Norway OECD V o Special Feature: Competition and Economic Performance lu Economic Surveys m e 2 0 Economic Surveys Non-Member Economies 0 4 Norway Australia, March 2003 Baltic States, February 2000 / 6 Austria, December 2003 Brazil, June 2001 Belgium, February 2003 Bulgaria, April 1999 Canada, September 2003 Chile, November 2003 Czech Republic, April 2003 Romania, October 2002 Denmark, July 2003 Russian Federation, February 2002 Euro area, October 2003 Slovenia, May 1997 Finland, March 2003 Federal Republic of Yugoslavia, France, July 2003 January 2003 Germany, January 2003 Greece, July 2002 Hungary, May 2004 Iceland, April 2003 Ireland, July 2003 Italy, August 2003 O Japan, January 2003 E C Korea, March 2003 D Luxembourg, September 2003 E Mexico, January 2004 c o Netherlands, January 2002 n o New Zealand, January 2004 m Norway, June 2004 ic Poland, July 2002 S u Portugal, February 2003 r v Slovak Republic, March 2004 e y Spain, May 2003 s Sweden, March 2004 N O Switzerland, January 2004 R Turkey, December 2002 W United Kingdom, March 2004 www.oecd.org A Y United States, May 2004 ISSN 0376-6438 ISBN 92-64-01488-8 2004 SUBSCRIPTION 10 2004 06 1 P J u (18 ISSUES) n -:HSTCQE=UVY]][: e 2 0 Volume 2004/6 – June 2004 0 Volume 2004/6 – June 2004 4 OECD ECONOMIC SURVEYS 2004 Norway ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote policies designed: – to achieve the highest sustainable economic growth and employment and a rising standard of living in member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; – to contribute to sound economic expansion in member as well as non-member countries in the process of economic development; and – to contribute to the expansion of world trade on a multilateral, non- discriminatory basis in accordance with international obligations. The original member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), theCzech Republic (21stDecember 1995), Hungary (7th May 1996), Poland (22nd November 1996), Korea (12th December 1996) and the Slovak Republic (14thDecember2000). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention). Publié également en français. © OECD 2004 Permission to reproduce a portion of this work for non-commercial purposes or classroom use should be obtained through the Centre français d’exploitation du droit de copie (CFC), 20, rue des Grands-Augustins, 75006 Paris, France, tel. (33-1) 44 07 47 70, fax (33-1) 46 34 67 19, for every country except the United States. In the United States permission should be obtained through the Copyright Clearance Center, Customer Service, (508)750-8400, 222Rosewood Drive, Danvers, MA 01923 USA, or CCC Online: www.copyright.com. All other applications for permission to reproduce or translate all or part of this book should be made to OECD Publications, 2, rue André-Pascal, 75775 Paris Cedex 16, France. Table of contents Assessment and recommendations 9 1. Economic trends and policy challenges 23 Introduction 23 Fiscal and external sustainability issues 24 Macroeconomic policies: finding their bearings in the new regime 32 Structural-macro tensions in the medium run 44 Summary: the main challenges 49 Notes 51 Bibliography 54 Annex 1.A1. Long-run adjustments in macroeconomic balances 55 Annex 1.A2. Potential growth in the medium to long run 59 Annex 1.A3. Competition and stability in the norwegian financial market 67 2. Fiscal reform 73 Introduction 73 Fiscal policy in the current conjuncture 75 Fiscal policy in the medium term 79 Medium term challenges 92 Notes 100 Bibliography 103 Annex 2.A1. Tax reform and the shareholder model 104 3. Product market competition and economic performance in Norway 109 Introduction 109 Macroeconomic performance and indicators of competition 110 The competition law’s compliance instruments need strengthening 119 Extensive public-ownership creates competition problems 121 Regulatory policies at the sectoral level 124 The public sector has a key role to play in introducing more competition into the economy 141 Macroeconomic effects of regulatory reform 143 Overall assessment and scope