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As you like, we know, the American Automobile company Tesla makes some of the most desirable and expensive electric cars in the world. The companies currently valued at roughly thirty one billion dollars compared that to the fifty five billion dollar mark. A cap of the Ford Motor Company Tesla, however, as two years old fewer than twenty five thousand cars, while Ford cells more than six million vehicles a year roughly two hundred and forty vehicles for every single test Tesla currently has just one vehicle in production model s luxury sudan- in the? U S the starting price, is a bit more than seventy thousand dollars. Americans by our model asses than anyone which isn't very surprising, but which country do you think is routinely been coming. In second,

I'm happy from the w and my see this is free economics, radio, the package that explores the hidden side of everything. Here's your host, Stephen governor. Ok, here's the question of the day the motors opened it stores in California. In two thousand a today, the? U S is still the largest market for this tiny beloved automaker. China is poised to become second largest may already being we just don't know it yet, but until the China take over what country do you think ranked number two on the list

of tat: the devil demands it. You ve got a lot of stuff. Tesla model is for long enough to interrupt. Oh sorry, don't speak Norwegian, do you but yes, teslas second biggest market in the world at least until recently was tiny, Norway Population five. Now this is planet earth is this: is Norway many people think that Norway is the capital of Sweden? If you think right now, you are wrong now remembered that electric vehicles still make up a tiny share of overall vehicle sales and tests. It doesn't so many cars period, so the new region numbers aren't gigantic an average of four hundred and thirty six cars per month. This year in one month, however March there were nearly fifteen hundred teslas sold in Norway, the most

cars of any sort ever sold in one month period in Norway, not just electric cars cars period, one of every ten nuke or is registered that month in Norway was a test model ass. Just pretty amazing for a luxury Sudan was based in Norway is more than thousand. Have you been considering lying at the slow or an electric car for yourself? I don't think I have the money for that that damn Father. Think of buying an electrical current. How many people do you know how an electric car to both teslas, I would say, may between Thirty people one, I think, but I see a lot on the streets and boats, maybe ten twenty people that in Cuba, I personally do us either the heavenly yourself on american oil Company very jealous fulminate it has thus Lhasa my need

I want more of the last two and a half months. I've had my own and I love it. So it's behind that The boom in Norway well, first there's, Norway is fond of electric vehicles. Generally, it has a higher share of them than any other country in the world is easily the biggest european market for electric vehicles. This has to do with both demand and supply. On the demand side. Norwegians are affluent and see themselves, as proudly green, the country plans to reduce its greenhouse emissions by thirty percent by twenty twenty and supply side. Norway gets virtually all its electricity from hydro power, which is both cheap and clean, but there be some other reason why so many electric vehicles and tells us in particular, are being bought in nor

because right now, you're afraid to drive in the bustling. If you're gonna, let your car- and I think that's a major advantage face ten minutes ago- get it off his instead of one hour of habitats, Lhasa, having hockey, you don't have to I have to tell roads again today, these are? The big point here, the incentives they are, shall we say substantial as Tesla, makes clear Its website, if you buy one, the annual registration fee, is waved as our tools and you get access to less congested traffic lanes. If you drive for a living in Norway, an electric car gets you and income tax deduction and here's the biggest difference The norwegian government makes electric cars, including the Tesla, exempt from some very, very hefty sales tax. So when you add all this up the difference between the price of a Tesla

and the price of a similar gasoline driven car is huge and Norway compared to other countries, and so in relative terms, a test lays a lot cheaper than other car. yeah ok. So the norwegian government is massively subsidizing electric vehicles, even the very expensive ones. That's nice, especially if you want to buy it, has the yourself they want to have a good the car and the tesselated very much current subsidize, and they look good Tesla Alex now keep in mind that these subsidies may be phased out and sue J Coal, the If the website inside ease, which covers electric vehicle industry tells us there once Norway hits a ceiling of fifty thousand electric vehicles. The tax breaks may be allowed to expire, which even more incentive to get it Hazlitt today, now may ask yourself: where does the government

such a tiny country get all the money subsidized a luxury electric car, to the point that it is the best selling model in the country. Its massive hypocrisy, because we, We are one of the largest distributors of oil and gas in the world, which are serious conflicts. I think it's gonna hypocritical, because we say that we care about the environment and wanted it about its bags. In fact, we are one of the worst. That's right, Norway, one of the greenest countries in the world can afford to be so green, partly because it is so rich in fossil fuels. It is the biggest oil producer in Western Europe, the third largest exporter of natural gas in the world, That meant that politics is full of Dublin Morale, that's just how it s right,

