The Nation With Too Much Cash

In most world capitals, deficit spending has become the many-fanged boogeyman of our age. In Washington, President Clinton--bringing along a U.S. Marine band to play “God Bless America”--recently signed legislation meant to slay the deficit beast by 2002. And in much of Europe, politicians are in no little panic to balance their own budgets in time to qualify for an upcoming currency unification.

What would it be like if the public books dripped no red ink to put politicians into such a sweat?

Oil-gorged Norway offers a real-world answer to this otherwise whimsical question. Norway paid off its international debts in 1994 and balanced its budget in 1995. Now it has a fat surplus, and Norwegians enjoy a bit of good fortune virtually unknown elsewhere in the Western world: the pleasure of arguing among themselves over what to spend their repeated revenue overflows on.

In recent elections here, one of the biggest issues was not crime, not drugs, not welfare fraud--but how to guarantee a single room to every resident of every retirement home in the land.

“The only problems we have are luxury problems,” says Oeystein Stephansen, head of economic research for the Skandinaviska Enskilda Banken in Oslo.

Here in boomtown Norway, the oil is gushing and the budget-cutting, belt-tightening, conventional economic wisdom of the age is routinely stood on its head. While the rest of Europe counts its pennies and ponders the future of the cherished welfare state, the social safety net here remains so tightly woven that even the unemployed are entitled to vacation time from the rigors of the dole.

Health care in Norway is free, university education is cheap, and maternity leave is 10 months at full pay. Housewives don’t labor in thankless obscurity; their work accumulates points toward government pensions. Record numbers of people are traveling abroad, and the “Norwegian dream” consists not of a house, not of a summer cottage, but of a house and two summer cottages, one in the mountains and one by the sea.

Poets, novelists and painters are generously subsidized by the state. Even dairy farmers get a piece of the action: Oslo sends out farmhands to milk the cows so that farmers can enjoy four-week vacations each year like everyone else.

Nor have children been forgotten. The government recently decided that they should start their schooling one year earlier and is building all the classrooms needed, plus hiring new teachers.

There is plenty of money left over for a new airport for congested Oslo and a slew of new highway tunnels, each equipped with radio relay stations so no one must drive under the mountains in silence. One of these, to measure 15 miles, will be the world’s longest.

Embrace of Insularity

All this, yet the Norwegian budget stays in ample surplus--at 6.8% of domestic output, well more than enough to meet the criterion in the Maastricht Treaty for the forthcoming European currency union.

But Norway, one of the few states in Europe that qualifies to join, is also one of the few that refuses to do so. “You have to understand that in this country, 70% of the population receives money from the government in some way,” political consultant Hans Geelmuyden says. People fear that membership in the European Union would drag their enviable living standard down to the lower European level.

Elsewhere on the Continent, the gloom hangs palpable in the air as governments try to cope with gaping budget shortfalls, economic stagnation, shrinking resources and widespread public doubts about the future. The official unemployment rate in powerhouse Germany is more than 11%; no one knows what to do to create more jobs, short of imitating the much-dreaded American model--with its low-wage service-sector employment, relative absence of job security and social inequality.

In Norway, by contrast, the jobless rate is so low--3.4%--that employers must bring in workers from neighboring Sweden. And concern is growing that even with these Swedish imports, there will still be too many vacancies and not enough workers to fill them. Growth sparkles at 5.3%, yet so far inflation has stayed at bay.

Is it any wonder that when the pollster Norsk Gallup calculated its regular “optimism quotient,” Norwegians weighed in at a jolly plus-39? The average for the rest of Europe was a gloomy minus-17, with France bottoming out at minus-29.

South of the 55th parallel, other cash-strapped European governments are casting off state enterprises as fast as they can find investors to buy them. But in Norway--where the government already owns or controls the oil industry, telecommunications, major utilities, the railroads and two banks--planners have been considering new state forays into pharmaceuticals, forestry and insurance.

Nowhere else in Europe is the power of the state in the economy so great--and the public finances in such good order. The budget surplus now tops $10.4 billion, about what Occidental Petroleum takes in per year in worldwide revenue.

Steady Gushers

In fact, much of Norway’s boom can be explained with just one word: oil. Norway is the world’s second-largest producer after Saudi Arabia, and prices have been relatively strong lately. Because of its small population and modest energy needs, Norway can sell most of its output abroad.

That has brought the average household disposable income here to $47,000 per year for families with children--not an eye-popping figure, perhaps, but it buys plenty when you don’t have to pay for health care, retirement or your children’s college education. Oil now accounts for 17% of the national economy, and government estimates show that it will be years before supplies are exhausted.

“All this money, and it’s only the beginning,” Geelmuyden says. “We are going to be filthy rich.”

But some Norwegians bristle at the suggestion that their high standard of living is little more than a piece of geological good luck. Stephansen, the bank economist, argues that Norway became overly dependent on offshore oil once before, in the boom of the early 1980s. The country let non-oil industries on the mainland languish, he says, and suffered a crash when oil prices fell.

