In some situations, it may be appropriate to take into account particularly unfavourable developments. In a period of increased cross-border labour flows, substantial technological advances, changes in competitive conditions and new trading patterns, Norway may, with our very open economy, have to accept somewhat greater variation in inflation and deviations from the target, as we have witnessed over the past two to three years. Challenges in an oil economy Petroleum revenues pose as mentioned special challenges to stabilisation policy. The experience of other countries that had received large, unexpected income from natural resources was not encouraging. The classic example is Spain’s substantial revenues from the colonisation of America in the 1600s. The historian David Landes 1 summarised the Spanish experience as follows: Landes stated that easy money is bad for a country. It is very tempting to live comfortably on this income and be less concerned about safeguarding other revenue sources. In that case, the country is poorly poised to cope with an end to easy money. 1  David Landes (1998): The Wealth and Poverty of Nations, W.W. Norton & Company, Inc., N.Y.  BIS Review 22/2006  3  The oil age in Norway has spanned 30 years and it appears that it will continue for many years ahead. Petroleum activities give Norway an economic base that is not available to many other countries. But it also presents us with many challenges. First, petroleum wealth is part of Norway’s national wealth.
Petroleum and luck is, however, not the whole story behind the high per capita income in Norway. We have also been successful in seizing the opportunities that have been offered by changing international environments. The foundations for the Norwegian welfare state were established some two hundred years back in history. Long-term economic developments The Napoleonic Wars, which tormented Europe in the early 19th century, brought some great changes to the face of Europe. Norway took this opportunity to adopt a constitution and establish a number of central governmental institutions, including a central bank. Norway was severely hit by the economic crisis that followed the war, and around 1820 Norway’s GDP per capita was lower than in many comparable countries. In the second half of the 1820s, a new period of economic expansion started. The upturn gathered momentum from the middle of the century. An event which had a considerable impact on Norwegian shipping and economic history took place in 1849 when England repealed all navigation acts regulating the right to transport goods to and from England and its colonies. BIS Review 22/2006  1  This new and more competition-friendly trade environment spurred a rapid build-up of the Norwegian commercial fleet. Norway suddenly became a major exporter of services. As the chart shows, the tonnage of the Norwegian commercial fleet increased almost six-fold from 1850 to 1880. By 1880, Norway had built up the world’s third largest commercial fleet.