They are doing out there tat. We do that. The left hand side of its opinion, I think it's story again, finisterre politics, It's a paradox, which she said a paradox. Pumping all that oil and gas that gets burn somewhere else, generates the money Norway be super green. Is that super dream or is it more like carbon laundering Ok, so my name is Martins conquer. We went to this gentleman to find out. I work as an independent consultant now specializing in advising countries with natural resources and how to manage those resources, and do for the last three years prior to that,

I work for many years, southern norwegian Ministry of Finance years ago skunk I helped set up now ways sovereign wealth. But if you're not familiar with that phrase, whelp its assent, they just an investment fund managers? Government money from the biggest sovereign wealth funds in the world belong to Saudi Arabia, China, the United Arab Emirates and Kuwait. So you get the picture now. As I said, those are some of the biggest sovereign wealth funds in the world none of them or number one- is number one: yeah, so in ninety? Ninety six, I was head of: what's all the section for monetary policy and public finances in the Ministry of Finance, we were also given the task of setting up this fund. which no one at the time we didn't really expected to be always we thought it could be big potentially, but we would we tend to be relatively conservator like the citizens who tell us a bit about Norway, so I'd played my first visit to Norway, a couple

months ago. It was fascinating on many many levels and enjoyable on many levels. I have to admit that for someone who I thought I knew at least a little about most places? Most of what I learned about Norway. I had known at all, so I love if you could just give us a very brief summary of the country, for those of us who know even less than I knew coming in some summary statistics, perhaps having to do with the size, the economy, how the government works, and so on that start there so. Norway is a country in Scandinavia. Northern Europe achieved its independence a little over a hundred years ago, one thousand nine hundred and five after being first in union with Sweden four hundred years and then ruled by Denmark for four hundred years before that, so Sons is a relatively young country about five million people out and Traditionally, of course, fisheries was a big export sector and also because of access to cheap.

Electric energy we had a large metal sexual aluminium sector, for instance, and then about food. Five years ago, on Christmas Eve, nineteen sixty nine Oil was found in the North Sea outside the coasts of Norway and the oil revenue started flowing to the government in the nineteen seventy, so we ve had all revenues. What forty years since ancient times Norway has survived on fish, potatoes rocks plundering and then in the nineteen sixties, ve invented the oil we gave a Brock's and plundering, but we still like fish and potatoes The invention of oil has in many ways laid the foundation of today's society, where we, are born with Skis Murphy who are the only folks in the neighborhood who have oil, which is

The matter of geographical fortune tell us a little bit about the circumstances who. made the discovery. Tat will happen. This particular discovery. This actually made by Phillips Petroleum out of Bartle, soliloquy, homer and that field was developed into was called the Ekofisk feed one of the largest still one of the largest and most reductive fields in Norway. Even after forty years. Ok and watch air of norwegian oil is undersea o a one hundred percent everything's offshore. Ok, see you had this previously, absolutely in view the ball and unknown wealth just sitting out there, and then it was now no longer invisible and no longer unknown, and what happened then thinking I knew there was a discovery, how much money star to come in and how did the government handle it initially, then that Castro to government was really moderate for the first few years, in the night and Seventys, but what happened was and this is it

facing many oil producing countries is a sort of expectations of future revenue sort of outran the actual revenues, and I think that had an effect in two ways. So because we had this money, I think the government felt freer to spend money to increase demand and I think less attention at the time was given. to structural changes. In a sense we spend money. Avoiding change and avoid. restructuring of France's state, owned industries and inefficient industries that we had at the time. That was one aspect of it. Prospect was the effect on expectations in the private sector makes bitten, It was in the companies they demand for labour, and wage growth was very high in full and was very high and was a side effect of this discovery of oil,

this side effect was not unique to Norway fact is commonly called dutch disease, in the nineteen Sixtys and Seventys. The dutch economy began to go sideways after the Netherlands, discovered natural gas in the North sea. The economy becomes to specialised in the production and export of the natural resources, crowding out the other sectors of the economy. At Scarron awesome opened a professor of economics at MIT I do political economy, labour economics and economic growth are Simone who is also the co author with the Harvard political scientist, James Robinson of a book, called why nations fail in it, they argue that the type and quality of the political institutions in a country greatly influence its economic success. One example might be how

it deals with dutch disease. If you suddenly have a lot of oil or gas and start selling it abroad for lots of foreign currency, the domestic currency can rise sharply. What happens? Is that when you have this sharp appreciation of the domestic currency that makes a lot of the merchandise that an economy usually cells abroad, non competitive, and so what that does is that it's sort of forces the economy to move away from manufacturing, and there are two sorts of reasons why people generally think that manufacturing type jobs are socially valuable for an economy one is that they are generally thought to be the higher paying jobs and in a second as more sort of a dynamic version of that that many economists believe there is greater room for learning by doing technological progress, innovation and other sorts of echo.

