How Has Only Norway Built A Huge Sovereign Fund?

Norway has substantial oil fields. So do many other nations eg. Great Britain with the North Sea. The USA with Texas California etc. Mexico.

Yet to the best of my knowledge Norway stands head and shoulders above other nations with the amount of money the government receives from the oil extracted.

Norway has a sovereign investment fund that per capita makes it one of the wealthiest of the OECD nations.

Why is Norway different from other countries?

Norway is a nation of only 5 million people. My home state of Minnesota has 5.4 million people. Texas, by comparison, has 26.4 million people. We’re not talking a large nation here. It’s income combined with it’s small population gives it the ability to pile up that much cash.

Small population as Chimera points out is a big factor but also Norwegian society seems in general to have more of an eye on the longer term than many other societies.

In an op/ed piece comparing Norway and the UK in the Guardian, Aditya Chakrabortty says:

So Norway saved the money and the UK spent it, essentially subsidising the rich. Even if the UK had done something similar to Norway’s oil fund, it would work out at a much smaller figure per citizen than the Norwegian scheme but they didn’t do any such thing.

A lot of the gulf states have investment funds. Alaska also has a fund. It distributes out proceeds every year to Alaskan residents, but I’m not sure if it has an investment component as well.

Slight correction: While Norway does have access to oil, to call it “substantial” is a bit of an overstatement. It’s North Sea fields are producing less each year and they have never rivaled those of The Gulf or even of Mexico. And while it does have proven reserves in the Barents Sea, they are going to be difficult and expensive to tap as they are above the Arctic Circle.

Norway’s tiny population and its lack of an internal or true external threat have allowed it to save money instead of spending it on defense. Had Sweden,Russia or Germany presented serious challenges to Norwegian sovereignty, i’s probable that its fund would be far smaller as greater amounts would have to be spent upon establishing a sizable military and security apparatus.

Here is a list of sovereign wealth funds:

Thanks for clarifying that - I thought the resource was greater.

I’m not convinced though that a small military explains the size of investment.

Great find and most illuminating.

According to that site Norway despite being a small country, has the largest sovereign fund in the world. That is quite a feat.

Thats a little unfair to China (offset because it has advantages in being huge and having poor human rights and low standard of living ) has multiple funds and the total puts it it first place.

One purpose of that list was to give the Linburg Maduell Transparency Index for each fund, rather than per country.

I’m also not convinced, particularly since Norway spends more money per capita on its armed forces than any other European country. The country is also in NATO (which its eastern neighbours, despite being genuinely threatened by Russia, never did); and has conscription for both men and women. We often look at Scandinavian countries and assume that they are peaceful nations with small armies, but nothing is farther from the truth.

As to OP’s question, I have to side with Chimera and An Gadai. Small and generally cohesive population, plus the traditional Scandinavian values (lagom and Janteloven) that encourage long-term investment rather than rapid growth.

Australia does have a small sovereign fund.

The right-wing government that formed the fund was generally of the opinion that money put into the fund would just be spent by the next left-wing government, so they didn’t aim to put a lot of money into it. Their main policy was, if they had too much money, they would tax less.

The left-wing government that followed planned to spend the money on a series of government inititives: depending on how you read it, that either proved the the right-wing was correct, or not. In any case, their main policy was, if they had any money, they would spend it.

The present right-wing government doesn’t have the the chance to put money into a sovereign fund. On all appearances, if they had the money they’d give it to the rich, and any left over they’d use to build more prisons.

What’s really unique about the Norwegian oil industry is that the government itself is a major investor in it. When the North Sea oil fields were discovered, the government formed it’s own oil company, Statoil, to help develop them. But Statoil isn’t a monopolistic state oil company along the lines of Venezuala or Iran-- it’s basically just a regular oil company that just so happens to be majority owned by the Norwegian government. (Originally the government owned 100% of it, but it was privatized in the 90’s and now the government has about a 2/3rd stake with private investors holding the rest.)

This arrangement confers some of the advantages of a nationalized industry without the major cooling effect on outside capital and expertise that nationalized oil industries usually cause. The government takes a very large chunk of the energy industry profits, but because they themselves contribute a large amount of the capital this replaces some of the investment capital that might otherwise be driven away by the high taxes. Of course, this also means that the government itself is exposed to a lot of risk, but in these gravy days for the energy sector the arrangement works pretty well.

Well, part of the rationale for creating the big investment fund was that the government recognized that North Sea oil production was likely to decline in the near future, and so the idea was to make a sustainable source of income to replace it. Part of why the fund is so mindbogglingly huge these days is that production hasn’t been declining as much as expected and prices have remained stubbornly high. So basically, the investments meant to replace the oil income are now mostly in place, but the oil income is still mostly coming in.

Also, Statoil has turned into a major global player and so even if the North Sea fields dried up tomorrow, there’d still be some oil money running into the fund from their projects all over the world.

Small is relative. $88 billion for 23.5 million people is a respectable piece of cash although it could be much greater if Julia Gillards resource taxes had been implemented.

New Zealand has a $20 billion fund introduced by a Labour govt which is comparatively good but our center-right govt has suspended contributions.

Thanks Greasy Jack, now we are getting to the nub of the question.

I live in a small and interesting country very like Norway. We have some oil, gas, and coal. The govt business digging the coal recently collapsed neatly illustrating that governments aren’t good at business. (A little unkind but its the internet).

Anadarko have just drilled here two off-shore fields at a cost to them of $400 million with nothing worthwhile found.

Why has Norway’s Statoil been so successful when oil exploration is know as high risk? Are the North Sea fields really easy to tap?

Well, in the case of the North Sea, they knew there was a lot of oil down there, it was just a matter of the engineering and economics moving to a point that it was economic to recover. The investment on the part of the Norwegian government may have just nudged the economics over a bit sooner. I’m not hugely familiar with the situation in New Zealand, but I believe at this point it’s more like a wildcatting situation where they think there may be large quantities of recoverable oil down there, but they’re not sure. In the case of the North Sea, there was still a chance of the economics not really working out, but they knew they weren’t going to be just drilling a bunch of dry holes.

More generally, what the other posters said about the Scandinavian propensity towards long-term investments is also true. In most countries, using taxpayer money to make massive investments in what are normally private-sector industries, and that will only pay off (if they pay off) decades down the line, is not normally going to be a politically-viable strategy. If you’re a country with oil you want developed, it’s way cheaper and way safer to just offer tax incentives and cheap leases instead of actually trying to kick off development yourself, but then if it does pay off the government gets less of a cut.