Norway has the largest public sector in the Western world. The combination of a long tradition of state control, a large welfare sector, oil revenues, and career politicians with no ordinary professional experience, and who are virtually impossible to remove, has resulted in the state playing an unusually dominant role in the Norwegian economy.

The public sector accounts for 50–60% of Norway’s GDP, and the state controls more than 50% of the market value of the Oslo Stock Exchange. More than 33% of all employed persons work in the public sector. And despite oil revenues having made the Norwegian state enormously wealthy, the level of taxation remains among the highest in the OECD. The oil revenues are used to finance non-Western immigration.

Norway is not merely a welfare state that attracts non-Western immigrants. It is a state-owned welfare state in which the public sector dominates through taxation, duties, employment, ownership and intensive regulation alike. This has resulted in a tax and redistribution policy that undermines the economy and the country’s continued development of prosperity.

The redistribution policy provides broad sections of the population with security, but also results in a disproportionately large share of the working-age population being kept outside the labour market. Taxation and redistribution policies make this possible. At the same time, however, they lead to poor resource allocation, reduced efficiency, extensive rule-based governance and unnecessary bureaucracy.

Political over-management results in widespread clientelism, whereby politicians use tax revenues to purchase votes from the voter groups receiving the transfers. This facilitates rent-seeking, whereby the right network connections provide access to subsidies and straws into the public purse in exchange for politicians receiving positions and seats on company boards, and much else besides.

Some responsibilities naturally belong to the state. Most do not. The best solution is minimal state ownership, with clear exceptions for collective public services requiring central government control in order to safeguard the community’s collective and long-term interests.

This applies to the administration of the state’s monopoly on the legitimate use of force, with defence, the police and the judiciary as the principal sectors. These are classic public services where we want control and governance, not free competition. Here the state should enjoy a monopoly, or near-monopoly, and the services should be financed entirely through taxation.

Generally speaking, however, the state is neither an engaged nor a good owner. There are few convincing arguments for state ownership of companies such as Telenor, DNB, Norsk Hydro and the Kongsberg Group. State ownership, the absence of personal risk and no skin in the game weaken cost discipline and focus on the bottom line, thereby leading to sub-optimal solutions, reduced efficiency and unnecessary bureaucracy.

Core state responsibilities also exist in areas where the market alone struggles to deliver optimal outcomes because of externalities, natural monopolies, network effects or heavy long-term investments requiring coordination or central management, or where other considerations require different priorities from the private sector’s exclusive focus on maximising shareholder value.

The neo-liberal wave of privatisation that swept through Norway in the late 1980s and during the 1990s has, however, not been a success. It was implemented with the support of both the Labour Party (Arbeiderpartiet) and the Conservative Party (Høyre). The process represented a compromise between Labour’s faith in the state and the Conservatives’ neo-liberal market rhetoric. Labour called it “social democratic modernisation”. The Conservatives called it “necessary renewal”. It happened in the typically Norwegian way: half-heartedly, compromise-oriented and with strong political control.

The result was mixed public-private ownership and hybrid models in which the state retained either a majority or a substantial minority stake, while the enterprises were only ostensibly exposed to competition. This public-private ownership combines the worst of both worlds and must be described as a failed, uniquely Norwegian construction.

The privatisation of NSB is one example. Railway operations were separated out, and NSB was eventually divided into more than twenty different entities. Where there had previously been one Director General, one board and one executive management team, there were overnight twenty chief executives, twenty executive teams and twenty boards of directors, many populated by politicians with no relevant background, but who could nevertheless collect generous board fees.

NSB was exposed to competition on paper, but the state retained ownership and control. In practice, long-term maintenance investments were deprioritised in favour of short-term profitability. Punctuality steadily deteriorated. Tickets became more expensive. Journey times increased. Typically, travelling by train from Oslo to Bergen today takes longer than it did in 1965.

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Similar stories can be told about the partial privatisation of the banking sector, the telecommunications service and the state-owned power companies: politically appointed executives, politicians occupying board positions, and ever-increasing executive salaries and directors’ fees.

Partly state-owned DNB, in which the state holds a blocking minority stake, ranks among the most expensive and least competitive banks, while paying some of the highest executive salaries and board fees. Telenor’s expansion into Asia spiralled completely out of control, and we have yet to learn who ultimately walked away with the lion’s share of the spoils.

The same applies to the management of Statkraft and Statnett. They are naturally more concerned with improving their own remuneration packages and maximising their bonuses by exporting as much electricity as possible to Europe than with ensuring the lowest possible electricity prices for households and energy-intensive industries. The result has been the importation of European electricity prices, enormous bonuses for management, and more expensive electricity for Norwegian households.

