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Canada Next? Oil Money Drives Prices Sky High in Norway

Don't try to tell Norwegians not to worry about Dutch Disease. Pizzas cost $50. Latest in a series.

Mitchell Anderson 12 Sep

Mitchell Anderson is a Vancouver-based journalist and frequent contributor to The Tyee. This article is one in a series on Norway's Petro-Wealth Prudence which is part of a larger project, "Canada's Transition to a Better Energy Future," produced by The Tyee in collaboration with Tides Canada Initiatives Society.

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OECD economist Peter Jarrett on whether Canada's oil-boosted dollar is distorting its economy: 'I don't think you can really deny it.'

Dutch Disease is back in the headlines. Last week, Bank of Canada Governor Mark Carney dismissed fears that a booming commodity sector was hurting Canadian manufactures, telling a Calgary audience, "The strength of Canada's resource sector is a reflection of success, not a harbinger of failure."

While this message was warmly received in the oil patch, the other 95 per cent of the Canadian economy has reason to worry. The Loonie recently reached a 13-month high and has risen three per cent so far this year, while the Greenback has dropped two per cent relative to other international currencies.

Bond yields for Canadian machinery companies are one-quarter the return of the mining sector. The country lost 2,700 jobs in manufacturing this summer and another 44,000 in construction.

Yet as a country, we still seem unable to have an intelligent debate on how our reliance on resource extraction may be impacting the value-added sectors of our economy. Earlier this year, NDP leader Thomas Mulcair was dismissed as "ill-informed and divisive" by Alberta Premier Alison Redford. Federal Minister of Natural Resources Joe Oliver told Sun News, "the so-called Dutch Disease really has been debunked as a theory."

Beyond the theatrics of Canadian politics, impartial evidence tells a different story. The OECD released a report this year citing Canada's over-reliance on resource extraction and inflated currency as one of the main reasons for our uneven economic performance.

"I don't think you can really deny it," said Peter Jarrett, one of the report's authors. "Anyone who argues it has no effect is clearly not looking at the data."

In contrast to Canada's government, Norway's believes Dutch Disease is a very real threat. As I learned in my recent visit there, the oil-rich European nation for decades has crafted their economic policies to avoid hollowing out the non-oil sectors of their economy. Their $600 billion oil fund is strictly partitioned from general government revenue and can only be invested outside of Norway.

'It's too much'

While Norway pioneered some very progressive oil policies in 1970s, by the end of the 1980s they also abandoned one of their bedrock bulwarks against Dutch Disease by removing long-standing ceilings on oil investments and production.

Between 1987 and 2000, Norwegian oil production more than doubled. With rising global prices, the massive revenues from oil industry taxation led directly to the creation of the oil fund. Essentially, Norway decided to store their resource wealth in the bank instead of underground.

But even with prohibitions on investing these funds in Norway and only allowing government withdrawals of four per cent per year, the sheer weight of this oil money on the Norwegian economy is obvious to even the casual observer.

While I was there in June, there were seemingly dozens of labour strikes including teachers, airport security workers, and public sector unions. One musician I met with explained with some exasperation, "I'm a pretty left-wing guy. but the teachers are going on strike every year now, demanding five per cent pay increases every year. It's too much."

Last year, average Norwegian wages rose by more than four per cent as salaries struggled to keep pace with the ballooning cost of living.

International travelers are not so fortunate. I spent an evening at a youth hostel where the hot topic around the kitchen table was how shockingly expensive the country was to travel in. A Chinese couple now living in abroad had brought all their food from Germany (not renowned as the world's cheapest shopping) and was fleeing the following day because the larder was running low.

An Australian student living in Oslo described her economic excitement about trips outside Norway. "When I go to another country the first place I go isn't to see the sights or tourist attractions. I go straight to the supermarket and load up the cart with food I can actually afford for a change. It's such a relief."

Obviously Norway's efforts to avoid Dutch Disease haven't been entirely successful. A large pizza can be $50. Gas is about $2.50 a litre. Cab rides across town in a swank Volvo SUV can set you back $60.

'World record' for disability leave

There are also signs that the famous Norwegian work ethic is beginning to show some flab. Professor Mari Rege of the University of Stavanger has documented that fully 20 per cent of working age Norwegians are not working and instead receiving health related social assistance such as sick leave, or disability pensions.

A local investigative journalist named Ole complained of the same issue over some expensive beers. "That's a world record I'm sure. I've heard stories about people who buy a house in Sweden and work there because it's cheaper but get disability money from Norway. People are also traveling to Spain and living there for half the year. As long as the doctor says they are disabled they have a right to get as much money as they would in their regular work. "

School performance scores are also sliding. In 2009, Norwegian students ranked 24th in the OECD on science comprehension compared to 14th in 2000. This is in spite of spending more money per capita on education that almost any other country in the world. Several parents worried out loud the glut of oil money was sapping their children of their Lutheran work ethic.

Pumping crude, snorting cocaine

Nowhere is the oil-fueled transformation more apparent than Stavanger, the petroleum capital of Norway. While its tony cafes and yuppie atmosphere bears little resemblance to Fort McMurray, many of the social problems are similar.

Eni, a local bar server told me about the growing problems with drugs and sexual assaults. "Two or three years ago there were quite a few rapes in town and you never walked home alone. That's why I have my bicycle because it's not that easy to rape a woman on a bike."

She added, "There's been quite a few instances of people doing cocaine in our bathrooms and that comes with the oil workers because they have to stay awake on the rigs. A friend of mine worked on the rigs and he got addicted."

Stavanger used to be a sleepy fishing village, but according to some now has more Porsches per capita than any place outside the Middle East. House prices have tripled since 1998.

Ole added "an engineer in the oil industry makes twice as much as someone who works in the public sector so it's hard for the government to find people to build roads and buildings... It's becoming quite crazy. The artists can't afford to live here anymore so they're moving out. This small town is starting to look like Houston. People have lots of money but they have nothing to do."

Ole travelled to Canada last year and has reported on developments in the oil sands. How does he see the differences between our two countries?

"I think what was done here in the seventies was quite brave. But now we are not better than Canada or some other countries. The politicians are following the money and so are all the people. We don't have any visionaries left. These last years there's been a bonanza in Norway, just like in Alberta."

While many Norwegians are supportive of current oil policies -- even if their economy is showing signs of overheating -- some dissenting voices indicate that Canada may not be the only country with a case of Dutch Disease denial.

Next Wednesday: What would have happened if Norway maintained slow oil growth, and what lessons are there for Canada?  [Tyee]

Read more: Energy, Politics

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