Norway's Problem: Too Much Cash -- Oil Is Flowing And Surplus Is Fat

OSLO - In recent elections here, one of the biggest issues was not crime, not drugs, not welfare fraud - but how to guarantee a single room to every resident of every retirement home in the land.

"The only problems we have are luxury problems," says Oeystein Stephansen, head of economic research for the Skandinaviska Enskilda Banken in Oslo.

Tiny, oil-gorged Norway paid off its international debts in 1994 and balanced its budget in 1995. Now it has a fat surplus, and Norwegians enjoy a bit of good fortune virtually unknown elsewhere in the Western world: the pleasure of arguing among themselves over how to spend their repeated revenue overflows.

Indeed, here in boomtown Norway, the oil is gushing and the budget-cutting, belt-tightening, conventional economic wisdom of the age is routinely stood on its head. While the rest of Europe counts its pennies and ponders the future of the cherished welfare state, the social safety net here remains so tightly woven that even the unemployed are entitled to vacation time from the rigors of the dole.

Consider:

-- Health care in Norway is free, university education is cheap, and maternity leave is 10 months at full pay.

-- Housewives don't labor in thankless obscurity; their work accumulates points toward government pensions.

-- Record numbers of people are traveling abroad, and the "Norwegian dream" consists not of a house, not of a summer cottage, but of two summer cottages, one in the mountains and one by the sea.

All this, yet the Norwegian budget stays in ample surplus - at 6.8 percent of domestic output, more than enough to meet the criterion for inclusion in the forthcoming move to a single European currency, which is forcing other European countries that want to participate to cut budget deficits to a level required by the Maastricht Treaty.

But Norway, one of the few states in Europe that qualifies to join, is also one of the few that refuses to do so. "You have to understand that in this country, 70 percent of the population receives money from the government in some way," says political consultant Hans Geelmuyden. People fear that membership in the European Union would drag their enviable living standard down to the lower European level.

South of the 55th parallel, other cash-strapped European governments are casting off state enterprises as fast as they can find investors to buy them.

But in Norway - where the government already owns or controls the oil industry, telecommunications, major utilities, the railroads and two banks - planners have been considering new state forays into pharmaceuticals, forestry and insurance.

Nowhere else in Europe is the power of the state in the economy so great - and, paradoxically, the public finances in such good order. The budget surplus now tops $10.4 billion.

Much of Norway's boom can be explained with just one word: oil. Norway is the world's second-largest producer after Saudi Arabia, and prices have been relatively strong lately.

That has brought the average household disposable income here to $47,000 per year for families with children, which buys plenty when you don't have to pay for health care, retirement or your children's college education.

Oil now accounts for 17 percent of the national economy, and government estimates show that it will be years before supplies are exhausted.

"All this money, and it's only the beginning," Geelmuyden says. "We are going to be filthy rich."

Whether the wealth comes chiefly from oil or from sound economic management, the question of whether to spend it or save it has proved an unsettling dilemma for otherwise happy Norway.

This, understand, is a society traditionally governed by thrift, hard work and simple living.

In September's election campaign, one protest force, the Progress Party, set a new trend by finding Norway's neediest - its sick and its elderly - and promising to spend 10 percent to 12 percent of the budget surplus on them.

Before long, politicians from the established parties were falling over themselves to also court the old and the sick, with slogans like "Share Our Wealth and Welfare" and "A Warmer Community."

No party won a majority, and Thorbjorn Jagland, the Labor prime minister, said he would resign. But the Progress Party's calls to bring the oil money home from Wall Street seem to have impressed many voters: The party posted a stunning success, with 15.3 percent of the vote.

Jagland resigned Monday, paving the way for Kjell Magne Bondevik and a new three-party centrist coalition to take power. Jagland had said he would stand down after the Labor Party failed to win a self-imposed target of 36.9 percent of the popular vote last month.

Jagland's government, which came to office after veteran politician Gro Harlem Brundtland resigned as premier last October, will act as caretaker until the new Cabinet is formed.

Voters turned their backs on Labor in favor of the centrist bloc, wooed by promises of spending more of the country's wealth on welfare programs.

Voter receptiveness to the let's-spend-it-now arguments worries conventional economists, who say that although it is true Norway is awash in money, it isn't awash in workers. It can't bring in enough Swedes to build all the single nursing-home rooms the politicians are calling for, and in blue-eyed Norway, it's simply a political impossibility to bring in dark-skinned laborers from poorer parts of Europe.

"I'm not sure we really want to mingle with the rest of the world," Geelmuyden says. "I think we want to keep our wealth for ourselves, and we want to keep our race for ourselves. I wish that with our high level of education and our high level of wealth, we could open up our hearts a little bit more."

Information from Reuters is included in this report.