for further action 145 Notes 149 Bibliography 153 © OECD 2004 4 OECD Economic Surveys: Norway 4. Reforms to boost labour supply and human capital 155 Towards a more flexible labour market 155 Removing work disincentives from the benefit system 166 Improving education to raise human capital 175 Notes 189 Bibliography 194 5. Some aspects of sustainable development 197 Climate change 197 Making a sustainable use of renewable and non-renewable resources 203 Improving living conditions in developing countries 208 Notes 216 Bibliography 217 Annex A. Calendar of main economic events 219 Glossary of acronyms 222 (cid:127)(cid:127)(cid:127)(cid:127)(cid:127) Boxes 1.1. Flexible inflation targeting 38 2.1. Accruals versus cash-based accounting 82 2.2. Important reforms to raise efficiency of government 86 2.3. The National Insurance Scheme and the pension reform proposals 95 3.1. Norwegian competition policy and enforcement 120 3.2. Government ownership and its implications for corporate governance 123 3.3. Organisation of the dairy market in Norway 126 3.4. Vinmonopolet and the market for alcohol in Norway 128 3.5. The Norwegian and Nordic electricity markets 131 3.6. Norway Post and purchases over the Internet 138 3.7. Initial experiences with more competition in air transport 139 3.8. Economy-wide effects of sectoral reforms 144 4.1. Recommendations for reform of the education sector by the governmental working group 182 4.2. Progress and recommendations on structural reforms 185 5.1. Integration across sustainable development areas 198 Tables 1.1. Projections of age-related spending, 2000-2050 27 1.2. Sectoral shares of value added and employment 31 1.3. Inflation and real interest rates : Norway v. euro area 35 1.4. Short-term outlook 41 1.5. Productivity, wage, and price growth 42 1.6. Oil activity 45 2.1. Structural, non-oil budget balance 75 2.2. Key figures for the fiscal budget (including social security) and the government petroleum fund before loan transactions 76 © OECD 2004 5 2.3. General government net lending 76 2.4. The development in the Petroleum Fund and the structural, non-oil balance2001-2010 77 3.1. Output, employment and productivity 111 3.2. Key structural features of the retail distribution sector, 2000 125 3.3. Assumptions and effects of pro-competitive regulatory reform in selected industries 145 3.4. Summary of recommendations 147 4.1. Labour market performance 156 4.2. Participant inflows as a percentage of total inflows 165 5.1. Main indicators: climate change 199 5.2. Greenhouse gases emissions by sector 200 5.3. Rates of the CO tax by sector 200 2 5.4. Performance indicators: fisheries 206 5.5. OECD non-energy imports from developing countries 210 5.6. Norwegian non-energy imports from developing countries 211 5.7. Tariffs on industrial and agricultural goods 212 5.8. Preferential tariffs in2000 213 Annexes 1.A1.1.Sectoral balances and net asset positions 54 1.A2.1.Labour productivity growth in the business sector 60 1.A2.2.Medium-term baseline GDP growth for Norway 62 1.A2.3.Norwegian oil investment is reduced by NOK 35billion 63 1.A2.4.Long run growth rates based on alternative assumptions about future pension reforms 64 Figures 1.1. Real exchange rate and non-oil current account 30 1.2. Non-oil budget balance 32 1.3. Output gap in Norway and among trading partners 33 1.4. Key macroeconomic indicators 34 1.5. Export performance and relative labour costs 37 1.6. Price developments in Norway and euro area 37 1.7. Monetary conditions 39 1.8. Credit growth by sector 42 2.1. Total tax revenues in OECD countries 79 2.2. Public employment 80 2.3. Difference in top marginal tax between capital and labour income 89 2.4. Current and proposed tax rate structure 91 2.5. Long-term developments in pensions and oil revenues 94 3.1. Progress in liberalisation of service sectors in OECD countries 112 3.2. R&D spending and industry structure 114 3.3. Industry-level mark-ups in Norway and other OECD countries 115 3.4. Price difference between Norway and the EU 116 3.5. Food prices in Norway and