How can the Nordic countries remain competitive?

Post-Davos Nordic Summit, 17 February 2014

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Your Royal Highnesses, Prime Minister, ladies and gentlemen,

First of all, thank you for inviting me to this conference and to this forum. It is a pleasure and an honour to hold my first speech in Sweden as the Norwegian Prime Minister here.

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The Nordic countries are all unique, but we also have some common features. We are all advanced economies with high wage levels and even income distribution. We all have comprehensive welfare schemes and competitive industries.

This entails a challenge as well an important opportunity.

The challenge is that countries with much lower cost levels are competing in the same international markets as us.

The opportunity is that we are able take the lead in technological developments, innovation and education. We will never be low-cost countries, but we can deliver the best products and services.

So how can the Nordic countries remain competitive in the light of global, regional and industrial changes? My short answer is: we need to make sure that we are the smartest.

Being smartest means a continuous increase in productivity,
a world-class education system,
top-notch research and development communities,
excellent universities
and a high degree of innovation.

If we succeed in being innovative, we are likely to have low unemployment rates and strong economic growth.

And along the way, we should continually seek to increase social mobility and reduce social differences.

Now, let me elaborate on some of these ideas.

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[Slide: Using the picture from Economist “The next supermodel”]

About a year ago, The Economist ran a special report on the Nordic countries. It said – and I quote: “The Nordics cluster at the top of league tables on everything from economic competitiveness to social health to happiness.”

It also maintained that: “If you had to be reborn anywhere in the world as a person with average talents and income, you would want to be a Viking.”

The analysis focuses on high-tech start-ups,
a good education system,
and a big but well-functioning public sector.

In short, our ability to transform the concepts of transparency and technology into reality.

I have just returned from Sochi and am still feeling inspired by Norway’s performance in the Winter Olympics. However, I must admit that The Economist mostly looked to Sweden.

As an example of technological success they highlighted that “the home of Skype and Spotify is also a leader in e-government: you can pay your taxes with an SMS message.”

Despite the consequences of the financial crisis, Sweden has managed well. I believe this is because you have invested so heavily in knowledge.

Knowledge is a key ingredient for creating new jobs.

This is why one of my Government’s most important projects is a comprehensive investment in education, research and innovation. We want to realise the vision of a knowledge-based society.

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[Slide: Picture from FT: “Norway: On cruise control”]

However, the picture is not all roses. Less than two weeks ago, The Financial Times referred to “a Norway on cruise control”.

This article describes extremely low average annual hours per worker and a rapid increase in unit labour cost. Our high GDP per capita, it claims, is largely dependent on oil.

I think the truth is somewhere between the tribute paid by The Economist and the pessimism expressed by The Financial Times.

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[Slide: Productivity growth]

A serious concern, and one that I am well aware of, is that productivity in Norway is slowing down, while real wages are still rising.

This means that we are increasing our cost levels without making technological progress to compensate. How do we solve this problem?

Wage levels are negotiated between the social partners. There is a common understanding among them that competitiveness is an important factor.

Let’s not forget that high wages benefit both individuals and society as a whole. They give families economic security. And they provide society with important tax income.

Against this backdrop, my Government intends to stimulate competitiveness using the tools we have at our disposal.

The Government will focus on measures that boost productivity. These include investments in education, infrastructure, and research and innovation, as well as growth-enhancing tax cuts.

The growth in real wages and productivity was closely correlated from 1970 to 2006. But then productivity started to slow down.

This has become an important issue in the Norwegian political debate in recent years. A key question has been: How much of the revenue from our sovereign wealth fund should be transferred to the national budget?

During the election campaign last year, we highlighted the importance of another question: What should this revenue be spent on?

We maintained that too little oil money was being spent on investments to increase productivity.

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[Slide: Productivity compared between Denmark and Sweden]

To inspire our work on increasing productivity, we have also looked to our neighbour in the south. In 2012, Denmark established a commission to advise the Government on how to increase productivity.

The commission, which was made up of a range of experts, concluded that if Denmark had had the same productivity growth as Sweden in the period from 1996 to 2011, it could have introduced free public transport, or built nine new hospitals, or reduced income tax by 3 %.

I thought the idea of establishing a productivity commission was a good one, and towards the end of 2012, I suggested that Norway should establish a similar commission.

