Norway has state-ownership of strategic parts of the economy, but the majority of businesses owned by the private sector. Although sensitive to international business cycles, Norway's economy has shown strong growth since the start of its industrial era, averaging around 0.8 percent annual growth. In 2015, the country scored a 71.8 on Heritage's Index of Economic Freedom, making it the 27th freest economy in the world.
With a long tradition of seafaring, shipping remains one of Norway's strongest industries, but much of its growth has occurred thanks to its abundant natural resources. Norway is rich in petroleum (particularly around the North Sea), hydroelectric power facilities, and fisheries. Norway's public sector ranks among the largest in the world as a percentage of the overall gross domestic product (GDP).
Overall, Norwegians enjoy a very high standard of living compared with other European nations; Norway has a very well developed and strongly integrated welfare system.
Before industrialization, Norway's economy was largely agriculture, fishing, and timber. Norwegians often lived in harsh conditions with scarce resources. Although famine rarely occurred, farming was limited to certain hardy grains and livestock. While a significant part of the culture, fishing was historically a dangerous occupation, particularly in the rough seas around this Northern European nation.
Because of the difficult farming conditions, feudalism never strongly took hold in Norway. The country did have a line of kings that would award lands to loyal followers, but for the most part property ownership was by self-sufficient farmers; the same is true in many parts of the nation to this day. However, population growth, political changes, and other forces caused a scarcity of farmland at the dawn of the 19th Century, causing many Norwegians to immigrate to North America.
As the industrial age began, Norway ventured in with textile mills and a few mining operations. Industrialization was slower in Norway than in some other countries, and it was not until the end of the 19th Century that entrepreneurs, banks, and politicians came together to bring greater modernization to the nation.
As the 20th Century dawned, Norwegians found more work and better pay in the industrial sector, and a working class quickly formed. This group would form the basis of a socialist movement, as it grew displeased with dangerous working conditions, exploitative labor policies, and disparities in wealth between factory owners and workers. This socialist trend continues to this day, where the nation owns (or has significant interests in) a number of key industrial sectors, such as petroleum, hydroelectric power, aluminum, banking, and telecommunications.
After World War II, the Norwegian Labour Party, created a number of social reforms designed to eliminate poverty, ensure social services like retirement and medical care, and reduce the gap between wealthy and poor members of society. To do this, Norway employed a wide array of taxing mechanisms to generate revenues to fund these programs. As a result, Norway has become one of the highest taxed economies in the world.
Current Economic Situation
Since May 1963, Norway has asserted sovereign rights over its natural resources in the North Sea. This policy was fortunate, discovering enormous oil reserves in 1969, followed by natural gas. As a result, Norway has become a major oil-producing nation.
These large natural reserves coupled with Norway's tradition of fierce independence have caused the nation to stand apart from the rest of Europe in many ways. Norway was very reluctant to join the European Union, turning down offers in 1972 and 1994. Today, Norway is one of two Nordic nations that remain outside the European Union; Iceland is the other.
Since the discovery of its oil and natural gas reserves, Norway has skewed much of its economic growth to take advantage of the export of these resources. It has altered its agricultural policies away from self-sufficiency to a policy designed, instead, to compliment population patterns. This forces Norway to rely heavily on imported goods.
Unfortunately, this has led to some disagreements with EU nation states. Because Norway exists outside of the EU, it does not enjoy the same trade benefits as other European nations, making some imported goods quite expensive. The Norwegian people have attempted to seek accommodations from manufacturers and individual nations on a range of specific products: including fish, agricultural products, and automobiles.
However, thanks to Norway's high taxes and the equally high cost of many of its imported goods, Norway is one of the most expensive European nations in which to live. As a result, some experts believe the Norwegian people will revisit joining the EU.
While Norway's discovery of oil and natural gas reserves created a huge boom for the economy, this may also be its Achilles' heel. The current economic policy, which so strongly favors the oil production industry, has caused a great deal of its public policies and human capital to concentrate in that sector. Unfortunately, these industries require large numbers of unskilled labor, making transitioning from this economy into one based more heavily on services or other industries difficult if not impossible.
Recognizing this shortcoming, since 2006, the Norwegian government has begun to make incremental changes to its economic and social policies. Chief among these changes have been several initiatives to encourage the growth of new industries that are internationally competitive. Specifically, Norway would like to develop its own high-tech industry to compete with other well-developed nations like Japan and the United States. The nation has also contributed substantial sums to developing a medical research component of its economy, focusing largely on cancer research.
A separate movement has grown in popularity, but with a very different focus than the high-tech future, some envision. This movement favors small business growth, and many in Norway believe it will be the primary source of employment for Norwegians in the future. As a result, Norway has created a number of "centers of expertise" with the hopes of encouraging like-minded Norwegians to cluster together in communities that share a common primary focus.