the EU area 117 © OECD 2004 6 OECD Economic Surveys: Norway 3.6. Openness indicators in the OECD area 118 3.7. Relative size of public enterprise sector 122 3.8. Pre-tax prices for gasoline in an international perspective, Q32003 127 3.9. Electricity, consumption and production capacity 133 3.10. Telecommunication prices in the OECD 134 3.11. Broadband penetration and user charges in OECD countries 136 3.12. Population by municipalities 142 4.1. Employment, labour force and person-hours worked 158 4.2. Labour market developments 160 4.3. Beneficiaries of social security benefits 167 4.4. Net replacement rates and relative poverty 167 4.5. Sick leave 170 4.6. International comparison of disability benefit indicators 172 4.7. Employment by couples with children 174 4.8. Population with at least upper secondary education 176 4.9. Expenditure in education in OECD countries 177 4.10. Expenditure on educational institutions 177 4.11. Local and regional expenditure on education 178 4.12. Ratio of students to teaching staff in public and private institutions 179 5.1. Taxes on motor fuels and road vehicles in2002 202 5.2. Management of oil and gas resources 205 5.3. Northeast Artic cod: Recommendations and actual catch limits 207 5.4. Official development aid: an international comparison 209 5.5. Producer Support Equivalent: 1986-88 and 2000-2002 214 Annexes 1.A1.1.Petroleum revenues 55 1.A2.1.Per capita real GDP growth and its components 61 1.A3.1.OECD venture capital investment by stages 69 © OECD 2004 BASIC STATISTICS OF NORWAY THE LAND Area (1 000 km2) : Major cities (thousand inhabitants, 1.1.2003): Total (2001) 385.2 Oslo 517.4 Mainland (2001) 323.8 Bergen 235.4 Agricultural (2001) 10.4 Trondheim 152.7 Productive forests (2002) 74.5 THE PEOPLE Population (thousands, 1.1.2003) 4 552.3 Total labour force (thousands) 2 354 Number of inhabitants per km2 (1.1.2002) 11.8 Civilian employment (thousands) 2 249 Net natural increase (thousands, 1.1.2002) 10.7 Civilian employment (% of total): Net migration (thousands, 1.1.2002) 17.2 Agriculture, forestry and fishing 3.5 Industry and construction 21.7 Services 74.6 PRODUCTION Gross domestic product: Gross fixed capital investment NOK billion 1 520.7 % of GDP 17.0 Per head (USD) 41 833 Per head (USD) 7 132 THE GOVERNMENT Public consumption (% of GDP) 21.9 Composition of Parliament (number of seats): General government (% of GDP) Labour 43 Current and capital expenditure 47.5 Progressive 26 Current revenue 58.4 Christian Democrats 22 Conservative 38 Centre 10 Social Left 23 Last general elections: 10.9.2001 Other 3 Next general elections: September 2005 Total 165 FOREIGN TRADE Exports of goods and services (% of GDP) 41.5 Imports of goods and services (% of GDP) 27.3 of which: Oil and gas 17.8 Main commodity export (% of total): Main commodity import (% of total): Fish and fish products 5.8 Ships 1.0 Base metals and producs 7.7 Raw materials (including fuel andchemicals) 10.4 Machinery and transport equipment Base metals and products 8.4 (excluding ships) 8.3 Machinery and transport equipment Mineral fuels 60.7 (excluding ships) 34.1 Non-oil commodity exports by area (% of total) Non-oil commodity imports by area (% of total) EU 67.8 EU 68.4 of which: Denmark and Sweden 21.0 of which: Denmark and Sweden 23.8 United States 7.6 United States 6.3 Rest of the world 24.6 Rest of the world 25.3 THE CURRENCY Monetary unit: Krone January 2004, average of daily rates: NOK per USD 6.81 NOK per euro 8.59 This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries. (cid:127) The economic situation and policies of Norway were reviewed by the Committee on 26January2004. The draft report was then revised in the light of the discussions and given final approval as the agreed report by the whole Committee on 27February2004. (cid:127) The Secretariat’s draft report was prepared for the Committee by Alexandra Bibbee, Flavio Padrini, Simen Bjørnerud, Jens Hoj and Boris Cournède under the supervision of Nicholas Vanston. (cid:127) The previous Survey of Norway was issued in September2002.