Nordic Lessons on Building a Knowledge-based Economy
Natural Resource Management:
Nordic Lessons on the Path Towards
Building a Knowledge-based Economy
Annual conference on
The UAE Economic Outlook for 2015 and the Path
Towards Building a Knowledge-based Economy
organized jointly by the Federal Ministry of the
Economy, Department of Economic Development,
Government of Dubai, and the Abu Dhabi
Department of Economic Development and held in
Dubai 16-17 December 2014
Thorvaldur
Gylfason
Natural Resources in Nordic Countries
•
Finland, Iceland, Norway, and Sweden have all
benefited from their natural resources
–
Finland and Sweden outgrew their dependence on
natural resources
–
Norway has managed its oil exceptionally well
•
Yet, what made the Nordics rich was not so
much their natural resources as their use of
human capital to harness their natural wealth
–
Need to diversify by converting natural resources
into human resources and social capital
Nordics Benefited from
Double Diversity
•
Economic diversification (acquired)
–
Spurs growth by attracting economic activity from
excessive reliance on primary production in
agriculture or natural-resource-based industries
•
Political diversification (inherited from past)
–
Spurs growth by redistributing political power from
narrowly based ruling elites to the people, often
replacing an extended monopoly of power by
democracy, encouraging widely shared education
•
Two sides of same coin: Diversity pays
Evidence: From Economic and
Political Diversification to Growth
From Diversification to Growth
From Democracy to Growth
Log of GNI per capita 2012 (USD, ppp)
Democracy 1960-2012 (from -10 to 10)
Manufactures exports 1962-2012 (% of total)
Progress of Democracy
•
Europe
–
1943: Five democracies
–
Now: Full house
•
Africa
–
1960-1990: Five or less democracies
–
Now: 17 democracies
•
South America (Spanish or Portuguese)
–
1961: Three democracies out of ten
–
Now: Eight out of ten
Progress of Diversification
Manufactures exports (% of total)
Source: World Bank,
World Development Indicators
.
The Risks Are Real
•
Rent seeking
Rent seeking
often results in conflict,
corruption, economic stagnation,
oppression, lack of democracy
•
Dutch disease
Dutch disease
through overvalued and
volatile currencies tends to stifle
exports like undervalued currencies
simulate exports (e.g., China)
•
False sense of security
False sense of security
breeds neglect
of human resources and social capital
via
education and institution building,
including governance and democracy
The Success Stories Are Real, Too
•
Abundant natural wealth tends sometimes to
attract the wrong sort of people to politics
–
Could list many failures (e.g., Nigeria)
–
Yet, several countries have done well, e.g.,
•
Botswana (diamonds)
•
Malaysia (minerals, timber, gas)
•
Mauritius (sugar)
•
Norway (oil)
•
Gulf countries (oil)
Natural Resources and Human Rights
•
Natural resources belong to the people
–
A people’s right to their natural resources is a
human right proclaimed in international law and
enshrined in many national constitutions
•
Low taxes and generous transfers and
subsidies, even if they amount to only a small
fraction of each citizen’s fair share of the
nation’s oil wealth, tend to weaken popular
demand for democracy
Democracy and Good Governance
•
Norway was a fully fledged democracy long
before its oil discoveries
–
Oil wealth has never been a source of conflict
between haves and have-nots
–
Norway has no oligarchs
•
Norway’s
Ten oil commandments
Ten oil commandments
lay down
ethical guidelines for oil wealth management
–
Good governance can be an effective remedy
against rent seeking
Norway’s Ten Oil Commandments
•
#1
National supervision and control
National supervision and control
must be
ensured for all operations on Norway’s
Continental Shelf
•
#2
Petroleum discoveries must be exploited in a
way which makes Norway
as independent as
as independent as
possible of others for its supplies of crude oil
possible of others for its supplies of crude oil
•
#3
New industry
New industry
will be developed on the basis
of petroleum
Norway’s Ten Oil Commandments
•
#4
The development of an oil industry must
take necessary account of
existing industrial
existing industrial
activities and the protection of nature
activities and the protection of nature
and the
environment
•
#7
The state must become involved
The state must become involved
at all
appropriate levels and contribute to a
coordination of Norwegian interests in Norway’s
petroleum industry as well as the creation of an
integrated oil community which sets its sights
both nationally and internationally
Norway’s Ten Oil Commandments
•
#8
A
state oil company
state oil company
will be established which
can look after the government’s commercial
interests and pursue appropriate collaboration
with domestic and foreign oil interests
•
#10
Large Norwegian petroleum discoveries
could present new tasks for
Norway’s foreign
Norway’s foreign
policy
policy
Sovereign Wealth Fund
•
From day one, Norway’s oil and gas reserves
were defined by law as common property
resources, clearly establishing the legal rights
of the Norwegian people to the resource rents
•
On this legal basis, government has absorbed
about 80% of the resource rent over the years
•
Oil Fund (Pension Fund): USD 850 billion
–
Managed by independent Central Bank
–
Norway resisted temptation to use too much of its
oil wealth to meet current needs
Step by Step
•
No one-size-fits-all blueprint is available to
guide resource-rich countries to a sustainable
path of successful economic diversification
toward a knowledge-based economy
–
No blueprint exists for sequencing of actions
•
Better, perhaps, to seek path of least resistance
and climb the ladder rim by rim
–
Trade and infrastructure in UAE: State of the art
–
Need to boost education and institution building
•
School life expectancy: UAE 13 years vs. Norway 17 years
School life expectancy: UAE 13 years vs. Norway 17 years
The Nordic countries, including Finland, Iceland, Norway, and Sweden, offer valuable insights into leveraging natural resources for economic growth by focusing on human capital development and diversification strategies. This approach has enabled them to transition from resource dependency to building a knowledge-based economy, emphasizing the importance of economic and political diversification. The evidence presented underscores the correlation between democracy, economic diversification, and growth, showcasing the progress made in different regions towards establishing democratic systems.
