The support for a market economy lost ground after the recessions and financial instability in the interwar period. Economic policy was marked by coordination, control and regulation. At the same time, Norway took part in international organisations. International organisations made an effort to promote economic cooperation and increased integration of international trade and fixed investment. Trade barriers were gradually scaled back and trade picked up already in the 1950s. Capital movements remained strongly regulated, however. Maintenance of a high level of fixed capital formation in inter alia infrastructure and private and public industrial companies was an important part of economic policy after the war. The fixed investment-toGDP ratio stayed at a historically high level until the late 1970s. On the other hand, low or negative real interest rates, combined with credit regulation, contributed to a low return to capital and an inefficient use of resources. Since the late 1970s, the investment ratio has declined in Norway as in many other European countries. India, on the other hand, is in the process of catching up. High investment growth in infrastructure as well as in businesses is probably important to maintain high economic growth in India. The government sector in Norway increased in importance until the beginning of the 1990s. Taxes were raised to support increased use of resources in the public service sector and to support a rising level of transfers between households and industries. The regulatory economic policy in the post-war period was, however, not sustainable.
It is misleading to look upon the cash flow from petroleum activities as income. The appropriate economic perspective is to see the transfer of the cash flow to the Government Pension Fund as a way of transferring capital from one account to another – from petroleum to foreign securities. By doing so, we diversify risk. We must also strive for an equitable distribution of this wealth across generations. The Norwegian authorities have been successful in ensuring that the bulk of petroleum wealth benefits society as a whole. Both the state’s ownership interests through the State’s Direct Financial Interest in petroleum activities (SDFI) and the tax system have contributed. The companies that extract oil earn a reasonable return on their investments and have incentives to invest, but the economic rent has essentially accrued to the general public. Second, the size of the cash flow from petroleum activities also varies. If petroleum revenues were to be used as they accrue, this would lead to wide fluctuations in demand in the Norwegian economy. Third, the use of petroleum revenues has an impact on competitiveness in Norwegian business and industry. A high level and substantial variations in the use of petroleum revenues would have a negative impact on internationally exposed industries. The establishment of the Government Pension Fund and the spending guidelines for petroleum revenues are intended to meet these challenges. The government earns large net cash flows deriving from the oil companies’ sale of petroleum products in foreign markets.