Norway: A Mutated Dutch Disease

There’s no doubt in the mind of researcher Hilde Bjørneland; Norway suffers from a mutated form of the Dutch Disease. And it’s much more serious than the original one. The main issues in further research is the extent to which oil prices affect economic activity, and to what extent the facility in the fiscal policy affects economic activity.

“Norway is characterized by the striking disparity.”

Hilde Bjørneland

25 percent of all Norwegians are living on some kind of public support or another form of social security. One third of all workers are employed in the public sector. The real test for Norway will come when the country get the first declines in the petroleum revenue, according to the respected professor at The Norwegian School of Management, BI.

She has just been awarded the Prize for Excellence in Research Communication, after she launched the debate about a possible “Dutch Disease” in Norway last fall.

“The Dutch Disease” is a term that describes the economic situation in the Netherlands in the 1960’s when the public sector swelled as a result of large gas revenues. When the gas revenues ended,  the country was in a worse condition than before. It ended with a tough fiscal rehab all through the 80’s, with unemployment rising sharply. The economic growth eventually returned in the 1990’s.

“In Norway, there has been a strong growth in the underlying public expenditure, with high costs that can weaken the industry. Increased import, and use of, capital has pumped up the real exchange rate, which weakens the competitiveness of the Norwegian businesses, “ she says in a interview with the news paper Dagens Næringsliv.

“The high use of oil money has made it possible for Norway to have the largest share of disable pensioners in the world,” Mrs. Bjørneland points out.

“We must grab hold of that 1/4 of Norwegians who are financed by the public. There is a striking disparity, where we have an apparently very low unemployment and at the same time a very high percentage of disabilities among the work force,” she says.

And that’s the main problem when the oil stops to flow some time  in the future.

“When we are to adapt from being an oil producing country, it will be much harder to move the labor when we have a force that don’t move through unemployment, because you can’t compete on wages.”

“If this trend continues, the realignment in the Netherlands will be seen as mild compared to what we can will  experience in Norway. We see a mutated, and far more serious, Dutch Disease emerging. Holland sick. When the petroleum revenues are phased out, this issue be highlighted to a much lager degree,” she adds.

Professor Hilde Bjørneland

Professor Bjørneland is now to investigate the subject further.

The main issues in the ongoing research is the question of to what extent oil prices affect the economic activity, and to what extent the facility in the fiscal policy affects the economic activity.

“The last words are not said in this matter, but we do not get a final answer until the next few years. But there are so many danger signals that I would have been very careful to say that you can’t see the signs yet. I think that the Dutch Disease is a relevant challenge for Norway in the years to come,” she concludes.

Original article (in Norwegian)

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