Substantial emphasis was  6  Kydland, Finn and Edward Prescott (1977): “Rules Rather Than Discretion: The Inconsistency of Optimal Plans,” Journal of Political Economy 85, 473-91, June 1977. 7  Skånland, Hermod (1979): “Strategier for 1980-årenes politikk” (Policy strategies for the 1980s), Sosialøkonomen No. 10, 1979. BIS Review 36/2004  3  placed on the importance of wage formation for developments in employment. Only when wage growth dropped below the level of our trading partners did unemployment begin to fall and the manufacturing sector began to pick up. Thus, the fixed exchange rate policy was not introduced in order to strengthen the internationally exposed business sector in the short term. On the contrary, it was a breach in the approach whereby monetary policy and “exchange rate policy” had been oriented towards safeguarding these sectors. A fixed exchange rate was an intermediate target for achieving low and stable inflation. The alternative of inflation targeting was not developed in 1986, and adhering to the fixed exchange rate regime was probably the best available option. The report from the publicly appointed Steigum Commission, submitted in 1988, contains a very thorough discussion of the need for a credible longterm policy, but also of the challenges involved in providing the economy with a nominal anchor after such a long period of high inflation:8 “Such a consistent exchange rate policy can yield better results in the long run than a strategy that is based on frequent devaluations or downward adjustments of the krone.
Two areas which have been identified as having the potential for efficiency gains are the education and healthcare systems. Together, these absorb around 25% of general government expenditure. A recent study by the European Commission suggests that, as far as tertiary education is concerned, the same level of output could be attained with 44% of the present level of expenditure per student. 9 The equivalent figure for the healthcare sector stands at 38%. On this basis the study concludes that even incremental efficiency gains in these two areas can lead to substantial savings. No doubt, other spending categories offer similar possibilities. As for spending priorities, the choice needs to be guided by some important criteria, such as the delivery of a minimum social safety net for those who are genuinely in need; the ending of benefits that discourage participation in the labour market; the elimination of excess demand for, and waste of, free public goods and services; and a greater focus on policies and programmes that would promote innovation and encourage entrepreneurship and investment, and thus generate long-term economic growth. The room for retrenchment may be limited in the short-term, but in the long-term all expenditure categories should come under close scrutiny. Since the outcome of such an exercise will inevitably entail a departure from established practices and the loss of acquired rights, it should ideally be based on a broad consensus among the social partners. Conclusion In conclusion, the economy has come a long way since 2004, and is now much more diversified and market-oriented.