The Norway Model

Recently an article from New York Times talks about how Norway's economy is still thriving and manages to grow by 3% in GDP last year while the rest of the world is sliding deep into the recession caused by the Global Financial Crisis in 2008. Naturally it makes people wonder, which is the better model, the scandinavian socialistic model, characterized by generous social welfare and high tax, or the Anglo-Saxon laissez faire model, characterized by a privatized social safety net, education and a lightly regulated financial system.

Norway's story is not typical. Its GDP per capita in 2008 is $53,450, ranked No.3 after Luxemburg. Norwegian people feel blessed that their country not only has the stunningly beautiful fjorks, but also sits on top of rich petroleum and natural gas resources near the North sea. The country is also rich in hydropower, which makes refining aluminum, another rich resource they have, feasible. Norwegian fishermen have access to one of the largest salmon fields in the world.

Rich natural resources and a small population might already explain half of the Norway's economic successful story. The other half lies in norwegians' frugal fiscal policy. More than 80% of the oil and gas revenue goes directly to the sovereign wealth fund, which is used to buy assets around the world, such as US treasuries or Japanese stocks. Although the fund's holding takes a hit in this financial crisis, the cost for the assets are actually cheaper than ever. Savers like Norway could take this opportunity and buy up more assets.

The public spending of the norwegian government is much lower compared to other developed countries, thanks to the lack of a strong military program. The saved money is spent in the norwegian tax payers: all norwegian citizens get free health care, free education (including higher education) and a generous financial aid for people out of work. In return, 40-50% of personal income in Norway is taxed. Another important feature in Norway's social structure is that, the income gap between the "rich" and the "poor" is relatively smaller compared to United States. Doctors, lawyers and businessmen make less than 3 times of what a waiter/waitress could make.

People in U.S. might argue that, in system like Norway, no one has the incentive to work. As the petro-resources run up, the country has to face the reality. I partially agree with this view. What makes America the most dynamic economy in the world, partly is that entrepreneurship is strongly encouraged in U.S.'s economic system. People have incentive to take risk, work hard and innovate. Such dynamic entrepreneurship-based economy has dynamic consequence too: companies frequently find the need to lay off or hire people in America, depending on whatever opportunity present. A flexible labor market is needed for a dynamic economy, since entrepreneurs could allocate the most effective resources as they see fit. This is exactly lacking in countries like Japan, Germany or France. The more dynamic the economy is, the more new jobs can be created.

The downside of America's model, compared to the Norway's one, is that the basic social safety net does not support the dynamic economy and risk taking. A nationalized health care plan and free college education for their children, could free workers' minds from worrying about losing their jobs. A worry-free worker is more willing to take risk and pursue what they could potentially achieve entrepreneurship-wise. Additionally, a free health care and free higher education can mobilize people from different social classes, not to mention narrowing the income gap, and therefore maximize the availability and quality of the workforce, and improve the nation's overall productivity.