Scandinavium #12: Terakroner

• I get paid in kilokroner (kNOK), equivalent to thousands of U.S. dollars.
• Norwegian Research Council research projects are budgeted in megakroner (MNOK), equivalent to millions of U.S. dollars.
• Large Norwegian company revenues are on the scale of gigakroner (GNOK), equivalent to billions of U.S. dollars.
• The Norwegian Sovereign Wealth Fund is worth terakroner (TNOK). Trillions of kroner.

The Norwegian Sovereign Wealth Fund recently reached an equivalent of $1 trillion USD [Kottasová, 2017]. That is 1/3rd the size of the U.S. Social Security fund for a country that has 1/60th the population. Equivalently, imagine retirees having 20 times their normal pension! With 5.2 million people, it is worth nearly $190,000 to every Norwegian citizen [McCarthy, 2017]. After the U.S. and Japan, it is the third largest sovereign wealth fund/national public pension in the world [Sovereign Wealth Fund Institute, 2017]. It also owns about 1.3% of all stock of all companies in the world [Holter, Sleire, 2017], which is large enough to make investment choices difficult in avoiding overexposure and trading secretive to prevent others from profiting ahead of a giant investment movements. Again, 1.3% of global stocks ownership needs to be put in perspective by the people who collectively own it: just 0.068% of the world's population.

Undoubtedly, Norway has its unique traits that enable it to grow such a fund, but I believe they are as much a product of their environment as they are a product of their own doing. Norway is a country that only recently became wealthy, long having been a poor country with little but farming, agriculture, and maritime industries (according to many Norwegians I've spoken to). The wealth from oil in the North Sea is relatively new and its growth rate incredibly fast. Since it started in the 1965 [Ministry of Petroleum and Energy, Norwegian Petroleum Directorate, 2017], it barely spans a whole generation, especially considering it probably took time for the oil companies and labor expertise to be established. Whereas winning the lottery would usually ruin a common person's life, Norwegian society and consequently their government took a long-term view in 1996, opting to save and accumulate money in the wealth fund as a reservation against a harder economic time in the future. Last year (2016) marked the first time the Norwegian government made a direct withdrawal of 70 gigakroner ($9 billion USD), the first in the fund's 20-year existence [Holter, Sleire, 2017]. That's quite a remarkable record, in my opinion.

I think it's a cultural reflection of life at high latitudes and a climate with long and harsh winters. There is some research  on how such an environment, where the seasons change more dramatically, can influence a person's sense of time and priorities (from Philip Zimbardo's psychological analysis of time; the RSA has a fun YouTube video of him from a longer lecture). To oversimplify, in places where each day is largely indistinguishable from the other days of the year, people may be less inclined to think conservatively about the future. Combine that with an attitude of social responsibility, Norway ends up being at the top or near the top of most happiness and human development indices.

That seems to be where Norway is at for the moment, but I wonder if things will change as the generations move on and a younger generation, one that has not known the impoverished farmer's life, will change how it values the sovereign wealth fund. Rationally, the best option is to continue accumulate capital, unless some national emergency requires dispersing funds. It's like a major university's endowment; its proper management can grow and sustain an institution for potentially centuries.

But the fund is essentially controlled by the government, which itself is controlled by its people. How will those people's values change over time? How will their priorities and needs? On the one hand, there is a Chinese proverb that "wealth does not pass three generations", meaning that later generations frequently fail to appreciate the wealth they inherited (and by extension, the labor required to obtain that wealth). On the other hand, Norway and other Nordic societies clearly have a distinct cultural attitude towards wealth, particularly social wealth. Additionally, well-managed wealth can be sustaining; Norwegian children who are raised in a supportive social system, universally medically insured against harm and illness, and freely educated to post-secondary levels are much more prepared for financial stability and success. Their environment nurtures the same values that helped sustain the sovereign wealth fund in the first place.

Since I am an American, I can't help but compare the two countries wealth funds. The U.S. Social Security system (n.b. I should declare my bias in that I wholeheartedly believe the system will be bankrupt long before I retire) holds nearly $3 trillion USD. Spread over more than 300 million people (as an rough but outdated estimate), it reduces easily to about $3,000,000 per 300 people or just $10,000 per capita. Recall that Norway's fund was $190,000 per capita. As I calculated at the beginning, it is nearly 20 times greater but putting these numbers on a per human scale really drives home the difference in wealth.

There's still a lot I don't know or understand about Norway, its economic history, and in this case, how the sovereign wealth fund continues to persist in a high tax burden society. Add that on to how little I know of U.S. history itself. And then, I feel crushed by the weight of all there is to know about human history. In the face of that, all I know is that we should really switch to SI units of money, because I love the thought of a terakroner.