Less than two weeks ago, our own expert panel on productivity started its work in Norway.

One of the observations of the Danish report that I find very interesting is that innovation can be promoted, but it can also be inhibited.

That has political consequences for all the Nordic countries.

As politicians, we cannot develop technological solutions.

Prime Minister Reinfeldt may have capabilities that I am not aware of, but I think both Norway and Sweden would soon have problems if it was the politicians who were responsible for technology development.

But we can stimulate innovation, and that is our responsibility. And how can we best do that? 

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As I have already mentioned, education is a key to competitiveness for many reasons.

Education is vital for ensuring that we have candidates for higher education and research.

It is also vital for social mobility and a high level of employment. In all the Nordic countries, jobs are becoming more demanding and require higher levels of skills.

Just a couple of decades ago there were plenty of opportunities for those who dropped out of school. In Norway, they could become fishermen or seamen, carpenters or warehouse workers.

Today, many of those jobs have disappeared or require qualifications. This is why ensuring high-quality education that gives opportunities for all – regardless of ambitions – is one of the most important measures we can take.

Improving the Norwegian school system is one of my top priorities.

Last year, we got the latest results from the PISA survey, which shows that Norwegian pupils only have average scores in mathematics and the sciences. That is bad news for a country that relies on technology.

When we outlined our plan to improve the school system, we sought inspiration from Finland, which has the best results of the Nordic countries. They have focused on top quality teachers for decades.

In order to become a teacher in Finland, you need to have top grades from school. That creates a positive circle.

The renowned education expert John Hattie has shown that teacher quality is the most important factor for learning. Therefore, my Government has started a significant investment in continuing education for teachers. We have also started to revise and improve the teacher-training programme.

I think this is one of the best investments we can make. 

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[Slide: Share of GDP to R&D]

My Government has also announced its ambition to develop world-class universities within certain disciplines.

Sweden has some excellent universities, as do Denmark and Finland. We should not read university rankings blindly, but if we break down the ratings, we see that you really do have some excellent and productive researchers.

Norway wants to compete with you here. We have therefore increased the research and higher education budget with particular focus on the performance-based scheme. We want to boost research productivity and further develop our university sector. 

Partly due to the Norwegian commodity-based industry structure, we also have a lower share of our GDP that are put into research and development. My government took immediate action by increasing our R&D-budget.

Public funding for R&D in Norway is on a par with the general Nordic level, but we see that your private sector is investing more than ours. We want to change this. This is why we have increased the funding for schemes to stimulate research in the private sector.

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I have mentioned several measures that we are introducing to increase competitiveness and productivity: improving the school system,
strengthening higher education and R&D,
fostering innovation,
developing infrastructure,
and making growth-enhancing tax-cuts.

But let’s not forget the other side of the Nordic model. Good welfare schemes, social mobility and limited social differences.

It is a competitive advantage that children from different backgrounds attend the same school.

It is a competitive advantage that a skilled worker can tell the chief engineer that his drawings are not feasible in reality.

Accordingly, my Government will not just preserve the welfare system as it is with its free education and free healthcare. We intend to further develop it.

Taking the example of healthcare, we are open-minded about using public money to purchase services from the private and non-profit sector to complement public healthcare.

We must mobilise all possible resources to reduce the number of people waiting for treatment. This will enable us to improve the Nordic model and prepare better for the future.

Returning to The Economist article again, I would like to quote its comment about our large public sector: “they are not popular because they are big, but because they work”.

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To conclude:

The Nordic countries are all different, but we have some common features.

The Nordic region has considerable potential for synergy. Sweden is our most important trade partner. Trade enables us to create more value. Competition means that we all gets better.

Three of the most important banks in Norway are: Norwegian DNB, Swedish Nordea and Danske Bank.

There is another example: Statoil is our largest energy company, but it was Swedish Lundin Oil that made the world’s largest oil discovery of the decade: the Johan Sverdrup field on the Norwegian continental shelf. Openness in our oil sector creates competition – leading to innovation and good results.

These examples inspire me to continue to cooperate and compete with the other Nordic countries in the years ahead. 

I believe we all need to invest heavily in education, research and innovation. At the same time, we must safeguard our high level of social mobility and continue to modernise our welfare states. This may not make us the cheapest countries in the world, but we can become the best.

I look forward to your questions and comments.

Thank you very much.