OECD Economic Surveys : Norway 1972.

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by  OECD

OECD
ECONOMIC SURVEYS
NORWAY
JANUARY 1972
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cBÀSIC STATISTICS OF NORWAY
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THE LAND
Area(1OOO-aq.-km) 324 Majorcities(31.12.70):
Arablearea(1000sq.km) 10 Oslo 481200
Productiveforest(100Osq.km) 70 Bergen 113500
THE PEOPLE
Population(31.12.70) 3892000 CCiivviilliianemployment, 1970 1497000
No.ofinhabitantspersq.km 12 ofwh Industry 558000
Netnaturalincrease Agriculture,forestry
(average 1961-1969) 29800 andfishing 208000
Per 1000 inhabitants (average Otheractivities 731000
1961-1969) 8.0
Netannualmigration
(average 1961-1969) 444
PRODUCTION
Gross domestic product in 1970 (mil¬ Gross fixed capital formation (1970):
lionsofKr.) 89983 PercentageofGDP 34
GNPperhead($) 2940 Perhead,S 1086
THE GOVERNMENT
Publicconsumptionin 1970(percentageof CompositionofParliament(No.ofseats):
GDP,OECDdefinition) 18 Labourparty 74
General government current revenue in Conservativeparty 29
1970(percentageofGDP) 44 Centre(Agrarian)party 20
Publicgrossfixedcapitalformationin 1970 Liberalparty 13
(percentageofGDP) 8 ChristianDemocrats 14
Left-wingSocialistparty 0
Total Tso
Lastgeneralelection: 1969 Nextgeneralelection: 1973
FOREIGN TRADE
Exportsofgoods andservicesasapercen¬ Importsofgoodsandservicesasapercen¬
tageofGDP(average1961-1970) tageofGDP(average1961-1970) 38
which: Main imports in 1970(percentage oftotal
Grossfreightearnings commodityimports):
Main exports in 1970 (percentage oftotal Ships(average 1967-1970)
commodityexports): Machinery, apparatus and transport
Forestryproducts 12 equipment(excl.ships)
Basemetalsandproductsthereof 26 Raw materials (non-edible) inch fuels
Fishandfishproducts andchemicals 23
Machinery, apparatus and transport Basemetalsandproductsthereof 12
equipment(excl.ships)
THE CURRENCY
Monetaryunit: Krone CurrencyunitperS (from 20.12.1971): 6.64J
Note Aninternationalcomparisonofcertainbasiceconomicanddemographicstatisticsisgivenin
an annex table.
OECD ECONOMIC SURVEYS
NORWAY
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisationfor Economic Co-operation andDevel¬
opment (OECD) was set up under a Convention signed
in Paris on 14th December, I960, which provides that the
OECD shallpromote policies designed :
to achieve the highest sustainable economic growth
and employment and a rising standard of living in
Member countries, while maintaining financial sta¬
bility, and thus to contribute to the development of
the world economy ;
to contribute tosoundeconomic expansion in Member
as well as non-member countries in the process of
economic development ;
to contribute to the expansion of world trade on a
multilateral, non-discriminatory basis in accordance
with international obligations.
The Members ofOECD are Australia, Austria,Belgium,
Canada, Denmark, Finland, France, the Federal Republic of
Germany, Greece, Iceland, Ireland, Italy,Japan, Luxembourg,
the Netherlands, Norway, Portugal, Spain, Sweden, Switzer¬
land, Turkey, the United Kingdom and the United States.
The Socialist Federal Republic of Yugoslavia is
associated in certain work of the OECD, particularly that
of the Economic and Development Review Committee.
The annual review ofNorway
bytheOECDEconomicandDevelopmentReviewCommittee
took place on 9th December 1971.
The present Survey has been updated subsequently.
