Economy of Skandinavia

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Economy of Skandinavia
Christiania at night.jpg
Christiania finnancial district
Rank XXX (nominal) / XXX (PPP)
Currency Skandinavisk Krone (KK)
Fiscal year January 1 – December 31
Statistics
GDP

$2,984 billion (2018) (nominal)

$2,819 billion (2018) (PPP)
GDP growth +2.9% (2018)
GDP per capita

$68,888 (2017) (nominal)

$66,425 (2017) (PPP)
GDP by sector agriculture: 2.5%, industry: 39.7%, services: 57.8% (2017 est.)
Inflation (CPI) 1.9% (2018)
Gini index 25.12 % (2018)
Labour force 21.18 million (2018 est.)
Labour force
by occupation
agriculture: 2.3%, industry: 31.3%, services: 66,4% (2017)
Unemployment 2.6% (2018)
External
Ease of Doing Business Rank 10th
Exports $997 billion (2018 est.)
Main export partners
(2017 ytd)
Imports $721 billion (2017 est.)
Main import partners
(2017 ytd)
FDI stock $1,157 billion (2018)
Public finances
Public debt 37% of GDP (2017)
Revenues 1,283 billion
Expenses 1,191 billion
Economic aid $26.56 billion (donor); 0.89% of GDP (2017 est.)
Credit rating Standard & Poor's:
AAA+ (Domestic)
AAA+ (Foreign)
AAA+ (T&C Assessment)
Outlook: Positive
Moody's:
A2
Outlook: Positive
Fitch:
AA
Outlook: Positive
Foreign reserves $677.55 billion (2018)
All values, unless otherwise stated, are in US dollars

The economy of Skandinavia is a developed export-oriented economy aided by the abundance of natural resources as oil, natural gas, iron ore, timber and hydropower. These constitute the resource base of an economy oriented toward foreign trade. The main industries include petroleum, natural gas, forestry, steel, metals, motor vehicles, precision equipment (bearings, telecommunications, armaments), pulp and paper, timber, chemicals, pharmaceuticals, shipbuilding, shipping, fishing, aquaculture and processed foods. Exports account for 41% of national output.

More than 93% of Skandinavian companies belong to the small to medium category. Skandinavia has also a long tradition for cooperative production and trade on a large scale in areas such agriculture, dayri, food production, retailing, supermarkets, housing, insurance and banking.

Skandinavia is a competitive mixed economy featuring a generous universal welfare state financed through income taxes that ensures that income is distributed across the entire society, a model sometimes called the Nordic model.

Economic structure and sustained growth[edit]

The emergence of Skandinavia as an oil-exporting country has raised a number of issues for national economic policy. There has been concern that much of Skandinavia's human capital investment has been concentrated in petroleum-related industries. Critics have pointed out that national economic structure is highly dependent on natural resources that do not require skilled labor, making economic growth highly vulnerable to fluctuations in the demand and pricing for these natural resources. The Government Pension Fund of Kalmar Union is part of several efforts to hedge against dependence on petroleum revenue.

Since the 1990s, the government has implemented policies to make the long-term sustainable economic model and reduce dependence on natural resources, especially oil and gas. A portion of the economic surplus from oil industry is invested each year in R&D of new industries and technologies, and the Government Pension Fund of Kalmar Union is used as a "business angel" for new startups and new technology companies. These stimulus policies, together with the investment policies of the private industrial sector, have been responsible for the high national technological development and allow Skandinavia today to be a leading nation in fields such as hydrogen, fuel cells, aerospace, telecommunications, specialized construction of ships, transportation equipment industry, etc.

Sectors[edit]

Agriculture and livestock[edit]

Agriculture and livestock in Kalmar Union count for 2.5% of GDP and 2.3% of the labour force and differs by region. This is due to different soils and different climate zones, with many parts of the country being more suitable to forestry. It makes more economic sense to dedicate land to forestry than agriculture in the northern and mountainous parts of the country. Skandinavia has quite short growing seasons in most parts of the country that limits the species and productivity of agriculture, but the south has the longest growing season, in some parts of the south in excess of 240 days. The region of Denmark and the southern parts of Norway and Sweden are the most agriculturally productive. About one-tenth of Skandinavia’s land area is under cultivation. Wheat, barley, sugar beets, oilseeds, potatoes, and staple vegetables dominate in the south, while in the north oats, rye, turnips, hay and potatoes are the main crops where the soil is less fertile. There are some rich fruit districts specializing in apples, pears and cherries.

