A conversation over at Eschaton yesterday prompted me to do a little research into Norway’s State Petroleum Fund.
Norway is the world’s third-largest oil producer, pumping crude out of the North Sea since the 1960s. Instead of allowing just a privileged few to profit from this national resource, Norway takes the approach that the oil belongs to all Norwegians. So, oil profits are placed in a state fund, and the proceeds benefit every citizen:
Parliament created the oil fund in 1990, but the state had its first budget surplus only in 1995. Until then, oil income was used to pay down Norway’s staggering foreign debt from the tough years before North Sea riches could be exploited. A substantial amount of the profits from the exploitation of a resource that is viewed as belonging to all Norwegians, not just the current generation, is invested in foreign stocks and bonds. The state-owned fund guards against spending too freely on public sector services in boom years so as not to lay off droves of state workers when the economy goes bust.
The Petroleum Fund is an instrument designed to prevent Norway’s substantial oil profits from being taken too rapidly into the economy. State bank officials and government leaders believe that dispersing oil revenues directly would overheat the Norwegian economy and suppress private sector growth. Their view is that the resource rent collected from the sale of their natural wealth of oil should be conserved.
From the perspective of some, Norway focuses more on how to administer and distribute the assets already acquired than on how new value is to be created. There are generous benefits for both men and women of eight weeks’ vacation, liberal sick leave and day care that is reliable and inexpensive. Three-year maternity leaves, broad part-time opportunities and creative application of telecommuting help keep women in the work force. State assistance to single mothers is so generous that there is no need for a father’s income.
According to the U.S. State Department, Norway’s State Petroleum Fund exceeded $388 billion by the end of December 2007.
This approach contrasts sharply with the American model, in which corporations like ExxonMobil and Chevron bear the investment burden, then post record profits with little benefit to anyone else. In the case where resources like oil and natural gas are pulled out of public land which belongs to everyone, this strikes me as rather unfair.
Of course, I’m not suggesting that America nationalize its oil companies. I don’t think it would ever fly here, the American public is far too allergic to the notion of “nationalized” anything to even consider it.
But it certainly brings up an issue seldom raised in debates over resources on public lands, where so much mining and drilling takes place. This stuff is supposed to belong to all of us, but when oil and gas leases are given to private corporations, they’re the only ones who profit. Heck, half the time these leases are given out virtually royalty-free.
Let’s take ANWR as an example. Pretend for a moment that ANWR doesn’t contain a mere six month supply of oil. Let’s pretend the resources are so vast that it would keep America awash in oil for years and years. This is public land–it’s a National Wildlife Refuge that belongs to every American, not just ExxonMobil. If we allow the destruction of this wilderness to extract oil and gas, shouldn’t we get something more out of it besides $4/gallon at the Mapco?
The Norwegian way would be to have the government sell the oil and use the profits first to pay off the national debt, then pay for such benefits as healthcare, low-cost childcare, and a free college education, and finally the rest is invested to hedge against some future day when the economy turns south, the oil runs out, etc. That way a citizenry accustomed to free education and healthcare won’t suddenly find itself in dire straits, and an economy which contains a large number of government employees won’t suddenly be laying off thousands of workers.
The American way is far different. Sell the leases (or, if you’re the Bush Administration, give your industry buddies a $10 billion break then lie to Congress about it.) The CEO of ExxonMobil gets $22 million a year and regular Americans, whose oil they are
stealing pumping, get nothing.
No free healthcare. No affordable child care. No free education. But CEO Rex Tillerson and his family can now afford to buy these things.
I’m so happy for them.
I realize that the Norwegian way would never work in America. We’re just too different, psychologically and constitutionally. But I do think the current system is inequitable. Raising the royalty rate to 16.7 percent from 12.5 percent of oil and gas sales isn’t enough, not when net profits are in the tens of billions of dollars each quarter.
I don’t like the idea of a “windfall profits tax,” that strikes me as rather silly when all we need to do is get the oil companies to pay us what these leases are worth.
And then I’d like to know where this money is going. It’s certainly not going to the Interior Dept.