CONTENTS
Introduction
I Longer-term trends and problems 5
Objectives and instruments ofmedium-term policies 6
Orientation andaims ofpolicy 6
The choice ofpolicy instruments 6
Economic performance and problems ofbalanced growth 8
Rate ofgrowth andresource allocation 8
Manpower resources andemployment 12
Theproblem ofregionaldisparities anddevelopment 12
Balance ofpayments: trends andproblems 14
The 1970-1973programme:projections andoutcome 22
II Economic policy 24
The fiscal policy stance in 1971 and 1972 24
Monetary policy and developments 26
Price-incomes policy 29
III Recent trends and prospects 29
Weak external demand until mid-1972 31
Continued buoyancy of major domestic demand components 32
Continued growth slightly below capacity rate 36
Early balance ofpayments improvement unlikely 38
IV Conclusions 41
Annex I : The Norwegian export performance 1965-1970 45
TABLES
Text :
1 Financial balances ofthe shipping and non-shipping sector 15
2 Projections and outcome ofcurrent external account 22
3 Main features ofpublic finance 25
4 Money supply and sources ofliquidity 27
5 The credit market 28
6 Supply and use ofresources 30
7 Trends in merchandise exports 32
8 Gross fixed asset formation 33
9 Trends in prices 34
10 Employment and labour costs in manufacturing 35
11 Production by sector 36
12 Trends in merchandise imports 38
13 Balance ofpayments - The shipping sector 40
14 Global balance ofpayments 41
Statistical Annex 63
A Supply and use ofresources, current prices 65
B Supply and use ofresources, 1961 prices 66
C Gross domestic product by industry oforigin, current prices 67
D Gross domestic product by industry oforigin, 1961 prices 68
E Gross fixed asset formation, 1961 prices 69
F Central government income and expenditure 70
G Balance ofpayments, § millon 71
H Balance ofpayments, quarterly, Kr. million 72
I Quarterly national accounts 73
J Labour market and employment 74
K. Production and demand by sector 75
L Foreign trade, total and by area 78
M Imports, value, volume, prices and by commodity group 79
N Exports, value, volume, prices and by commodity group 80
O Prices and wages 81
P Money and credit 82
DIAGRAMS
1 Saving in Norway and selected countries 7
2 Growth ofoutput and investment ratio 1953-1969 9
3 Growth and variability ofGDP 1953-1969 10
4 Growth and variability ofexports 1953-1969 11
5 Regional pattern ofincome and employment 13
6 Current balance as per cent ofGDP 16
7 Main components ofthe current external account 17
8 Merchandise exports and demand pressure abroad 19
9 Trade balance by main commodity group 20
10 Import behaviour 21
II Indicators on production and labour market 37
12 Exports, imports and terms oftrade excluding ships 39
INTRODUCTION
Norway is one of the few OECD countries where, despite weaker trends
in world trade, the economy has continued to grow steadily in 1971. With
little fiscal restraint and easy monetary conditions, a strong rise in domestic
final demand has pushed the economy ahead, entailing a sharp deterioration
of the current external balance. With unemployment running at an all-time
low level, unit labour costs roseatrecord rates both in 1970 and 1971. Prices
did however, not rise correspondingly due partly to the price freeze in force
duringtheyeartomid-November 1971. Prospectsfor 1972pointtocontinued
slack conditions in important markets abroad for Norwegian exports. This
may have some dampening impact on exports and investment activity in the
export industries, but other domestic demand components are expected to
remain buoyant. The current balance of payments may not show any signi¬
ficant improvement.
In view of the large discrepancy between price and balance of payments
developments in 1970-1971 and earlier medium-term projections the question
maybe raised whetherthepresentsituation constitutes the beginningofa more
lasting departure from earlier trends. Much will depend on the degree of
demand restraint and the outcome ofwage and salary negotiations which are
presently under preparation. It is also important that the envisaged tighter
line of fiscal and monetary policies will be maintained until the economy
shows clear signsofmovingtowards a betterinternal and external equilibrium.
The situation calls for an efficient co-ordination of the various government
policies, and atthesametimeseemstoprovideanopportunityforcloseco-oper¬
ation between the Government and the various social groups, which will also
be indispensable for tackling some of the longer-term issues discussed in
Chapter I of this report.
I LONGER-TERM TRENDS AND PROBLEMS
The economicperformance ofa small country like Norway is importantly
influenced by developmentsabroad. Nevertheless, theorientation and pattern
of economic developments in Norway during the last twenty-five years has
not been the fortuitous result of passive adaptation to external impulses.
TherehasbeenafirmbeliefinNorwaythateconomicforcescould becontrolled
andregulated accordingto socialand egalitarian principles butthattherecons¬
truction ofthe economy would require a great andjoint effort on all levels of
the decision-making process. Longer-term considerations have been an
important determinant ofeconomic policy, and the impact ofeconomic policy
on post-war economic developments has probably been stronger in Norway
than in most other market economies.
OECD Economic Surveys
Objectives andinstruments ofmedium-termpolicies
Orientation and aims ofpolicy
The broad objectives which have guided Norwegian economic policy
duringthepost-warperiod havenotbeen differentfromthosepursuedin other
countries: full employment, rising living standards, social equity, balanced
regional and sectoral development, external financial equilibrium and a rea¬
sonable degree ofcost/price stability. But these general objectives have been
supplemented by a wide range of much more specific policy aims expressing
priority scales in various fields ofeconomic and social life. Policies designed
to raise the level and influence the composition of investment would in this
respectseemtohaveproduced themostfar-reachingeffects. Thehighpriority
attached to investment was mainly a consequence of the need and scope for
an exploitation ofnatural resources water power in particular and a conti¬
nuation of an activity shipping in which Norway has developed a strong
competitive position. However, apart from the stimulus given to investment
in power production and in power-intensive industries the Norwegian author¬
ities have also given priority to investment in various sectors and regions in
the context ofregional development policies.
Regional considerations and objectives have, in fact, often been central
policy issues in Norway. These considerations and objectives are primarily
ofa non-economic nature: maintenance ofa certain population in areas with
a low degree of industrialisation, protection of environmental qualities and
ecological equilibrium, checking the growth oflarge urban agglomerations to
avoid public nuisance and congestion, and maintenance ofa certain degree of
self-sufficiency of some agricultural products. Policy decisions in many eco¬
nomicfieldshave beenguided by suchconsiderationsandacompleteinventory
ofregional and sectoral policies is therefore difficult to establish. It includes
variousdirectandindirectsupportschemesforagricultureandfisheries, certain
aspects oftariff, taxation and credit policies, energy and housing policy.
