Short Note on Norway’s Oil and Sovereign Wealth Fund

In my meanderings on the internet, I’ve run across some misconceptions about Norway’s oil and Sovereign Wealth Fund that I think are harmful to understanding Norway’s welfare success. So here are some things worth noting:

Norway does not use its oil revenues to fund its state. Norway’s oil is under the control of the state-run enterprise Statoil. The revenues from the oil fund go into Norway’s Sovereign Wealth Fund, not to the state to spend. Further, 96% of the return on the capital in the Sovereign Wealth Fund is reinvested in the Sovereign Wealth Fund. Only 4% of the return of the fund each year finds itself in the hands of the state to spend. To be sure, the oil industry employs many people (though Norway, like the US, is a majority service sector economy), and many of those people make good incomes that are subject to tax. But revenue from tax on the labor incomes of those working in the oil industry is quite a bit different from revenue from owning the oil itself. The latter revenue does not go to support state spending.

Norway does not invest the Sovereign Wealth Fund locally. By law, 100% of the investments from the sovereign wealth fund must be made in business and property abroad. So the oil money is neither going to the state to fund their generous welfare system, nor being plowed into local investment to inordinately prop up the local economy.

The point is that Norway has hardly touched its oil, except insofar as the oil industry is a big employer in Norway. The money from oil exports is kept in investments abroad, while 96% of the return on the investments abroad are reinvested abroad. This is important to note because, although the immense oil wealth certainly balloons Norway’s GDP per capita, it doesn’t necessarily account for Norway’s high household disposable incomes (except again insofar as working in the oil sector delivers considerable labor income to local Norwegians) and certainly does not account for its large welfare state, which is comparable to its non-oil-endowed Nordic neighbors.