Domesticated animals are an important feature of life in Skandinavia. Dairy cattle, pigs, and poultry are raised in great numbers to supply the domestic market as well as some foreign markets. Dairy cows are important in all parts of the country, while pig and poultry raising are concentrated in the south, specially in the region of Denmark. Fur farming, especially of minks and foxes, is economically important as well. The yields of Skandinavian agricultural and livestock farms are among the highest in the world.

Although the proportion of larger farms has been increasing, most farms in 2015 were still small, with about 70% consisting of less than 50 ha (124 acres) of arable land. Because of the small size of the holdings, many farm families pursue additional occupations, mainly in forestry. An important part of the small farms are part of larger cooperatives.

Since the creation of the nation, the state has subsidized national agricultural production with a strong regulation over the import of agricultural products that maintains the price of national-grown products. The Ministry of Agriculture has divisions dealing with agricultural education, economics, and other aspects. Each county has an agricultural society headed by a government official. These societies, financed half by the district and half by the state, implement government schemes for improving agricultural practices. National agriculture covers approximately 40% of the country's total needs. As for livestock, the percentage covered by national production goes up to 60% on average, reaching 100% in some cases.

Forestry[edit]

Although only about one tenth of Skandinavian total area could be agricultural land, productive forests constitute more than one-third of the total area. Forestry forms the basis for the wood-processing industry, which accounts for an important part of national total commodity exports, and it is of major importance for the three-fourths of all Skandinavian farms that are so small that a second major source of income must be found.

The average regrowth and harvest time for spruce and pine is about 40 years in the south and roughly 100 years in the north. Since the late 19th century, forestry has been conducted on a sustained-yield basis, which establishes a ratio between cutting and new growth that is strictly enforced. Modern large-scale forestry methods have been subject to criticism, and major reforms were implemented in the 1990s. A thorough mapping and inventory of key woodland habitats was undertaken in the mid-1990s to identify areas with high biodiversity values.

Fishing[edit]

Along the coast, fishing plays the same role that forestry does elsewhere. At the same time, it forms the basis of a large fish-processing industry and offers seasonal employment for many farmers. Of all fishermen, only half fish as their sole occupation. Most vessels are owned by the fishermen themselves, the necessary crew members being paid by shares of gross income in a continuation of a centuries-old tradition of the sea. A critical problem is how to avoid depleting the fish resources while maintaining the volume. Skandinavia’s principal seafood products include fresh fish, dried and salted fish, smoked fish, frozen fish fillets, and other processed forms such as marinated and tinned fish. Fish offal is used as feed at mink farms. Herring, cod, salmon and plaice (flatfish) account for most of the total catch; other important species include eel, shrimp and lobster.

By the mid-1990s fish farming had developed over a period of 25 years into the cornerstone of the coastal economy. Skandinavian fish farms are especially renowned for the production of Atlantic cod, Atlantic halibut, and spotted wolffish. The total number of fishermen decreased by about three-fourths from 1950 to the end of the 20th century, and the number of vessels decreased about a half over the same period. At the beginning of the 21st century, there were some 10,000 registered fishing vessels in Norway, though only about one-third of them were engaged year-round. Most of the remaining boats are small, but large vessels account for much of the catch. However, fishing industry remains important for the economy and keeps Skandinavia as one of the world's leading exporters of fish and fish products.

