How oil did not corrupt Norway

http://www.ft.com/cms/s/2/99680a04-92a0-11de-b63b-00144feabdc0.html#

by moeffju • 16 years ago

120 29 16 years ago

moeffju2• 16 years ago

Reposted from 288 days ago (http://news.ycombinator.com/item?id=794116) because I found it relevant to the just discovered mineral deposits in Afghanistan.

locopati• 16 years ago

Except that the mineral deposits weren't 'just discovered' http://www.wired.com/dangerroom/2010/06/no-the-military-didn...

Considering the US position in Afghanistan, this seems like a strategic plant on behalf of the Pentagon/govt to justify our continued deployment there. The NYT has certainly played a willing role in the past (google Judith Miller and Iraq).

moeffju2• 16 years ago

Thanks for the link. My first reaction was similar, followed by "Who will profit", and I see the Wired article poses pretty much the same questions.

michael_dorfman• 16 years ago

A great article, but I think it's pretty easy to delineate enough major differences between pre-oil Norway and current-day Afghanistan to render the comparison moot.

jakarta2• 16 years ago

Plenty of countries are natural resource rich and do not run into major issues.

Canada, the US, Australia, and yes - Norway, all come to mind. Usually, the factor that enables a country to resist corruption from natural resources comes from having a proper governance system already in place.

Even something that many perceive as trivial, like tax collection, is essential. Because what often happens is, a nation will not collect taxes and instead say they will let the riches from natural resources trickle down to the citizenry. This enables dictatorships/political elites to remain entrenched at their expense.

You also need government agencies in place to make sure that surveys are being conducted properly so that the auction process can be optimized.

I remember a story about an African nation that needed to auction off mining rights. Their data was well over 100 years old, whereas some MNC mining companies had state of the art testing, as a result there was asymmetrical information that worked against their government.

One way to circumvent that lack of information is to auction permits in a rolling manner. So you auction off the ability to only mine in one small area. Then, if there is a discovery, you can raise initial prices for future permits in the surrounding area.

ascuttlefish• 16 years ago

[A] nation will not collect taxes and instead say they will let the riches from natural resources trickle down to the citizenry. This enables dictatorships/political elites to remain entrenched at their expense.

Sounds like Alberta.

einarvollset2• 16 years ago

And Alaska?

curtis2• 16 years ago

Plenty of countries are natural resource rich and do not run into major issues.

That's certainly true. I think most of those countries are countries that have healthy economies independent of natural resource exploitation. This is certainly true of your examples, even, to some extent Norway (about a quarter of Norway's GDP comes from the petroleum industry according to Wikipedia). This is not to discount the importance of proper governance, as you say. However, I think there's a case to be made that part of the reason that many nations rich in natural resources have problems is because their extractive industries account for such a huge proportion of their economies.

jakarta2• 16 years ago

Yes, finding having a boom in natural resources does have the effect of crowding out other industries. I agree with you. That's "Dutch Disease" and you can find it in many well governed resource rich nations.

The poster above brings up Alberta, you bring up Norway.

But Dutch Disease is just one detrimental 'symptom' of the resource curse.

Some of the more adverse symptoms are increased levels of conflict and corruption and those are precisely the fears you need to have when looking at Afghanistan's potential mineral wealth because there is a lack of proper governance in place.

Now going back to your example, Norway -- and Alberta too. It is precisely because of their governance systems that they can harness natural resource wealth at more optimal levels than nations with the curse.

Norway for example has one of the largest sovereign wealth funds in the world. That provides a mechanism for reinvesting the natural resource wealth into other industries. I am no experts on SWFs, but from my reading, Norway's SWF has a pretty good reputation.

To contrast that, look at some of the resource rich conflict nations in Africa. They don't have formal laws and organizations to structure transparent SWFs, they have swiss bank accounts that they use to raid government revenues and sometimes fund militias.