Because of that painful experience, he says, Norway is striving to keep such key non-oil sectors as fish farming, industrial engineering, shipping and hydroelectric power competitive. “The Norwegian story is often portrayed as only an oil story, but the mainland has gained 10 points in the international competitiveness rankings between 1988 and 1994,” he says. “Since unemployment is falling so low, that means we must be doing well somewhere else, because the oil sector is very capital-intensive.”

Whether the wealth comes chiefly from oil or from sound economic management, the question of whether to spend it or save it has proved an unsettling dilemma for otherwise happy Norway.

This, understand, is a society traditionally governed by thrift, hard work and simple living--these are the folk, after all, who settled radio personality Garrison Keillor’s fictional Lake Wobegon. Already there are one or two self-made men here in the look-at-me mode of New York’s Donald Trump, and they make ordinary Norwegians uncomfortable.

“You have to remember that from birth, we’re Lutherans,” Geelmuyden says. “We are quite focused on morality, and it’s not considered proper in this country to show you have any wealth if you have it.”

In keeping with those traditional values, the government so far has pooled the oil money it couldn’t readily spend in a special Petroleum Fund and invested it in the international equities markets, in hopes the dividends will benefit later generations. A central goal is to fund the state pension program for the future, as the population ages.

Infirm as Constituency

But suddenly, in the here and now, such a prudent and invisible saving strategy has become decidedly unpopular. In September’s election campaign, one protest force, the Progress Party, set a new trend by finding Norway’s neediest--its sick and its elderly--and promising to spend 10% to 12% of the budget surplus on them.

Before long, politicians from the established parties were falling over themselves to also court the old and the sick, with slogans like “Share Our Wealth and Welfare” and “A Warmer Community.” No party won a majority, and Thorbjorn Jagland, the Labor prime minister, said he will resign in mid-October. But the Progress Party’s calls to bring the oil money home from Wall Street seem to have impressed many voters: The party posted a stunning, out-of-the-blue success, with 15.3% of the vote.

Voter receptiveness to the let’s-spend-it-now arguments worries conventional economists, who say that while it is true Norway is awash in money, it isn’t awash in laborers. It can’t bring in enough Swedes to build all the single nursing-home rooms the politicians are calling for; in Norway, alas, it’s simply a political impossibility to bring in laborers from poorer parts of Europe.

“I’m not sure we really want to mingle with the rest of the world,” Geelmuyden admits. “I think we want to keep our wealth for ourselves, and we want to keep our race for ourselves. I wish that with our high level of education and our high level of wealth, we could open up our hearts a little bit more.”

But no.

Tor Steig, director of economic policy for the Confederation of Norwegian Business and Industry, says that in the current political climate, the next government is apt to “find more and more uses for this money, without having more and more people to employ.”

From his Oslo high-rise office overlooking a forest of Swedish-manned building cranes, Steig is calling for a fiscal tightening. “But that isn’t easy,” he says, “because we have a lot of money, and it’s hard to tell people that we cannot use our money to help the old and the sick.”

Or the single mothers, adds Maria Wattne, a young Oslo journalist who is raising a primary-school-age daughter and is something of a self-taught authority on the problems of Norway’s poor.

Yes, she insists, there are still poor people in super-rich Norway--and she worries that without more government help, they will fall ever further behind. Over dinner in an Oslo cafe, she pulls from her purse a newspaper clipping asserting that the richest 10% of the population advanced in the past decade, while the poorest 10% lost ground.

To Wattne, the thought of a fiscal tightening in these affluent times is incomprehensible. She uses her own case as an example. For four years, she says, she and her daughter lived on the subsidies Oslo pays unemployed single parents; the stipend, worth about $10,000 a year, enabled her to study journalism on the side. Recently, she landed her job with an educational magazine and got off the dole. “It was this subsidy that let me get back to work,” she says.

So Wattne was incredulous recently when the government enacted a welfare reform measure that increased the monthly payments to single mothers but reduced the number of years in which one can receive them, from 10 to five.

“This is a step backward,” she says. “It was very well established here that people should be able to get these benefits for 10 years if they needed them. I don’t see how it can be like this when the country is so rich.”

There are plenty of Norwegians who share Wattne’s bafflement that pockets of need should exist in their golden realm. And if the next government proves weak, economist Steig fears, it will succumb to the calls for more spending, driving up salaries for health professionals, construction workers and others.

Boomtown Norway will then overheat, he warns, its economic success story turning to just another sad European tale of an overreaching welfare state done in by its own largess.

“I think this is the main characteristic of our public life at the moment,” Steig says. “How to cope with our extraordinary income. Is it possible, in a democratic society with a minority government, to spend this extraordinary income at the right speed?”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The Land of Big Dreams

Thanks to oil revenues, Norway’s economy is on such a winning streak that the “Norwegian dream” consists of not just a home, but a home and a couple of vacation cottages, one in the mountains and one by the sea. A snapshot of the nation and its economy.

*--*

NORWAY U.S. Population 4.4 million 266 million Unemployment 3.4% 5.4% Cost of living* 135 100 Per capita GDP $35,808 $28,535 Births per 1,000 16.0 13.8 Deaths per 1,000 8.5 10.8 GDP growth 5.3% 2.4% GDP $158 billion $7,576 billion Trade balance $13 billion -$170.2 billion

*--*

* Using New York City as a base of 100

Source: U.S. Embassy in Oslo