The settlements in 2004 and 2005 resulted in moderate wage growth. There are now signs of higher local pay increases in some industries. Pay increments are probably rising in occupations where pay is directly linked to performance. Municipalities and public entities have recorded a sharp increase in revenues, and this may easily translate into higher labour costs. Nevertheless, the labour market is not so tight that there is a pronounced risk of a marked increase in wage growth in connection with the spring income settlement. Moreover, employee organisations have  6  4  Information from Norges Bank’s regional network, January-February 2006. BIS Review 10/2006  gained acceptance for important changes in labour legislation and regulations. This probably reduces the near-term risk of pay increases that weaken production. A characteristic of the wage formation process in Norway has been that fairly long periods of moderate nominal pay increases and rising employment have culminated in a sharp rise in cost inflation – often as a result of working hour reforms – and a decline in employment. Developments in labour costs and the wage settlements in 1974 and 1975, 1986 and 1987 and in the period between 1998 and 2002 laid the basis for a subsequent decline in output and employment. In our interest-rate setting, we must continuously assess how we should take account of the risk of another sharp rise in cost inflation when the labour market tightens.
The basis for establishing new businesses has not been as favourable as in Kongsberg, but there are now at last signs that the situation is improving. Kongsberg Våpenfabrikk was wholly state-owned. This was widely perceived as a guarantee for continued operations. The company repeatedly required state capital injections following unfavourable results. When the government allowed the company to fail, this also represented an important choice with regard to state ownership policy. Profit requirements bolstered discipline in the fledgling companies. At the same time, when the original company was split up, competencies and values became visible. The state still has extensive ownership interests in Norwegian business and industry, but it has adopted a completely different approach to the management of its interests following the experience in Kongsberg, Mo i Rana, Sulitjelma and Syd-Varanger. Corporate governance is now exercised through resolutions in general meetings and according to recommendations from nominating committees, and the board and management can run companies with the objective of increasing value. The state-  6  BIS Review 10/2006  owned companies are subject to exactly the same market discipline as other operators, with a required return and continuous adaptation and development. This is also the only way companies can avoid stagnation. Through the Government Pension Fund, the state owns equities worth more than NOK 500 billion, spread across nearly 3 500 companies in over 30 countries. The holdings are minority interests.