Ode To Capitalism

From time to time I find amusement in reading what the international press writes (well, sometimes not) about Norway; An insignificant little country that quite often is ranked high in terms of living standards and GDP per capita. This is what libertarian Reason.com wrote when UN human development index ranked Norway as the “best country to live” – not a very unusual or surprising approach:

“The state run liquor store is admirably honest, calling itself Vinmonopolet (“The Wine Monopoly”) and declaring on its website a goal of “remov[ing] the private profit motive from sales of wine, spirits and strong beer.” The party cadres staffing the shops are on the lookout for those who might abuse their drinking rights: “Vinmonopolet’s shop assistance (sic) are in direct contact with their customers, creating optimal conditions for exercising social control.”

So how much were my delicious Marlboro Lights? A pack of 20 will set you back $15, though only half the country is dumb enough to submit to state price gouging. A recent study showed that, in 1990, 91 percent of Norwegians purchased their cigarettes within Norway. After a steep rise in taxes, that number shrunk to 52 percent by 2008 (I write this from just over the border in Sweden, where my 81-year-old host just returned from a beer, wine, and vodka junket in Germany). But all of this tax revenue, my parliamentary comrade told me in an email, is “well spent”: “An article in the newspaper Aftenposten on Thursday showed that a cow in Norway is subsidized with up to 40,000 NOK ($6,777) a year of taxpayer’s money.”

To prepare visitors, read the brief article here: The Best Place on Earth, Provided You Grow Your Own Tobacco and Distill Your Own Whisky

Despite the high taxes we have to find other ways to finance subsidies and extensive welfare schemes in other ways too – as The Washington Post reports:

“But even as the ongoing underwater drama in the Gulf of Mexico reveals the oil industry’s shortcomings when it comes to preventing or stopping the flow of an underwater geyser, Norway is pushing ahead with offshore drilling plans, including the kind of deep-water drilling that the Obama administration has suspended in the United States.”

Drill, Baby, Drill…

Photo: Øyvind Hagen / Statoil

Disappointing that the Wall Street Journal excludes Norway in this article “Free-Marketeers Should Not Despair Too Soon”:

“Free-marketeers appear to be in retreat and on the rise is the phenomenon known as “state capitalism.” China, Russia, Saudi Arabia, and a host of other smaller imitators are making the running while economic liberals suffer a collective crisis of confidence triggered by the financial crisis and its fallout.

Those countries practicing state capitalism are not democracies, or if they have some form of voting it is not democracy as known in the West. Their state-owned enterprises hoover up natural resources and with the vast profits governments construct state investment vehicles, or sovereign-wealth funds, that invest in global markets. They are, to varying degrees, hybrids—with just enough freedom allowed to enable a private sector to function, and flourish in China’s case, but with strict limits that ensure the government gets what it wants.”

…not unlike Norway (the government is a major player both in “private” and public corporations) if you ignore the fact that our nation is classified as a democracy. The reader would have formed a more nuanced impression of the role of capitalism today if it included the northern parts of Europe. I will try to create a more sophisticated understanding of the concept of state capitalism. Look up “The Government Pension Fund of Norway“, perhaps also the ownership structure of partly state-owned companies and the development on the Oslo Stock Exchange the last decade, in contrast to performance in global incidies, you most likely made money by investing it in publicly listed shares in Norway.

I am clearly not defending state ownership everywhere and in all sectors (look at how the market treated SAS AB. There are no reason for the state to own an airline) – just poiting out a few exceptions. Investors trust the Norwegian economy because the government practice a transparent policy – to behave as an ordinary investor, maximizing profits and respecting international law, not to seize or expropriate private interests or act corrupt, therefore the biggest publicly listed companies  excel, even when state owned. The government provides capital and regulates to protect traders. That’s It.

The authorities has not announced any major corporate acquisitions in the future. The government will not buy more shares, simply because they fear that the capital market’s confidence will slide and hurt business. A wise decision. If the conservative right (Høyre) or the populist, but market friendly progressives (Progress Party) wins the election in 2013, we can expect increased market activity – simply because government will reduce their ownership in listed companies. There is no reason to worry about a major collapse in share price due to two sell-side pressure, they will not sell all assets, and it will not happen overnight – rather gradually over several years.

Public listed Statoil STL (the Norwegian state owns 67 percent of the shares) performed exceptionally well over the last decade. STL is open for private investors, but do not expect a controlling stake – and traded like any other company in the stock market. Company website:  http://www.statoil.com/

Telenor TEL (government owns 54 percent) a leading international provider of communications services and one of the largest mobile operators worldwide. Releasing Q2 2010 tomorrow. Company website: http://www.telenor.com/

Dnb NOR DNBNOR (State owns 34 percent of equity) Norway’s leading financial services group with total combined assets of NOK 1.470 billion. Company website: https://www.dnbnor.com/

Norsk Hydro NHY (Government owns 44 %) global supplier of aluminium and aluminium products. Based in Norway, the company employs 25,000 people in more than 30 countries. Company website: http://www.hydro.com/en/

Yara International (State owns 36 %) is the world`s leading supplier of mineral fertilizers selling more than 20 million tonnes of fertilizers in more than 120 countries. Company website: http://www.yara.com/

Kongsberg Gruppen KOG (state owns half the listing) is an international technology corporation headquartered in Norway with 5300 employees in more than 23 countries. Three business areas: Kongsberg Maritime, Kongsberg Defence Systems and Kongsberg Protech Systems. Company Website: http://www.kongsberg.com/

State Capitalism can not be successful everywhere – first you have to establish proper legal infrastructure, eradicate corruption (make costs of crime high) and build a healthy economy. Read more about Nowegian State Ownership here.

“The young man knows the rules but the old man knows the exceptions”

Oliver Wendell Holmes

Tags: Norway, Reason.com, Regulation, Subsidies