The partial privatisation and Norwegian hybrid model of public-private ownership have produced neither greater efficiency nor cheaper services. In every sector that has been privatised or partially privatised, it is consumers and households who have ended up paying the price through more expensive and poorer services than existed previously, when the railways, telecommunications and electricity supply were entirely under state ownership.

Shared ownership created permanent conflicts of interest. The state wanted cheap services, regional development, national control and commercial rates of return all at once. The result was neither sound public policy nor sound business management, but chronic deficits and massive state subsidies.

Instead of setting the companies free, political control continued through state ownership and board appointments. This removed the budget constraints that markets normally impose. The companies knew that, in the final analysis, the state would rescue them. Privatisation of profits, socialisation of losses. Classic moral hazard. Taxpayers bear the risks, while private actors capture the upside.

The privatisations created oligopolies or regulated monopolies rather than genuine markets. Telenor retained substantial market power for a long time and kept new competitors out. This was not genuine liberalisation but regulatory capture, whereby former state monopolies retained much of their power under a different guise.

The privatisation wave of the 1990s did not reduce the footprint of the public sector. It expanded it and merely changed its form, from direct administration to ownership control and subsidies. It is therefore hardly surprising that Sweden’s Minister for Industry and Commerce, Björn Rosengren, described Norway as “the last communist state” during the merger negotiations between Telenor and Telia in 1999.

The state is clearly far too dominant in Norway. There should be a sharp distinction between public and private ownership. As much as possible should be privatised, but not everything. In addition to defence, the police and the judiciary, there are a number of collective services requiring long-term planning, long-term investment and a considerable degree of coordination and standardisation in order to safeguard the common good.

This applies to railways and core public transport infrastructure. Rail transport involves substantial fixed costs and network effects. Full privatisation has generally resulted in underinvestment, fragmentation and/or higher prices for passengers. A publicly owned railway with clear performance requirements would most likely provide greater socio-economic efficiency.

The same applies to waste management, refuse collection, water supply and sewerage. These are classic collective services involving major environmental and public health externalities. Competitive tendering may work for waste collection, but the system itself (landfills, recycling and hazardous waste) requires public management to avoid the classic tragedy of the commons associated with unregulated shared resources.

The same also applies to the electricity grid. Hydropower is a national common resource. The transmission network is a natural monopoly that should remain publicly owned to ensure equal conditions, sensible expansion and the lowest possible prices. The privatisation of the electricity supply in order to place it under EU control is clearly directly contrary to Norway’s national interests, represented by households and energy-intensive industry.

Other sectors that should remain publicly owned include ports and airports of national importance for transport, security and emergency preparedness. The same applies to maintaining strategic reserves of food, medicines, petrol and other energy carriers. Yet all of these were dismantled in the early 1990s following demands from the EU. This includes the Norwegian Grain Corporation (Statens Kornforretning), the Norwegian Medicinal Depot (Norsk Medisinaldepot), and the national fuel reserves.

The point is not that these services should be run by bureaucrats, but that ownership and overall governance should remain in public hands in order to ensure long-term planning, equal access and optimisation in the interests of society as a whole. The solution lies in strong control and incentive mechanisms. State ownership can only be justified if it is accompanied by competent governance that counteracts bureaucratic inertia, low productivity, corporatism and the favouring of special interests at the expense of the wider community.

This requires clear performance contracts, management by objectives, and leadership based on productivity, cost-efficiency, customer satisfaction, and bonus and incentive schemes reflecting these goals. It requires independent supervisory authorities, benchmarking and comparisons with public administration in other countries. It also requires competitive tendering wherever possible.

Last, but by no means least, it requires political principles based on maintaining an “arm’s length” relationship, bringing an end to political appointments and the many breaches of propriety involving career politicians exploiting party networks to secure positions and appointments for which they are unqualified. It requires complete openness and auditing—full transparency in financial matters and decision-making, together with regular external evaluation.

A sound liberal approach to state ownership is one of principled minimalism combined with pragmatism regarding collective public goods. The key is not more government, but a smarter, leaner and more incentive-driven state that actually delivers the services citizens cannot provide privately. The current Norwegian hybrid model of public-private ownership is neither sufficiently liberal in the marketplace nor sufficiently efficient in the public sector.

It is time to put things in order. Less government where it does not belong, and better government where it must be present. But today not one of Norway’s many career politicians wants that. On the contrary, they want more lucrative appointments and positions in state-owned and semi-state-owned enterprises. Small wonder that the Norwegian state continues to grow ever larger!