“As a socialist, I have always said that the market can’t regulate itself,” she said. “But even I was surprised how strong the failure was.”
These are the words of Norway’s Finance Minister Kristin Halvorsen from the political party Socialist Left (SV), which is part of the current centre-left government coalition in Norway. The words come from an article in the Global Business section of The New York Times, which praises the economic management of the Norwegian state, among other things how it has stuck with its social democratic welfare model through boom and bust.
The global financial crisis has brought low the economies of just about every country on earth. But not Norway.
With a quirky contrariness as deeply etched in the national character as the fjords carved into its rugged landscape, Norway has thrived by going its own way. When others splurged, it saved. When others sought to limit the role of government, Norway strengthened its cradle-to-grave welfare state.
And in the midst of the worst global downturn since the Depression, Norway’s economy grew last year by just under 3 percent. The government enjoys a budget surplus of 11 percent and its ledger is entirely free of debt.
The debt free government is of course something the current centre-left coalition can’t take the credit for alone. The Norwegian government has passed between Labour, centre-right and centre-left governments for the last decade. Since 1990, there has been a broad consensus in the Norwegian parliament for a programme of national savings in a government pension fund, to preserve value for future generations and avoid “Dutch disease“. I mentioned this policy in an earlier post on this blog.
The description of Norway as always sticking with its welfare model is another issue, though. Norway did go through a phase of privatization of welfare, for example the schooling system, during the last government, but this was abruptly stopped by the centre-left Stoltenberg administration when it came into power four years ago. Of course this didn’t necessarily affect government expenditure.
If the right wing were to come into power in the upcoming parliament elections, we might see another shift in this policy. Although supportive of the need for government stimuli to the economy, their preferred stimuli come in the form of tax cuts rather than the countercyclic government expenditures the current government favours. Last week’s conservative party congress heavily emphasized this.
(Hat tip to Tromp for bringing this to my attention).
Is the EU suited to handle the crisis? April 1, 2009Posted by Sverre in : Political economy, World politics , add a comment
Keeping up the recent days’ interest in the EU’s response to the financial crisis, I came across Megan McArdle’s comments on the apparent failure of EU states to apply enough stimulus to the economy, and points to a significant system failure within the EU system:
But as multiple people have blogged, this isn’t just a matter of the infamous tight-fistedness of Germany’s fiscal and monetary policy, born out of the ashes of Weimar; it’s genuinely harder for Europe to run a stimulative policy. For one thing, they can’t coordinate a broad European policy, which means that any government will see substantial amount of any stimulus “leak” abroad–and also that there is great temptation to free ride. For another, they aren’t the world reserve currency, so they can’t borrow on the same lavish, practically interest-free scale as the US Treasury.
What are the French up to? March 31, 2009Posted by Sverre in : Political economy, World politics , 1 comment so far
Just after writing the post on Le Maire’s speech, I came across this news story from AFP, that French president Nicolas Sarkozy is threatening to walk out on the G20 summit unless he gets his way. According to Bloomberg, what he’s after is:
[…] to give more economic oversight power to the International Monetary Fund, and more financial oversight to an institution that would derive from the Financial Stability Forum, a group that brings together senior representatives of national financial authorities, regulators, central banks and international financial institutions.
The French leader is pushing for the G-20 to endorse accounting rules that reduce boom and bust economic cycles, and to regulate hedge funds and rating agencies. He’s calling for rules that would force banks to disclose traders pay to regulators, which could in turn ask financial institutions to increase reserves if their compensation system encourages risk taking.
The French do seem to be taking a confrontational line to get international actors to work together. This might possibly just be a display from Sarkozy’s side to show his domestic audience that he is taking action, without having to dig too deep into France’s own coffers. His moral-religious rhetoric seems to support this theory.
EU fails to help its eastern members? March 3, 2009Posted by Sverre in : Political economy, World politics , add a comment
Eastern Europe has been hit hard by the financial crisis, and were hoping that the EU would be able to help them over the worst of it. Figures presented by Eastern European government claimed that 5 million jobs were in imminent danger of being lost, something that would seriously hit the entire EU and potentially drop a new iron curtaion over Europe. At a summit this Sunday, the EU rejected a bailout plan designed to help Eastern European nations, mostly outside the Euro area. Was it a sign that Western Europe doesn’t want to help their eastern neighbours, or was it just the rejection of a bad plan? If the former, the entire EU project might be about to fail one of its toughest tests yet. (more…)