The choice ofpolicy instruments
In pursuing the policy objectives the Norwegian authorities have made
useofmostoftheinstrumentstraditionallyresortedtoin" mixed economies ".
But tradition and institutional constraints have limited the scope for utilisa¬
tion ofcertain classical tools and the specific nature ofstructural and regional
policy objectives has led to the development ofpolicy instruments less known
or less commonly used in other Member countries. The necessary room for
real capital formation has been provided in three different ways: through
themaintenance ofrelatively heavytaxation ofhouseholds and taxregulations
favouring business self-financing, through high governement savings and re¬
course to foreign real and financial savings as reflected in persistent current
account deficits and net long-term capital imports. Gross saving of the
public sector has typically covered some 35 per cent oftotal gross investment
implying that not only public sector investment but also a good deal of
private investment has been financed via central and local government bud¬
gets. The level of and changes in taxation have therefore been a decisive
element in the policy setting both in medium-term planning and in short-
term demand management.
Norway
Diagram 1 Saving in Norway and Selected Countries
Averages for 1960-1969
Perctnt
40
35 A. "GROSS SAVING AS PER CENT OF GDP
Publicsaving
30 V///A P"'*°'esaving
25 | | Tola!saving
20
15
10
5
0
B. PUBLIC SAVING AS PER CENT OF TOTAL SAVING
40
30
20
10
0
Nwway Denmark Sweden Germany UK
Source: OECD National Accounts.
The choice anduse ofmonetarypolicyinstruments have beenimportantly
influenced by and adapted to the particularities ofthe Norwegian capital and
credit market. Long-term interest rates, notably for high priority investment
credits, have been kept low throughout the whole post-war period. The
allocation of credit for high priority purposes has been ensured through a
system of specialised institutions which financially rely heavily on the avail¬
ability ofcentral government funds. Measures regulating bank liquidity have
only recently been brought into operation. Previously the Government relied
upon agreements with the banks concerning the overall volume of credits to
be granted, but these agreements have now been replaced by liquidity requi¬
rement rules and portfolio investment obligations (to ensure equilibrium in
the bond market).1
1 A comprehensive review of the "Norwegian capital market, international capital
movements and restrictions on capital operations" was published by the OECD in 1970,
intheseries ofcountry studies offinancial markets.
OECD Economic Surveys
Besides credit allocation schemes at low interest rates, regional and struc¬
tural policies include measures influencing the profitability of investment i.a.
through price subsidies and differentiated taxation rules. Such policy devices
have been instrumental in supporting income developments in agricultureand
fisheries and in curbing the exodus from these sectors. It may be noted that
the Norwegian authorities up to now have abstained from measures aimed
at influencing the regional pattern of labour costs via preferential tax rates
related to labour or preferential contribution rates to social security. The
functioning of the labour market and the wage determination process have
been such that rates and hourly earningsforcomparablejobs vary surprisingly
little from region to region, despite apparently large regional disparities in
productivity levels. This discrepancy between rather uniform wage levels on
the one hand and different productivity levels between regions on the other,
represents the main source of regional disparities in profitability.
Policies directed towards maintenance of social peace and high levels of
demand and activity on a continuing basis have been important in creating
afavourableinvestmentclimate. Lowinterestratespolicyandselectiveinvest¬
ment incentives have helped to keep pressure on resources high during most
ofthe post-war period. In the event ofgeneral excess demand the authorities
have had recourse to measures restricting the growth of low priority invest¬
ment. In the early post-war period such " interventionistic " posture of
demand magagements strongly affected investment decisions of individual
enterprises. In recent years direct controls ofinvestment have been confined
to building activity through a system of building permits not very different
from those operated in many other countries. However a strong influence
upon industrial investments is exerted through the control on issues of indus¬
trial bonds.
Economic performance and problems of balanced growth
Viewedagainstthebackground ofthemainpolicyobjectivesand consider¬
ing the inherent trade-offs between the various objectives the authorities can
certainly claim to have had a large measure of success. Since the War there
has never been a prolonged period ofindustrial stagnation nor unemployment
onanyconsiderablescale. Theexpansionofpowerproduction,infrastructural
investment and of public services has been realised according to longer-term
programmes and targets. The development ofcosts and prices has generally
been kept in line with trends abroad despite comparatively high demand pres¬
sure and egalitarian labour market settlements.
Rate of growth and resource allocation
Therateofgrowthoftotaloutputhasnotbeenspectacularbyinternational
standards but it has been relatively steady and sufficiently high to keep output
per employed and income per capita rising in line with developments in most
other Member countries. Furthermore, since the beginning of the sixties
there seems to have been an acceleration in the productivity trend probably
related to the strong increase in capital endowments per employed person
during the previous decade. Nevertheless the incremental capital-output