So it is good governance that helps minimize the friction caused by new found natural resource wealth and redistribute it in an optimal manner.

gahahaha3• 16 years ago

Before they found oil, Norway was /almost/ as rich as Sweden, and Sweden is no hell-hole. Now they are of course much richer than Sweden, but it is likely that the two countries would have taken similar directions if not so much of Norway's economy was oil.

tjmaxal• 16 years ago

Sounds like Farouk found the perfect job for him. What an amazing and empowering thing to do. Being successful is often the reward for finding the perfect match like this.

sliverstorm• 16 years ago

Yeah, talk about right place right time!

roschdal• 16 years ago

Although there is very little corruption in Norway, we certainly have some issues as a result of the oil and gas resources. There is a lot of concern that Norway's economy has "Dutch disease" - http://en.wikipedia.org/wiki/Dutch_disease

Norway is also politically more socialist than the US. This is one area where I admire the US more, because the US has more opportunities for innovation, tech startups and in general a more agile and productive economy outside of the oil industry.

PS: I'm Norwagian...

gahahaha3• 16 years ago

I'm not so sure you should admire the US so much. There is certainly an entrepreneurial spirit there, but income mobility is much higher in Scandinavia. Better chance of becoming rich if your parents are poor.

Also, Norway is usually at the bottom of the Nordic countries in corruption rankings. Usually this is attributed to the oil sector.

Dutch disease might be a problem, but /I/ think it will be quite mild, because we are so aware of the possibility. Salary increases have not been totally out of proportion this year, unless you start thinking about the countries around us with actually sinking salaries....

/also Norwegian

rubashov• 16 years ago

> but income mobility is much higher in Scandinavia

Apples to apples, not really. The comparison would be between people of Scandinavian descent in the US and Norwegians generally. The people of Scandinavian descent in the US are also healthier and wealthier over all compared to their relatives still in Europe.

gorm• 16 years ago

It's important to look on social mobility vs financial mobility. Even though you have high income mobility in a rich country like Norway there is still poor social mobility.

tallanvor2• 16 years ago

Norway being politically more socialist than the US is an example of reasons to admire Norway more. By not allowing companies to take advantage of people the way they are often able to do in the US makes a huge difference in the quality of life for everyone.

PS: I'm an American living in Norway. :)

kozmic• 16 years ago

I've never heard this story before. Didn't expect to get a history lesson on Hacker News about my country :) Thanks.

rikthevik• 16 years ago

If the Norwegians feel guilty about having too much money, they are welcome to buy a round for their friends in Denmark.

henrikschroder2• 16 years ago

Coincidentally, the size of the Norwegian oil fund is roughly the same as the Swedish national debt. I'm all for enforcing that union thing again we had going, I'm not so sure we really should have let the Norwegians quit it they way they did...

ZenzerNet• 16 years ago

We do, gladly - det er dejlig å være norsk i danmark!! :)

vl• 16 years ago

It's indeed an interesting article, but I failed to understand what Norwegians managed to do differently than other states to achieve success. It seems article doesn't go into much detail about it.

tallanvor2• 16 years ago

It basically boils down to a two things, I think:

1. They didn't allow the oil companies to call the shots. With this, they managed to avoid a lot of the corruption we see with MMS in the US. 2. Rather than spend the profits from oil, Norway invested it. So when oil production drops, they don't face a huge budget gap, they just have less to put into the investment fund. Granted, they need to start figuring out what will happen when oil production dries up completely, but they have quite some time before that becomes an issue.

bl4k• 16 years ago

First step was to have their own state owned oil company that would take part in exploration and drilling, rather than allowing foreign companies to take control in hope of 'trickle down effects'

Step two was to introduce a regulating body with strict policies (the policies were written by the subject of the article). The policies included extraction rates, technology standards, environmental standards etc.

Third step was that the regulating body treated the government owned oil company just like any other when it came to tenders or exploration licenses - which minimizes corruption in government (or just shift corruption to this regulating body, really - but I guess they have some form of parliamentary oversight).

Further step was that all profits from exploration and drilling went into a sovereign wealth fund which would divest the wealth of the nation into foreign markets - smoothing out economic cycles domestically and providing a future fund.

All of these policies together contributed to a system that has less of a corrupting effect on both the local government and local economy. It is a best case example of how to maximize the overall benefit from resource wealth that would usually only benefit a selected few people or just a select sector.

patrocles• 16 years ago

lol. Uncorrupted? What happens when their oil runs out in 10-20 years?

henrikschroder2• 16 years ago

They'll stop pumping money into the national oil fund, a bunch of people in the Norwegian oil industry will have to look for new jobs, and the cost of living will probably slowly trickle down to the same level as the neighbouring countries.

The oil industry contributes a large part of the GDP of Norway, but it's not a large employer.

How oil did not corrupt Norway

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