's guess. The only certainty is that the petroleum fund will keep the welfare bubble well inflated, keeping the population happy and docile.
Until such time when the welfare bubble bursts, indebted gullible Tesla driving Norwegians, will keep the party going while they are happily embracing life on credit, big government and support for woke politics.