CALDEIRÃO DE BOLSA

For one of the world's most powerful investment bankers, Mr. Slyngstad is surprisingly humble. Aside from his Norwegian reserve, that's because his job is strictly limited by a Norwegian law – which is regarded by most people here as something akin to the 10 Commandments – known as the Management Rule.

The Management Rule is the heart of Norway's economic miracle. It is a profound act of self-discipline: All but 4 per cent of Norway's oil earnings must be placed in the fund for savings; nothing can be withdrawn from the fund until the oil is gone, decades from now; and – most crucially – absolutely none of the money can be invested inside Norway. Mr. Slyngstad and his traders spend their days funnelling the oil wealth into foreign stocks and bonds, so none of it will touch the Norwegian economy.

Mr. Slyngstad explained that by investing all this money in non-Norwegian companies, the fund acts as a shock absorber for the entire Norwegian economy. Even as oil has soared, Norway has avoided high inflation and its non-oil companies have grown more competitive.

“Our politicians and voters have placed a bind on themselves, refusing to touch more than 4 per cent of the oil money, so what that means is their economy actually gets a stabilizing mechanism, which is built into the fact that the oil revenue doesn't go into the economy, it flows out,” he explained. “So for the Norwegian people, the oil revenue is not revenue at all, it's just wealth being moved into a more diversified portfolio for the future.

(By comparison, Alberta's Heritage Fund currently receives about one-eighth of the province's oil money; the rest goes into provincial coffers or is paid directly to Alberta citizens. In its 31-year history, it has accumulated $16.1-billion, or $4,588 per Albertan. Two-thirds of it is invested inside Canada.) On the face of it, Norwegians seem to be paying a price for their frugality: Only about 10 per cent of Norway's $70-billion government budget comes from oil money. In order to finance their generous state services and social benefits, Norwegians' income taxes are among the highest in the world, and their gas stations charge $2.30 for a litre of unleaded – the highest price in the world, in a country that is the world's third-largest exporter of the stuff.

But it's hard to find Norwegians who consider this a burden. They have among the highest disposable incomes in the world (and the fairest distribution of income: Even the poor are comparatively rich). In every quality-of-life index, Norway ranks at or near the very top, above Canada. Their unemployment rate is currently 2 per cent. And in the 2005 election, Norwegians re-elected the social democratic coalition government that has shunted their earnings overseas.

“Voters here know that there is no country in the world that has managed its oil resources and wealth so well as Norway,” says Auke Lont, an Oslo economist who specializes in oil economies. “So even if oil prices dropped and the economy started getting worse, Norwegians would not want to ruin that record and embark on something that is uncertain. It's a system based on consensus, and it's a pretty wide consensus.”

There are signs of potential weakness in Norway's current economy. Mr. Rasmussen, the wind-turbine entrepreneur, points out that the extreme labour shortages caused by the low jobless rate have made it hard to find workers at any reasonable price. And there is a danger of inflation: Mr. Osmundsen, the medical-supplies executive, notes that his company's 10-per-cent growth last year was just enough to keep up with the increasingly expensive currency.

Within the Norwegian government, there's a realization that many more immigrants are needed to fill the work force and that much more needs to be done to make small, non-oil businesses prosper. Norway has one of the most flexible labour-law systems in the world, so it is extremely easy to hire and fire workers (making the creation of small businesses easier). And the government has a system of research grants that encourages people to move out of oil and into the future economy.

The attention Norway pays to planning its after-oil economy and promoting economic diversity must strike a chord with many Canadians. But the Canadian who has the most control over the use of the country's oil money is not listening. Mel Knight, Alberta's Energy Minister, said in an interview during a recent visit to London that he does not believe his province has any lessons to take from Norway.

“First of all, Norway is a country that is a federal jurisdiction. And if we were to turn over all of our resources in Canada back to the federal government, perhaps they would operate the thing differently.

“But our Constitution in Canada dictates that the province of Alberta has the mandate to deal with our own natural resources. We feel that wealth generation in the province of Alberta is worth something, and that to put that money back in the hands of Albertans, and let those people do what they do best with their money, is a better opportunity for us.”

Part 2 of 2

Frugal Norway saves for life after the boom

DOUG SAUNDERS

From Thursday's Globe and Mail

January 31, 2008 at 12:00 AM EST

STAVANGER, NORWAY — To stroll along the harbour of this pretty town on Norway's North Sea Coast is to follow the history of an economic explosion. To the south, the old wooden canneries are still processing herring and cod, the commodities that until a few decades ago were the mainstays of Norway's poor, austere economy.

