OECD Economic Surveys : Norway 1973.

74 Pages·4.158 MB·English

by  OECD

RGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION OE COOPERATION ET DE 0 E V E L 0 P P E M E N T ECONOMIQUES
BASIC STATISTICS OF NORWAY
THE LAND
Area(1000sq.km) 324 Majorcities(31 12.71):
Arabicarea(I000sq.km) 10 Oslo 477476
Productiveforest(1000sq.km) 70 Bergen 212120
THE PEOPLE
Population(31.12.71) 3922000 Civilianemployment,1970 1497000
No.ofinhabitantspersq.km 12 ofwhich:Industry 358000
Netnaturalincrease Agriculture,forestry
(average 1962-1970) 29200 andfishing 208000
Per 1000inhabitants(average Otheractivities 731000
1962-1970)
PRODUCTION
Grossdomesticproductin 1971 Grossfixedcapitalformation(1971):
(millionsorKr.) 100774 PercentageofGDP 35
GNPperhead($) 3300 Perhead,S J274
THE GOVERNMENT
Publicconsumptionin 1971 CompositionofParliament
(percentageofGDP,OECDdefinition) 18 (No.ofseats):
Generalgovernmentcurrentrevenuein Labourparty 74
1971 (percentageorGDP) 47 Conservativeparty 29
Publicgrossfixedcapitalformationin Centre(Agrarian)party 20
1971 (percentageofGDP) 8 Liberalparty 13
ChristianDemocrats 14
Left-wingSocialistparty 0
Total Ï5Ô
Lastgeneralelection: 1969 Nextgeneralelection; 1973
FOREIGN TRADE
Exportsofgoodsandservicesasa Importsofgoodsandservicesas a
percentageofGDP(average1962-1971) percentageofGDP(average 1962-1971) 38
ofwhich: Mainimportsin 1971 (percentageoftotal
Grossfreightearnings 15 commodityimports):
Mainexportsin 1971 (percentageoftotal Ships(average1968-1971)
commodityexports): Machinery,apparatusandtransport
Forestryproducts 11 equipment(excl,ships) 25
Basemetalsandproductsthereof 28 Rawmaterials(non-edible)incl.fuels
Fishandfishproducts 9 andchemicals 21
Machinery,apparatusandtransport Basemetalsandproductsthereof 10
equipment(excl.ships)
THE CURRENCY
Monetaryunit: Krone CurrencyunitperI(from20.12.1971): 6.64i
Note Aninternationalcomparisonofcertainbasicstatisticsisgiveninanannextable.
OECD ECONOMIC SURVEYS
NORWAY
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and
Development (OECD) was set up under a Convention
signed in Paris on 14th December, 1960, which provides
that the OECD shall promote 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 to sound economic 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 accord¬
ance with international obligations.
The Members of OECD are Australia, Austria,
Belgium, Canada, Denmark, Finland, France, the Federal
Republicof Germany, Greece, Iceland,Ireland,Italy, Japan,
Luxembourg, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, 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 of Norway by the
OECDEconomicandDevelopmentReviewCommittee
took place on 20th December 1972.
The present Survey has been updated subsequently.
© OrganisationforEconomic Co-operation and Developement,1973.
Querjes concerning permissions or translation rights should be
addressed to :
Director ofInformation, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France
CONTENTS
Introduction 5
I The acceleration of inflation 5
II Causes of inflation 8
International transmission 8
Domestic factors 14
HI Recent trends and prospects 22
IV Policy issues and conclusions 27
Annex I Chronology ofmajor eventsin the price/wage field
1958-1972 31
Annex II Regulation for the temporary pricefreeze for goods
and services 39
Annex III Input-output tables 1961 and 1971 43
TABLES
Text
1 Supply and use ofresources 23
2 Prospects for prices and incomes 24
3 Contribution to wage cost 25
4 Global balance ofpayments 26
5 Balance ofpayments ofthe shipping sector 27
Statistical annex
A Supply and use ofresources, current prices 49
B Supply and use ofresources, 1961 prices 50
C Gross domestic product by industry oforigin, current prices 51
D Gross domestic product by industry oforigin, 1961 prices 52
E Gross fixed asset formation, 1961 prices 53
F Central government income and expenditure 54
G Balance ofpayments, $ million 55
H Balance ofpayments, quarterly, Kr. million 56
I Quarterly national accounts 57
J Labour market and employment 58
K Production and demand by sector 59
L Foreign trade, total and by area 62
M Imports: value, volume, prices and by commodity group 63
N Exports: value, volume, prices and by commodity group 64
O Prices and wages 65
P Money and credit 66
DIAGRAMS
1 Consumer prices in Norway and OECD Europe 6
2 Consumer prices, selected items 8
3 Deflators ofselected GDP components 9
4 Pressure indicators and external balance 10
5 Wage cost and profit manufacturing 12
6 Wage cost and profit shipping 14
7 Unit labour cost in manufacturing 15
8 Contribution to hourly wage cost in industry 16
9 Development ofwage differentials in industry 17
10 Distribution ofprivate consumption 18
11 Public expenditure, selected countries 19
12 Structure oftax revenue 20
INTRODUCTION
Norway has once again come through an international recession without
serious unemployment or retardation of growth. The boom in the late
1960s lasted longer than in most other European Member countries, and
the subsequent slowdown in 1972 has been much milder than generally
elsewhere. Norway has also longer resisted the worldwide phenomenon of
accelerating inflation but the last couple of years have clearly seen a loss
of price-cost stability. The 1972 bi-annual income settlements were follow¬
ed by a new wave of price increases which in September prompted the
authorities to resort to a new temporary price freeze the third in the past
two years. The official 1973 forecast is for full employment growth,
but given the continued rapid expansion of the public sector and public
transfer payments, progress towards better internal and external balance
may be more difficult to realise.
Norway has for many years past demonstrated that it is possible to
pursue social and egalitarian objectives in economic policy while maintain¬
ing high employment, reasonable price stability, external balance and a
