Fossil fuels have helped Norway become one of the richest countries in the world, but political divisions over the future of energy policy and inequality are growing.
Michael Roberts is an Economist in the City of London and a prolific blogger.
Cross-posted from Michael Roberts’ blog
Norway has a general election today [8 September]. In a country of 5.6m people, some 4m are entitled to vote and there is usually a high turnout by international standards – over 75%. Indeed, early voting has become increasingly popular, with up to 60% voting before the official day.
Norwegians are probably the richest nation in the world – if you measure that by average income per person . Per capita income is higher than any other major economy – only the tax havens of Switzerland, Luxembourg, Monaco etc are higher. But average income disguise the extremes of inequality. And as in every other capitalist economy, inequality of income and wealth is high in Norway. The Nordic and Scandinavian countries with their social democratic history are supposed to have the least inequality and lowest poverty in the modern world. But that reality has disappeared over the last 30 years. The gini index of income inequality (where 0 = equality and 1= one person has all) has risen from a modest 0.25 ratio in 1990 to near 0.40 in the 2020s, a ratio now higher than many advanced economies
And when it comes to personal wealth, inequality is even more extreme (as it is in all the Scandinavian countries). Just 1% of Norwegians own 22% of all personal wealth in the country, while the bottom 50% of adults have just 3.6%.
On these measures, Norway is no social democratic paradise. And this increasing inequality concerns Norwegian voters. Inequality tops voters’ list of concerns, according to an August 7-13 survey by Respons Analyse for daily Aftenposten. Norway has had a wealth tax (formuesskatt) since 1892, some years before securing full independence from Sweden. Along with Spain and Switzerland, it is one of only three European nations to still tax capital in this way. The current rate stands at 1% for those with assets of more than 1.7m kroner (£125,000) and 1.1% for those with more than 20.7m kroner.
The tax is collected annually, and is calculated by adding up the value of properties, savings, investments and shares, and deducting any debt. Private companies count as part of their owners’ wealth. There are discounts – for example, only 25% of the value of citizens’ primary residence is taxable. The tax raises about NKr32bn ($3bn) and affects about 725,000 Norwegians, most of whom pay little.
Norway’s billionaires are hit hardest and they are screaming. And Norway’s billionaires are getting richer. In 2024, the 400 wealthiest were worth 2.139tn kroner, up 14% in a year, according to the business magazine Kapital and half of this wealth was controlled by families relocated abroad. Thirty of them left Norway when Labour raised the tax. This election has led to yet another mighty campaign by the rich and right-wing politicians to ditch the tax. Labour, as you might expect, sits on the fence. It has promised to set up a cross-party commission ‘to review all taxes’.
But the wealth tax is not the issue that mainly worries Norway’s mainstream politicians; they are obsessed with the apparently impending invasion by Putin’s Russia and the need to increase ‘national security’ and raise defence spending. The current Labour-led government is committed to increasing defence spending to 5% of GDP in line with NATO targets. And that policy won’t change whichever party leads the next government after this weekend.
Norway’s economic success over the last 50 years has been based almost entirely on huge oil and gas production off the coast. Norway’s $2 trillion sovereign wealth fund, built on the vast oil and gas income, is equivalent to $340,000 per Norwegian citizen. The fund allows governments to spend much more freely on public services and welfare benefits than fellow European countries. And the Ukraine war has brought a bonanza to Norway’s energy giants. Norway is now Europe’s top gas supplier, replacing Gazprom after Russia’s 2022 invasion of Ukraine. And its role is set to grow as the European Union plans to phase out use of Russian gas by 2027.
Exploiting new oil and gas reserves is critical to slowing down an expected production decline. But many Norwegians are worried about the impact of fossil fuel production on global warming and the climate. They have taken to buying electric cars, boats and trucks and adopting other ‘green’ policies, supported by government subsidies. Nevertheless, Norway’s economic success is still wedded to the energy giants and Norwegian capital depends on fossil fuel production. The profitability of Norwegian capital is founded on the global prices of oil and gas.
Source: EWPT, AMECO, author
No wonder the right-wing, anti-immigrant, climate sceptic Progress Party, which is doing well in the opinion polls, campaigns for more oil production and exploration. “Norway should be the last country in the world to stop production . . . We want to pump oil for another 100 years,” said Sylvi Listhaug, the Progress Party leader. This is music to the ears of the energy giants.
Equinor, Aker BP and Shell are some of the most active companies on the Norwegian continental shelf and they are still both exploring and investing heavily in existing fields in the North and Norwegian Seas. Shell recently unveiled new technology to boost recovery to 75% from the Ormen Lange field, which is Norway’s second-largest for gas. The profit from that field alone will cover the extra cost of recovery within a year. Oil and gas companies are set to invest a record NKr275bn ($27bn) this year. One of Norway’s leading non-oil business people says: “This has been a phenomenally successful industry for the country. It’s not going to stop by itself.” Despite all the fine words on the environment, the current Labour-led government does not resist. Espen Barth Eide, Norway’s foreign minister, argues that the EU will need Norwegian gas in particular for a long time because there is still “a long way down to the level where you need Norwegian supplies, because you want to get rid of the Russian and other non-western sources of petroleum first.”
However, huge profits for the energy companies are not being matched by improved prosperity for Norwegians – rich as they are. Since the end of the pandemic, the cost of living has rocketed (as it did in all countries); food prices are up near 6% in the last 12 months. Overall inflation stays well above the central bank target of 2% a year and is now rising.
At the same time, unemployment is turning up.
So signs of a stagflationary economy (as in the rest of Europe) are appearing, even in rich Norway. Excluding the energy sector, Norway’s real GDP growth has been sluggish at best, so that government spending depends almost exclusively on energy revenues.
House prices have rocketed along with household debt (now at a record 200% of income).
Indeed, the overall economy is slipping into recession,
as energy prices slip back.
As elsewhere, Norwegians are divided on why the economy is deteriorating. The anti-immigrant Progress Party has loudly blamed this on immigration. With one-fifth of Norway’s residents now being immigrants or children of immigrants, and record-high immigration in recent years (particularly influenced by Ukrainian refugees), local councils have expressed concerns about ‘capacity overload’ due to high immigration rates. The PP is gaining support in the opinion polls, but mainly at the expense of the traditional Conservatives.
Norway has a system of proportional representation whereby 169 lawmakers are elected from 19 geographical districts for a fixed, four-year term. Any party scoring above 4% support nationwide is guaranteed representation, although a strong showing in individual districts can also yield one or more seats. No party is expected to win the 85 seats required for an outright majority, but the latest polls show that the incumbent Labour-led ‘red bloc’ will get the most votes, so minority rule under Labour or the formation of another coalition are the likeliest outcomes.
But the ‘left’ coalition is split. Labour Prime Minister Jonas Gahr Stoere’s previous coalition broke up when the rural-based Centre Party opposed adopting EU regulations on climate controls. And the Socialist Left said it would only support a future Labour government if it divested from all companies involved in what it called “Israel’s illegal warfare in Gaza”. But Labour, led by Stoere and the recently returned NATO secretary-general Jens Stoltenburg, are determined to maintain their support for Israel and for the ‘coalition of the willing’ in Europe to pursue the war in Ukraine.
Norwegian capitalism has been highly successful based on fossil fuel production. But ever-increasing inequality and global warming are intensifying the contradictions in Norwegian capitalism. Can the Norwegian economy continue to grow based on fossil fuel capital? Should Norway’s billionaires continue to take the lion’s share of fossil fuel profits? What is the alternative? Norway’s voters are uncertain.
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