make dynamism in the manufacturing sector. Norway, when it began selling all that new oil and gas got pretty bad case of dutch Disease, Martin skunk again through the nineteen seventy we had increasing problems with competitiveness because of high wage growth and high inflation. We had still large investments on the continent and the country was barring a lot of money because we had large current account deficits. One of the largest current account deficits in any oecd countries. the time, and we were very close to having to ask for an item of stabilization program at that time and, MK man, one thousand nine hundred and seventy nine one thousand nine hundred and eighty the revolution in IRAN and world prices quadrupled from and dollars a barrel to forty dollars per barrel. and suddenly thing seemed very rosy people who got very optimistic again, an end

ninety nine days it was a period of very high consumption growth. High credit growth. very accommodating policy, and when all prices fell in item eighty six, the economy to something collapsed. Because as the economy was not resilient enough to handle all eyes full of that magnitude, as happened in eighteen, eighty six. So on the back of that, we got a banking crisis, because people our money to repay their loans and house prices fell and so unemployment increased, and we had to cut back on government spending. Because of the fallen all prices. So I thank him time in ninety ninety, we were still in the middle of a crisis, but there was thinking among, I think, some very far sighted technocrats.

The civil servants in the Ministry of Finance and some politicians who felt that if we ever had serve a third chance to do things right, we would do better. coming up on economics, radio, Norway gets its third chance. I would think that the latest, by the end of this decade, the fund would be a trillion dollars.

and now other countries looked Norway to figure out all the exciting things to do with their sovereign wealth. But I want to talk about all its and reporting in the pouring stuff and one more thing: it is not boring. You can subscribe to friggin mix radio at I tunes and another pot guest apps. It's free, it's easy and I can promise you. It won't give you that disease Thanks to Pennsylvania, lottery, scratch ass, pennsylvanians or scratching their way to find and with new every month, big top rises and second chance, drawings, excitements, always in order so try, Pennsylvania, lottery scratch offer your ticket to fund and get yours. Did I keep on scratch? It must be eighteen or older. Please pay responsibly benefits older pennsylvanians. Every day

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for your job and invite them to apply its. No wonder that four out of five employers who post on recruiter, get equality candidate within the first and right now you can try zip recruiter for free at zip, recruiter, dot, com, slash freak, that's zip, recruiter, dot, com, slash freak from W and Y see. This is for economics, radio, here's, your host, Stephen Debonair Bob, nineteen sixty nine Norway discovered what to be a massive amount of oil and gas. This was not entirely good for the norwegian economy. There was a lot of instability, but after a couple of decades they came up with a solution.

are we created a sovereign wealth funds, so I think it was seen primarily as a tool to stabilize the economy and to introduce sort of a buffer between, the very volatile oil revenues and did not The economy the fund was set up then in eighteen. Ninety six correct. While the formal struck was set up in ninety ninety in the middle of a crisis of court, then we didn't have any money to put in the fund and the first allocations to the fund. The first was set aside in the fund in ninety ninety six, the fund, nineteen ninety six had about two hundred million dollars in the other. First allocation was about two hundred million dollars. Yes, ok enough Now here we are talking just a little bit more than eighteen years later, how much money is in the fund or funds today about eight hundred. Fifty billion dollars,

at the nice number, isn't it I mean it's a lot of money, and we have to remember is a population of five million people which works out to you. Could from all about a hundred and sixty thousand dollars each. I guess, if you wanted to liquid younger and your projected, actions being what they are in this round. But you're projected hit a trillion dollars as a value, the sovereign wealth funds in six or seven years. Something like that yeah, or maybe, even sooner, depending on oil prices and returns and markets? DE, I would think that the latest, by the end of this decade, the fund would be a trillion dollars for a country of five million. Let's face it loaded, your loaded, yeah, yes, but we have an unfunded pensions, a pay as you go pension system, which means that the government actually has a lot of unfunded liabilities as well, but when the fund was established

and actually, during the last decade in particular, when all refugees have been very high, this became all Oh a tool for transfer of financial wealth to future generations, so that aspect of it has become much more important. Asked on has grown in size like a lot of western countries. Norway has agreeing population, so it looks too it's me sovereign wealth funds as a kind of national for one k, but her way being Norway. It hasn't unusual investment philosophy, region. Citizens are the ultimate owners of the fund. You shouldn't be making money in a way that they are not comfortable with we ve said that some of the worst forms of ethical beaches are things that we would not want investing so