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Presentation Transcript
Natural Resource Management: Nordic Lessons on the Path Towards Building a Knowledge-based Economy Annual conference on The UAE Economic Outlook for 2015 and the Path Towards Building a Knowledge-based Economy organized jointly by the Federal Ministry of the Economy, Department of Economic Development, Government of Dubai, and the Abu Dhabi Department of Economic Development and held in Dubai 16-17 December 2014 Thorvaldur Gylfason
Natural Resources in Nordic Countries Finland, Iceland, Norway, and Sweden have all benefited from their natural resources Finland and Sweden outgrew their dependence on natural resources Norway has managed its oil exceptionally well Yet, what made the Nordics rich was not so much their natural resources as their use of human capital to harness their natural wealth Need to diversify by converting natural resources into human resources and social capital
Nordics Benefited from Double Diversity Economic diversification (acquired) Spurs growth by attracting economic activity from excessive reliance on primary production in agriculture or natural-resource-based industries Political diversification (inherited from past) Spurs growth by redistributing political power from narrowly based ruling elites to the people, often replacing an extended monopoly of power by democracy, encouraging widely shared education Two sides of same coin: Diversity pays
Evidence: From Economic and Political Diversification to Growth From Diversification to Growth From Democracy to Growth 12 12 Log of GNI per capita 2012 (USD, ppp) 11 11 10 10 9 9 8 8 7 7 y = 0.0271x + 7.8447 R = 0.3362 y = 0.1194x + 8.7105 R = 0.3064 6 6 5 5 0 20 40 60 80 100 -10 -8 -6 -4 -2 0 2 4 6 8 10 Manufactures exports 1962-2012 (% of total) Democracy 1960-2012 (from -10 to 10)
Progress of Democracy Europe 1943: Five democracies Now: Full house Africa 1960-1990: Five or less democracies Now: 17 democracies South America (Spanish or Portuguese) 1961: Three democracies out of ten Now: Eight out of ten
Progress of Diversification 80 Manufactures exports (% of total) 1974 70 2010-2012 60 50 40 30 20 10 0 Arab World Middle East & North Africa (all income levels) World Source: World Bank, World Development Indicators.
Photograph:Vladimir Putin, 2005. The Risks Are Real Rent seeking often results in conflict, corruption, economic stagnation, oppression, lack of democracy Dutch disease through overvalued and volatile currencies tends to stifle exports like undervalued currencies simulate exports (e.g., China) False sense of security breeds neglect of human resources and social capital via education and institution building, including governance and democracy
Democracy and Good Governance Norway was a fully fledged democracy long before its oil discoveries Oil wealth has never been a source of conflict between haves and have-nots Norway has no oligarchs Norway s Ten oil commandments lay down ethical guidelines for oil wealth management Good governance can be an effective remedy against rent seeking
Sovereign Wealth Fund From day one, Norway s oil and gas reserves were defined by law as common property resources, clearly establishing the legal rights of the Norwegian people to the resource rents On this legal basis, government has absorbed about 80% of the resource rent over the years Oil Fund (Pension Fund): USD 850 billion Managed by independent Central Bank Norway resisted temptation to use too much of its oil wealth to meet current needs
Step by Step No one-size-fits-all blueprint is available to guide resource-rich countries to a sustainable path of successful economic diversification toward a knowledge-based economy No blueprint exists for sequencing of actions Better, perhaps, to seek path of least resistance and climb the ladder rim by rim Trade and infrastructure in UAE: State of the art Need to boost education and institution building School life expectancy: UAE 13 years vs. Norway 17 years THE END
