From a European and international perspective, the parties in Norway can be regarded as different factions of social democracy. In Norway, we are for the most part all to be considered social democrats. There is no real opposition in Norwegian politics, nor any clear alternative to the policies being pursued. Successive governments pursue broadly the same economic policy.
This is destructive, because the radical redistribution policies of the left, the Labour Party’s expansionary fiscal policy and the parliamentary parties’ shared and mindless globalisation policy, together with immigration policy, constitute an exceptionally toxic mixture that is in the process of destroying the Norwegian economy.
Marx is still ingrained in Rødt and SV. Admittedly, they no longer insist on taking over the means of production by force (if indeed they ever did), but they want to redistribute wealth from the rich through taxation and state-directed expropriation. And they would preferably like to work as little as possible themselves. Their redistribution policy entails a more subtle and – for the time being – less violent, but no less radical redistribution of wealth.
The Labour Party is on board and still clings to the belief that Keynes’s expansionary fiscal policy, immigration and ever-growing public expenditure can buy enough votes for it to remain in power. It does not care that the larger the state becomes, the smaller wealth creation in the private sector becomes. Nor does it care that the higher the level of non-Western welfare immigration, the more mouths there are among which to distribute the reduced revenues. It points to an ageing wave that barely exists, and denies the immigration wave that is in the process of overwhelming the welfare state.
And without reservation, the neo-liberals in Høyre and FrP have swallowed Ricardo’s theory of the international division of labour. Together with the multiculturalists in the other parties, they share responsibility for a globalisation policy that has led to the export of Norwegian jobs and mass immigration of non-Western immigrants with very low labour-force participation and enormous consumption of social benefits.
Distrust of the market has led to a state that is far too large. The policy of transfers has led to enormous growth in public expenditure. The same applies to immigration policy. At the same time, for several groups it has become more attractive to live on benefits and take sick leave than to work. This weakens society’s labour productivity and the revenue side of the government accounts, while public expenditure continues to rise.
Attempts are made to compensate for the increased expenditure by drawing more heavily on the Government Pension Fund Global and by taxing those engaged in productive work ever more heavily in order to finance transfers to the many who choose exclusion from the labour market over productive work. This, however, is like pissing in your trousers to keep warm on a cold winter’s day. It solves none of the underlying structural problems.
At the same time, entrepreneurs and investors have been driven out of the country by a destructive wealth tax. This weakens the capacity for innovation and restructuring in industry and in a mainland sector that is already worryingly small, one-sided and highly vulnerable.
We can envisage a future of persistent inflation and reduced purchasing power, high interest rates, further weakened competitiveness and continued growth in public expenditure. At some point, this will lead to increased social and political unrest when the Government Pension Fund Global eventually runs out. And, as Nicolai Tangen warned at Arendalsuka, that may happen sooner than we realise.
This development is not accidental. The political consensus is not accidental. It reflects a deeper ideological consensus in which the state is regarded as the natural administrator and distributor of resources, and in which market signals – prices, wages and competition – are subordinated to political objectives of ‘fair distribution’, ‘inclusion’ and what is presented as ‘safe governance’. It is, however, a form of governance that is steering towards the precipice.
Friedrich Hayek, Nobel laureate in economics, long warned precisely against the consequences of such policies. In a 1987 interview, which everyone concerned about the country’s future should watch, he points out in his critique of Keynes that expansionary policy had its justification temporarily during the extreme deflation of the 1930s, but that the same logic, when made permanent policy, leads to inflation, misallocation of resources and an ever-larger public sector, which ultimately undermines the private wealth creation on which it depends.
This is precisely what we are witnessing in the Norwegian economy today. Reinforced by oil revenues and irresponsible politicians, this logic has found particularly fertile ground in Norway. It has been easy to buy votes through transfers and generous welfare schemes, allow the public sector to continue growing and cover the increased public expenditure with oil money.
In Norway, public expenditure today amounts to around 65 per cent of mainland GDP. That is more than one and a half times the OECD average. In addition, there are twice as many people employed in the public sector. There are twice as many people on disability benefits, and twice as many are on sick leave. It is quite extraordinary. We are obviously not twice as sick and disabled in Norway as in our neighbouring countries.
It has simply become too easy to go on benefits, and it is too easy to certify oneself as sick. It is more advantageous than working. The incentives become completely distorted. But it is, of course, popular policy. This is how the left in particular gathers votes. And that is why neither FrP nor Høyre dares to tackle, for example, the issue of sick pay.
And here we see the subtle radicalism of Rødt and SV in practice. They no longer talk about taking over the factories. They talk about ‘fair transfers’, a ‘fair wealth tax’ and the ‘expropriation’ of wealth from those who have it to those who do not, through political decisions and ever-higher tax rates on labour, capital and property.
