Sovereign Wealth and Custodial Finance in Norway

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At a time when COVID-19 causes economic and market turmoil, milestones marking financial success and stability may seem part of a distant past. Yet, less than six months before Norway entered lockdown due to the coronavirus, the country celebrated just such a moment. The cause for that celebration is crucial for the solid state of the Norwegian economy, as the minister of finance recently declared, and the government’s concomitant ability to respond to the situation through economic policies. It is therefore worthwhile casting our minds back even under these altered circumstances.

On October 30, 2019, two dozen journalists assembled for a press conference at the Norwegian central bank, attracted by a press release issued by one of its divisions, Norges Bank Investment Management (NBIM). The announcement declared that the Government Pension Fund Global (GPFG) had surpassed a market value of 10,000 billion Norwegian kroner or a little in excess of one trillion US dollars. GPFG is the official name for the Norwegian sovereign wealth fund, which derives its capital from taxes levied on the production of oil and gas, and income and dividends generated by the state’s involvement in these activities. Commonly known as the “oil fund,” GPFG has since 2012 consistently ranked as the world’s largest sovereign wealth fund. It is, moreover, one of the few such funds that operate in a fully functioning democracy.

Image description: A person with a short beard and shaved head wearing a black suit jacket with a red tie stands behind a podium and appears to be in the middle of a speech.
Caption: Chief Executive Officer Yngve Slyngstad of Norges Bank Investment Management briefs the press on October 30, 2019. Kjetil Malkenes Hovland/E24

Coincidentally, GPFG reached its milestone 50 years to the day after then-Phillips Petroleum first discovered oil in the Norwegian sector of the North Sea. With almost prescient timing, the fund passed the 10,000-billion kroner mark only minutes before the Norwegian Petroleum Museum opened an exhibition to celebrate the anniversary and declare the Ekofisk offshore oil field for industrial heritage. Five decades on, Ekofisk still produces and ranks as the world’s largest oil field of its kind.

At the press conference, NBIM’s Chief Executive Officer Yngve Slyngstad stated: “For me, this is a historic day, and I hope that all of us who are co-owners of the fund pause and reflect on its size and the responsibility it entails, and the humility with which we who work at the fund approach this task.”

But why is this milestone so remarkable and why should we anthropologists take note? I maintain the fund merits our attention for two reasons: The first is that GPFG conducts a particular form of finance and plays a pivotal role for the Norwegian nation-state. The second is that we need to pay closer attention to large institutional investors like GPFG, if we are serious about studying globalization. An anthropological perspective on GPFG reveals how such a sovereign wealth fund constitutes multiple and wide-ranging social relations that amount to an expansive and intergenerational social contract.

The basis for its particular form of finance is the fact that GPFG—despite its name—has no pension liabilities. Instead, the fund operates as a fiscal policy tool that covers the annual budget deficit subject to a resolution by the Norwegian parliament, Stortinget. While transfers from the fund are restricted by a fiscal spending rule, they nevertheless cover nearly 20 percent of the annual budget. The result is that GPFG does not provide pension payments, but instead funds an equal share of all state expenditures. Among others, these encompass expenses for health care, higher education, infrastructure, defense, diplomatic services, development assistance, and social benefits—including public pensions.

GPFG thus entails what I call “custodial finance,” as it meets a multitude of social commitments and has a duty of care toward the Norwegian public. Yet this public is not limited by citizenship rights. Instead, it is defined by labor participation and tax contributions, which enable claims to and benefits from the services funded by GPFG. Norges Bank may stress that GPFG is owned by the Norwegian people, but the co-owners to which Slyngstad referred are in fact all those who receive benefits and services financed by the annual fiscal budget. It means that NBIM acts with a multitude of others in mind—a fact underscored by the fiscal spending rule, which constrains the use of the capital and makes GPFG a fund from which future generations also shall benefit.