satisfactory rate of economic growth. For most of the 1950s and 1960s
domestic cost and price developments in Norway can be shown to have
been largely determined by international prices and the growth rate of
labour productivity in export and import-competing industries. In both
these respects, experience in the past two years suggests a disquieting
departure from past trends. Inflationary tendencies seem to have strengthen¬
ed partly because too much has been attempted too quickly towards
further improvement of income distribution. And the steep rise in unit
costs raises the question whether Norway's relative competitive position will
be maintened in the coming years.
The present Survey, after reviewing Norway's past price performance
in Part I, attempts in Part II to analyse some features of income formation
in Norway and to identify the main forces behing the recent acceleration of
inflation. Part III discusses the prospects and conditions for regaining a
higher degree of price stability. Part IV summarises the main policy issues
and conclusions.
I THE ACCELERATION OF INFLATION
On average over the decade 1961 to 1971, Norwegian consumer prices
rose somewhat (i percentage point) faster than the average for European
OECD countries, and the difference disappears if allowance is made for
OECD Economic Surveys
Diagram1 ConsumerPricesinNorwayandOECDEurope
A. Index 1961 = 100
Sem/-/og.
180
Norway
160 y
140 -***'
OECD-Europe
120
100 i.
1961 62 63 64 65 .66 67 68 69 1970 71 721
B. Change over 6 months, seasonally adjusted annual rates
Norwoy
____ OECD-Europ. Increaseofindirecttaxes
I Price
PriceFreeze PriceFreeze Freeze
I(cid:9)1 I(cid:9)1
10
B Incl.TVA
/
6 AVERAGE 7967-197! / -N' * 7"-k\\ Als'y7»
4
2 Excl.TVA
1968 1969 1970 1971 1972
1 EstimatesoftheOECD Secretariat.
Source: MonthlyBulletinofStatisticsandOECD Secretariat.
Norway
the effect of the introduction of VAT on 1st January, 1970. Like other
European countries, Norway experienced a sharp acceleration of price
inflation in the latter part of the period. While price increases in both
1968 and 1969 were still relatively moderate, consumer prices rose at an
average annual rate of as much as 8 per cent between 1969 and 1972, as
against 3.5 per cent over the 10-year period 1959 to 1969. The acceleration
of price increases since 1969 appears to have been fairly uniform for most
categories of goods and services.
Over the past three years, the behaviour of Nowegian consumer prices
has been strongly influenced by three succesive attemps by the authorities
to stem the rise in prices by direct intervention. Until 1969, the authorities,
while following price developments closely through extensive control of
monopolistic practices and general price surveillance, had not made use of
general measures of price control. The need for such measures was felt for
the first time when VAT was introduced in a situation of high demand
pressures. The immediate object of the temporary and partial price freeze
ordered in September 1969 was to deter enterprises from using the introduc¬
tion of VAT as an opportunity to widen profit margins. The freeze was
abolished early in 1970, having so it seemed served its main purpose:
excluding the mechanical impact of VAT estimated at 5.8 per cent, the
annual rate of increase of consumer prices was reduced to 2 per cent,
suggesting that at least a part of the initial rise in indirect taxation had been
absorbed in profit margins.
Following the lifting of the first price freeze, the rise in prices acceler¬
ated from month to month during 19701. In the second half of the year,
the rate of increase exceeded 9 per cent2. The authorities decided to
introduce a new price freeze, effective from 20th November, 1970. This
freeze lasted about a year. However, only during the first six months did
the administration take a rigorous line on request for price adjustments.
During this period the annual rate of price increase was reduced to 3 to 4
per cent. Then a more flexible approach was adopted leading to some
acceleration of price inflation in the last months of the freeze.
After some months during the winter of 1971/72 when the annual
rate fluctuated between 6 and 7 per cent, a new phase of acceleration began
in April 1972. In September, when the rate of increase had reached 10
per cent3 the Government reintroduced the price freeze in a form which
envisaged fairly general and tight control over the prices of most goods
and services4. The freeze was relaxed in the following months and abolished
as from 1st January 1973. Surveillance of profit margins, however, will be
maintained.
In the following chapter an attempt will be made to throw light on the
causes of acceleration of price inflation in Norway, dealing first with possible
external influences and then with domestic factors.
1 Therewasa small increaseinindirecttaxesinthesummer.
2 Annual rate, seasonallyadjustedby OECD Secretariat.
3 Changebetween March and Septemberexpressedas annualrate.
4 AsummaryoftheRoyalDecreeof15thSeptember1972isattachedasanAnnexto
theSurvey.
OECD Economic Surveys
Diagram2 ConsumerPrices,SelectedItems
1959 = 100
Semi-log.
240
230
Healthservice
220 /
Misc.services /
210
/
Food
200 (cid:9)
Consumerprices,total
190
Rentandmaintenance
180
Clothingandfootwear
170
Consumerdurables /
160 /
y
/
150
/
140
y
130
y
120
110
100
1959 60 61 62 63 64 65 66 67 69 70 72'
1 AverageofAprilto September.
Source: MonthlyBulletinofStatistics.
n CAUSES OF INFLATION
International transmission
In view of the general parallel movement of price developments in
Norway and abroad, and especially the time lag with which Norway
followed the acceleration elsewhere, it is tempting to attribute the speeding-
up of inflation in Norway, at least in part, to external influences. As a
particularly open and small economy, Norway is certainly more exposed