Can you tell me just a little bit about the kinds of industries, the kinds of companies, the kinds of behaviors that you don't investing, so Those two different groups- citizens, one group- are those companies there are excluded because of what they produce and the other group are those companies that are excluded because of how they produce what they produce. So the product based exclusions are some forms of weapons like nuclear weapons like cluster munitions. Weapons, and then we have tobacco? Those are observed excluded so that early one trillion dollars. None of it is in tobacco products, nor the Disan tobacco alcohol. Ok, alcohol is ok. marijuana. I don't know the throne listed companies that produce Verona, so I am sure that that would come up its have hampered the case. I said no,

Norway, as you let's say that the marijuana economy begins to really take on which it is starting to do and and there will be listed companies that deal with marijuana. Do you think that something that the fund that you are fund would be ok with? My guess would be no for the same reasons that tobacco is excluded among the other stocks. You will not find in Norway, sovereign wealth funds Walmart because of its quote serious, slash, systematic violations of human rights and labour rights. The fund is barred some israeli companies that did construction in the West Bank or EAST Jerusalem and there's a move but right now to divest in fossil fuel companies This is an issue that we are looking into and I'm heading a commission expert group that Sir said up now look into the issue of fossil fuel investments

the. Finally, let me just ask you this: I'm curious how you reconcile the fact that your country primarily uses oil wealth to grow at sovereign wealth funds for future generations, and so on? But part of that strategy is defined. and you know environmentally friendly, less polluting, more renewable, sustainable industry, and so, on the one hand, that sounds Marley, he's worthy that you're going out of your way to support practices that you Marley, approve of. On the other hand, you could say that it sounds a bit like carbon lawn during the summer time right you take your oil the sea, you don't even use much of it yourself, you export all that nearly all of it. U turn that into money that you'd then build wealth with in a more environmentally morally responsible way. Is that a conflict for you or set just that quality of the world and you live with. It

it's true that we have investments in, let's say environmentally friendly technologies, but those are not. Subsidies is commercially oriented and is within the ordinary investment programme of the fund, but the idea behind fund is really to buy a slice of the entire productive capacity of these countries that we invest in, including welcome and these companies are also in the process of transforming themselves into energy coming more generally, the fact that Norway, owner of the world's largest sovereign wealth funds, might empty that fund of fossil fuel stock may strike you as ironic, since so much of Norway's wealth comes from fossil fuels, well. You'll remember that helps the government subsidize all those tests,

other electric cars. Norway is quite the little bundle of paradoxes. Consider this one among the countries with the biggest sovereign wealth funds. Norway is the only liberal democracy. The rest are well, quite the opposite of liberal democracies and most of them also got rich from oil. Makes Norway and even bigger paradox. Economies that have abundant natural resources also have very easy rents that can be captured by groups that become politically path. That again, is there an awesome, ugly, Co. Author of white nations fail so the image that you might wanna here in your head is, if you were a politically powerful group the dictator or a warlord would be here for you to milk. The high skill manufacturing in,

some city in Germany or the oil fields of Saudi Libya in awesome, o glues view an abundance of natural resources, which may seem like a blessing, often turns out to be a blessing for a select few and for the rest of a country's citizens curse, carbon natural resource curse. What the abundance of natural resource does is that it. Incentivize is lots of groups to become much more conflict jewel in order to take control of state institutions be able to become politically powerful? or blocking actors in order to be able to benefit from these natural resource rents. The extreme form of this is the sort of civil wars that have ravaged countries like Sierra Leone and Angola, where diamonds, another form of natural resources, perhaps even easier to mine and exploit,

than oil have played a major role. Are the huge political instabilities debt have erupted in places like Venezuela, Nigeria, around the oil economy, Martin skunks, since leaving the norwegian Ministry of Finance, has advised other countries around the world how to properly man. Their natural resource wealth. You are familiar, I'm sure, with the idea of the natural resource curse. The Yom economists and other social scientists talk about, and it turns out that allow countries around the world that do have a lot of oil and mineral reserves tend to be some of the most unstable undamaged, countries in the world. I understand that you ve been an adviser to means, including those of Libya, Iraq, Azerbaijan, Venezuela, but a handle. The revenues of natural resources but we have to set up their own sovereign wealth funds. Can you talk about trying to solve that puzzle so,