The goal is the same: to weaken private property rights and the incentives for individual effort in favour of collective distribution. When they simultaneously defend the most generous benefit schemes, they complete the circle: those who create wealth are to pay more, while those who remain outside the labour market are to be rewarded more.
The generous transfer schemes send a clear signal to young people that work is not necessarily the best route to advancement and financial security. Redistribution policy is the social-democratic variant of socialism and communism. And in Norway it has been taken to extremes.
We see this in the fact that ever more young people would rather go on benefits than work or attend school. The same is happening with non-Western welfare immigrants. They do not come to Norway because of the pleasant climate. And we see it among women in care occupations, who are twice as likely to take sick leave as women in the same occupations in our neighbouring countries. It is not because they are twice as sick as female Danish care workers. It is, of course, because they can.
It is not difficult to guess which parties these groups vote for. The Labour Party has made this logic the basis of its political existence. Expansionary fiscal policy – ever-higher public expenditure financed partly through oil money – functions as a permanent election campaign. With every new billion for welfare, every increase in transfers, they buy the loyalty of large groups of voters.
Hayek clearly saw this mechanism. It is called clientelism. When the state gains the power to redistribute through taxes and transfers, politicians use it to build clienteles. And the larger the proportion of the population that receives more from the state than it pays in, the more difficult it becomes to reverse course.
The structural non-oil deficit now stands at more than 12 per cent of trend GDP for mainland Norway. This is not sustainable prudence. This is not ‘safe governance’. It is postponing the bill.
At the same time, the non-socialist side, including FrP, has in practice accepted the same framework. In the name of free trade and comparative advantage, they have supported a globalisation policy that has opened the way both for the export of jobs and for the surrender to the EU of sovereignty and control over our own comparative natural advantages, as well as for increased immigration when they themselves were in government.
This is not a laissez-faire argument against the state. This is not an expression of xenophobia or racism. It is an equation. A brutal equation.
A policy that systematically favours groups with low labour-force participation, lower tax contributions and higher consumption of social benefits reinforces precisely the expansionary logic on which the Labour Party thrives. It increases the need for transfers, and therefore the need for even greater use of oil money and even higher taxes on the productive part of the population.
The result is a vicious circle. The internationally exposed private sector – the sector that actually generates export revenues and tax revenues – is being squeezed from several directions. High labour costs, a high tax burden, a generous welfare system that draws labour out of the market, and an immigration policy that increases pressure on those same schemes.
Competitiveness is weakened. Productivity growth becomes too low. And when oil revenues eventually level off or decline, or an international crisis reduces the Government Pension Fund Global to a fraction of its present size, we will be left with a public sector that is far too large, a private sector that is far too small, and a significant proportion of the working-age population that has become accustomed to the state footing the bill.
Hayek reminded us that prices and private property rights are the only mechanisms capable of communicating the dispersed knowledge within a large and complex market so that resources are used as efficiently as possible. When politicians replace these subtle and opaque aggregated signals with political objectives of redistribution, society loses its ability to adapt. Resources are misallocated. Malinvestments accumulate. Productivity falls. And competitiveness is weakened.
People adapt to the incentives they face. When it pays more to be sick or disabled than to work, more people will become so. When it pays politically to promise more welfare financed by oil money, politicians will do so. When there is no real opposition challenging the framework itself, the system will continue until it no longer can. Until it disintegrates.
Norway still has an exceptional starting point. Providence has been generous with an abundance of natural resources. The Government Pension Fund Global and the country’s financial wealth are enormous. Formally, unemployment is low, although this conceals substantial hidden unemployment through overemployment in the public sector and through the fact that many who are able to work instead live on benefits. The standard of living remains high.
But this is not proof that the policy works. It is proof that we have been able to afford to continue a policy that undermines its own foundations. We have been able to afford it because we happened to find oil in the North Sea.
The toxic mixture of radical redistribution, Keynesian expansionism, mass immigration and uncritical globalisation has long since begun to manifest itself in persistently high sickness absence, rising rates of disability, weakened competitiveness and a public sector that consumes an ever-larger share of the pie.
What is lacking is not more of the same. What is lacking is a policy that dares to say that private wealth creation is the prerequisite for all welfare, that incentives matter more than intentions, and that the state cannot buy its way out of the problems it itself creates – not even with oil money.
Until some parties dare to take the bull by the horns and formulate a genuine alternative to a social democracy and a welfare state that are in the process of sawing through the branch on which they themselves are sitting, Norway will continue to drift towards the future Hayek warned against: an ever-larger state, ever-weaker incentives to work and create, and an ever more politicised distribution of increasingly vulnerable prosperity.
It cannot end well!