Across the harbour, the constant movement of enormous cranes and construction ships is evidence of the great North Sea oil boom that has turned Stavanger into a high-rent boomtown and Norway into one of the world's wealthiest nations. The streets of this fishing town are now lined with luxury-goods shops and packed with highly paid foreign workers.

But further from shore, you will find a third economy, a more surprising one that has nothing to do with oil or fish. In one big building just outside of town, a local firm called HighComp is turning out 10-metre-wide housings for huge wind-turbine generators.

“We're doing our best business in parts of the economy that have nothing to do with oil or fish being pulled from the sea,” said owner Helge Rasmussen, 34. His plastics firm's wind-power division built $4-million worth of housings last year and has completed deals across Scandinavia and northern Europe.
The world's largest natural gas platform, Aasgard-B, was partly assembled near Stavanger at a cost of $1.4 billion, then towed into the North Sea.
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The world's largest natural gas platform, Aasgard-B, was partly assembled near Stavanger at a cost of $1.4 billion, then towed into the North Sea. (File)
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Closer to the harbour is Laerdal Medical, which makes life-saving devices such as defibrillators and medical simulators for export to 22 countries. Its profits grew by 10 per cent last year, even though Norway's currency has a high exchange rate. “We had our best year ever last year, and it was 97-per-cent exports, including difficult markets like China,” said Tor Morten Osmundsen, the company's chief executive.

These companies are no exception. Across Norway, the oil boom is being paralleled by record growth in the non-petroleum, export-driven economy. In November, Norway's non-oil private-sector economy reported quarterly growth of 1.9 per cent, the equivalent of a 7.6-per-cent annual growth – an astonishing economic performance, beating even the growth of oil and gas exports.

And that is the real surprise here. While it isn't hard for nations and provinces to get rich from oil, it is exceptionally hard – almost impossible, by conventional economic reasoning – for them to make money off anything else while the oil boom is taking place.

Everywhere else in the world – including Canada – a boom in oil has led to a decline, if not a complete devastation, of conventional businesses. It's a phenomenon known to economists as “Dutch disease,” after the tragic experience of the Netherlands, which discovered oil in the 1970s. As oil exports boomed, the flood of money into the domestic economy inflated the currency, provoked price increases and destroyed exports, leading to a decade of joblessness and rising inequality.

The same thing happened, on an even larger scale, in Britain in the 1980s. After North Sea oil was discovered, the British industrial economy was virtually obliterated, leaving four million people jobless. Poor countries, from Nigeria to Venezuela, have also discovered the economy-smothering nature of oil windfalls.

Among oil economies, Norway – the world's third-largest exporter and 10th-largest producer in 2006 – is almost alone in having avoided this fate. As oil has boomed, so has everything else, and it has boomed in areas that will continue to generate economic growth when the oil revenues are gone. This is no accident: For Norwegians, this is a story of planning, self-discipline and a long learning process.

While other countries have become apathetic and uncompetitive during petroleum booms, Norway appears near the top of every international index of competitiveness and entrepreneurship.

The “Norwegian model” has become a topic widely studied, but rarely imitated, among other oil nations. The hotels of Oslo these days are populated with Kuwaitis, Saudis, Kazakhs and Brazilians who have come here to examine the Nordic way.

Their first port of call is an office deep inside the high-security headquarters of the national bank. There, a soft-spoken man with a bald pate and a neatly trimmed beard sits atop one of the world's largest piles of money. Yngve Slyngstad, 47, is the newly appointed manager of the Government Pension Fund – Global, better known as “the oil fund.”

An adjoining room contains computer desks staffed by his 11 traders, who invest the $1-billion in oil money his office receives every week. Norway's oil is drilled from beneath the North Sea by dozens of companies, including Norway's state-owned Statoil and Canadian firms such as Talisman and Petro-Canada. In exchange for the right to drill, they must hand 78 per cent of their profit over to Mr. Slyngstad's fund.

This is Norway's long-term savings account, and in the 17 years since it was launched it has become one of the four largest investment funds in the world. It currently holds $368.2-billion, or $78,351 for each Norwegian citizen. By the end of next year, even with an oil-price decline, it is projected to hold almost $500-billion, or $117,000 for each citizen.

Part 1 Of 2

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