It is true that on average countries with natural resources tend to do worse than countries that don't are natural resources. So that's, of course, a bit paradoxical in the sense that at the outset, you would think national resources and sort of an extra added bonus that would make you better off. If you go behind whose numbers and look a little bit and introduce seconds are explanatory viable. What is some indicators of quality of insight? patience. You actually see that echo is more correct. I think of oil and gas natural resources as a sort of an amplifier in the sense that those countries our relatively well governed and have good institutions and find oil do even better afterwards, but those that are poorly govern to start with and have weak institutions. And

Fine natural resources do even worse. So in many ways this is not a resource curse as much as an institution, curse rank and the problem, I think is that if you have weak institutions to start with, They are simply not able to handle the demands of a large national resource sector because of pressure on the institutions become so large because the level of conflict and society and crew this is because there is so much more to fight over, and you really need strong institutions to sort of broker between different political factions and have institutions that gave you stability even in shifting political climate. I think that is a real curse. Innocence is not the oil in itself. So what do you we try to accomplish when you consult your advised to Venezuela or a Libya. Is the idea to say let's take money turn it into a sovereign wealth funds that invests in Europe

possible way that will shoot off enough revenue in income to support stronger institutions and let's do that, while some desperate don't managed to steal the money. Well, then, I haven't been too for twenty years, so by I've done project in Libya. East Timor pop one against Burma, a lot of countries, and I think the first question is whether it actually makes sense to have a sovereign wealth funds, and then I think, for many countries if they have a large stock of outstanding debt, it probably makes sense to repay that that, before you start building up a fund So in very many cases my advice is not to establish a fund at all, but rather to use money to repay that, and I thank the main issue in establishing a fund is really governance and governance structure and the common theme, I think,

in any country that I am in. Is that a lot of people? One talk about investment strategy because that's really exciting, but I want to talk about audits and reporting in the boring, and so its most of my work is actually directed towards issues of governance rather than investment, strategy. Skywalker is the first to recognise that Norway, has some built in advantages that other countries down Norway, is relatively homogeneous country with a very low level of conflict, and that has of course, made management oil revenues a lot easier than it is in many of the developing countries that I work with primarily now. That said, there is no guarantee things would work out as well as they have for Norway. Therein awesome o glue

he's not spend a lot of time. Studying Norway and its scandinavian neighbours is book after all, is called why nations fail not why succeed even so knows a success story when he sees one really an exemplary case of how to best make use of the natural resources for the welfare of the citizens without creating. stability. I did wonder, however, if not waste oil wealth had crowded out other industries. I ask Martin skunk about this. So your store neighbours. Sweden, used to run. You doesn't have oil, but it does have a lie: of big long standing, profitable global industries and firms here you know everything from banking, telecommunications, Erics involved. Oh, I key and so on. All things equal all else, equal, if you could choose, would you rather be Sweden?

because you're dependence on oil, its Xo Norway's managed it increase Thirdly, well on many many many dimensions, and yet it's a dependence on a resource that is complicated. Let's I was born Sweden, but I'm glad I live, annoy so if you look at income levels, now are about thirty per. entire in Norway than in Sweden. Damn. It is true. I mean the swedes have been incredibly clever words, author, their global brands, but a manifest. Training and service industries They have a very different tradition, which goes back centuries, a lot of more accumulated wealth. they had nobility Norway's farmers and fishermen, and now resources It was never a basis for building up those types of manufacture, industries as a sweets up, but I

thank Norway. Now, as you say, the main challenge for us is resilience in our economy in the face of possible now fallen old prizes rolled revenues and whether we will be able to live with a high cost level that we have built up over so many years with high one revenues, but I think they know is an economy has proved to be relatively few simple and adaptable. We have very high labour force participation rates. We have a well educated workforce, so I think that gives a lot extra resilience to the economy a lot of resilience and a lot of electric cars too.

The Norwegians I met with on my visit, were remarkably candid about the carbon laundering idea, candid and honestly contorted. They were eager to discuss the discomfort that comes with using oil wealth to put not just a chicken in every pot, but a Tesla in every driveway this evening. it strikes me now is perhaps yet another sign of institutional health, rather than TAT king there, nearly one trillion dollar sovereign wealth funds for granted as an entitlement. They see it for the paradox it is, and they appreciate it even

if I guess listeners on the next week and on radio and most of all, thanks to you for coming here to tell me the day. View of our new game shall tell me something I dont know you'll hear from audience: contestants celebrity judges, Malcolm Gladwell, on aghast ire and former Newark Governor David Patterson. All trying to tell you something you don't know. That's next time on economics, radio

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