Norway: Fishing → Oil → Public Hedge Fund

The story of Norway is my favorite economic case study.

In the 1960s, Norway’s economy was far behind most of its Western counterparts who may have been severely impacted after WW2, but had industry and infrastructure to bounce back.

Norway’s economy was primarily dependent on fishing. GDP per capita was well behind the US and even former Soviet blocs like Poland and the Czech Republic.

Fast forward to 2023, Norway is #3 in GDP (nominal) per capita, robust trade surpluses, high national life expectancies, a skilled workforce and almost no unemployment. So what happened?

In May 1963, Norway claimed sovereign rights over the North Sea's natural resources. By 1969, they struck oil. Needless to say, they made a killing with oil. They really lucked out, but how they handled it is extremely impressive.

The problem with striking oil and getting rich quick is that it leads to a negative flywheel, also called Dutch Disease. Country gets wealthy really fast, not enough time to create advanced industries -> things get more expensive -> labour costs increase -> oil and everything else sell at a higher price to be profitable -> lose market share of oil and other industries to cheaper intl competitors

Norway avoided this trap completely.

They created a Sovereign Wealth Fund. A public company that took the oil profits and invested it in various industries across the world.

Every citizen of Norway has a share in the fund. In fact every citizen today has ~$200k invested in the $1.4T fund. It posted a profit of $143B in 2023, up 10% in the first half of the year.

This was great ideologically too because citizens profited off their country’s natural resources instead of a few private companies. The Government is the fund manager (a really good one it would seem) and takes a fee for it.

Although Norway’s strategy is not applicable everywhere, there’s a lot of valuable insight that still applies in today’s modern world 🇳🇴