At the October 30 press conference, the CEO highlighted some startling facts regarding the size of GPFG. Slyngstad first pointed out that its value equals more than three times Norway’s gross domestic product. This sovereign wealth stands in stark contrast to most other countries, which commonly have a national debt equalling their GDP. He moreover pointed out that the value of GPFG surpasses the combined wealth of all the nation’s households, and is twice as large as the estimated future income accruing to the state from the petroleum production. On top of this, the cash flow generated by GPFG equals and is far more stable than that of the petroleum sector. This is in line with the political objective for GPFG to convert and reallocate mineral wealth in the ground into a financial fortune invested abroad. It replaces an unstable revenue stream from oil and gas with a more stable cash flow from the world’s corporations. As such, it diversifies the national wealth, and reduces its risk and exposure to the oil-price. On top of this, the fund mechanism has served to regain and retain two-thirds of the state’s total petroleum revenues since oil was discovered, in spite of the expenses incurred from building up an oil industry and expanding the welfare state.

As Slyngstad pointed out, the effect is that Norway not only is an oil nation, but also an oil fund nation. In other words, it derives its livelihood from both petroleum production and finance capital.

Due to GPFG, Norway has come to occupy a central position in the world economy. This is due to the fact that the fund provides liquidity for global financial market as well as credit and capital for states and corporations. As a shareholder in more than 9,200 corporations located in 74 countries, GPFG facilitates employment and tax receipts, and thus affords private and public welfare in scores of nation-states. Large institutional investors like GPFG hence integrate the world economy and affect its momentum. We ignore them at our peril, if we are serious about studying globalization.

The position Norway holds in the world economy results from the luck it experienced after oil was discovered. Petroleum production began in 1971, shortly before the OPEC crisis, which occasioned large-scale transfers of wealth from the world’s oil consumers to its oil exporters. High rates of extraction in the 2000s coincided with China’s entry into the World Trade Organization, which added more than a billion producers and consumers to the world economy. This ramped up globalization and stoked commodity prices, including that of oil. On top of this came the transfers of wealth to capital owners in the last 10 years, when equity prices boomed because of monetary policies like quantitative easing pursued after the 2008 financial crisis. As Slyngstad suggested, Norway was lucky to discover oil. But it was also lucky to extract large quantities of it and convert its proceeds into financial instruments at particular points in time. In fact, Slyngstad argued that “the return on the investments in global financial markets has been so high that it can be compared to having discovered oil again.”

Against this backdrop, Martin Wolf of the Financial Times includes Norway among the capital exporters that contributed to what Federal Reserve Chair Ben Bernanke called the “savings glut” and the economist Michael Pettis ascribed as a macroeconomic origin of the 2008 crisis. Furthermore, the economist Bård Harstad recently argued that the spending rule for GPFG incentivizes increased petroleum production as a means of enabling higher fiscal spending by politicians. In other words, one can argue that the existence and operation of GPFG exacerbate contemporary challenges, such as financial instability and climate change. My own research, however, concerns how NBIM address these and other contemporary challenges through their ownership efforts, and how these amount to inconspicuous yet radical attempts at renovating global capitalism through corporate governance based on a multifaceted agenda of sustainability.

Norway has in any case managed by means of GPFG what no other country has done: it has avoided the so-called resource curse to exploit nonrenewable natural wealth without wrecking the domestic economy and ensuring that that wealth benefits both current and future generations. Slyngstad emphasized that praise for its achievements belong with national politicians, who created the fund and devised the investment strategy, which they have merely implemented at NBIM.

Politicians and bureaucrats notably argue that GPFG is to last in perpetuity. In doing so, they commit to the eternal existence of the Norwegian nation-state, despite the fact that it was created only a century or so ago. As a bequest from the past that is managed in the present for the benefit of future generations, GPFG constitutes an expansive social contract. The minister of finance invoked this, when he declared: “This is the moment for corporate and social responsibility. I want to encourage companies, households, property owners, banks, municipalities, labor and employer organizations—and everyone else who can—to step up and take responsibility so that we can help to preserve jobs for when daily life returns.” GPFG plays an enabling role for the government response to the current crisis. But even in normal times it engenders another finance, which involves an intergenerational fund embedded in constitutional processes, and that is subject to democratic deliberations and bureaucratic procedures.

Knut Christian Myhre is a senior researcher in the Museum of Cultural History at the University of Oslo. He is the author of Returning Life: Language, Life Force and History in Kilimanjaro and the editor of Cutting and Connecting: ‘Afrinesian’ Perspectives on Networks, Relationality, and Exchange.

Cite as: Myhre, Knut Christian. 2020. “Sovereign Wealth and Custodial Finance in Norway.” Anthropology News website, June 3, 2020. DOI: 10.1111/AN.1411