Oil & gas[edit]

By the mid-1990s Skandinavia had become the world’s second largest oil exporter (behind Saudi Arabia), and it remained among the world’s most important oil exporters in the 21st century. The first commercially important discovery of petroleum on Skandinavian continental shelf was made at the Ekofisk field in the North Sea late in 1969, just as foreign oil companies were about to give up after four years of exploratory drilling. Intensified exploration increased reserves faster than production. Nevertheless, by the mid-1990s about half of export earnings and about one-tenth of government revenues came from offshore oil and gas. Export earnings from oil and gas continued to climb into the middle of the first decade of the 21st century, when they tapered off somewhat. By the first decade of the 21st century, oil and gas revenue accounted for about one-fifth of overall government revenue. Oil production peaked in 2001 but remained steady into the second decade of the 21st century, while that of natural gas has continued to increase significantly since 1993. In recent years, new oil and gas reserves have been discovered, especially in the Arctic, which ensure the long-term maintenance of production.

Skandinavia is a leading supplier of natural gas to continental Europe.

Electricity[edit]

Electricity sector in Skandinavia plays a significant role in the economic and political life of the country since the late 19th century. It relies mainly on hydro power, Integrated Coal Zero-Emission Plants, Nuclear Energy and to a lesser extent to Wind Energy although its percentage is increasing in recent years. In 2018 the consumption of electricity in Skandinavia was 11.94 kWh per inhabitant. The european average was 7 kWh/person. This is mainly because intensive electricity consumer industry (steel, aluminium,...) and also because electricity is widely used for heating.

Skandinavia is the european largest producer of hydroelectricity and world largest producer of energy from IGCC.

Skandinavia has an open electric market, integrated with the other european countries. Export and import is routine over the direct power links to Germany, the Netherlands, Poland, Baltic Republics, Finland and Russia.. During the last years the country has been a net exporter of electricity. A new interconnection with United Kingdom is being built.

Mining[edit]

Skandinavian mining industry has long been known for innovation, high utilization of technology and safe and sustainable processes. Today, Skandinavia is the leading underground mining country in Europe and a global leader in underground technology. Mining contributes more than 2% of the GDP. World leading institutes rank Skandinavia among the best countries in the world for exploration and mining. A strong geology together with a well-developed, stable, transparent and business-oriented society help prevent many of the risks associated with exploration and mining. In 2014, Skandinavian Government released a new Minerals Act, with a positive view on further development/extension of the sector. The government encourages companies (domestic and foreign) to explore and mine in Skandinavia and has a clear goal to strengthen its position as the european leading mining country. Along with the goal of increased ore production comes a heightened need for sustainable operating methods, as well as a need for sustainable and attractive communities to be built in the areas around the mines.

Mining in Skandinavia is the starting point of a national value chain. Skandinavia’s mining cluster does not only consist of mining companies; it also includes industries that provide the mining industry with technology and companies that use the minerals produced by the mines. Several collaboration partnerships of this kind have been in place for more than 100 years and they include companies such as Atlas Copco, Sandvik and SSAB. In recent years, IT companies such as Ericsson and Telia have also become part of the mining cluster. Significant ore assets, combined with world-leading academia, mining companies, and technology companies have allowed ongoing success for Skandinavian mining.

Metal mining is the most important in the country and one of the most important in the world. Iron ore, zinc, lead, gold, silver, copper and other metals are extracted and used to a large extent by the national industry that transforms them into products with a high added value. Skandinavia is today Europe’s leading metal mining nation as it accounts for 91% of the continent’s iron ore, as well as 17% of the copper and 39% of its lead, zinc, silver and gold. In 2017, Skandinavia ore production broke a new record for the fifth year in a row; the increase was 6% from the previous year, and production amounted to about 129.1 million tons.

During las years there have been also a strong increase in the production of industrial minerals, natural stone, stone chips, sand and gravel. Skandinavia produces olivine, an industrial mineral, from one of the world’s largest olivine mines, and is one of the world’s three largest producers of nepheline syenite, another industrial mineral. The world’s largest individual producer of limestone filler for the paper industry is also located in Skandinavia, and the country has several sought-after types of natural stone.

Coal is also important in national mining, especially since underwater mining techniques began to be used. At present, more than 32 million tons of coal are produced annually, of which around 24 tons are obtained from underwater mining.

Industry[edit]

Some of Skandinavia's world-class domestic industries originated in the 17th century from its vast natural resources of forests, rich iron ore and waterpower. Over the course of the 20th century, national industry has evolved from traditional sectors with lower added value, such as wood and iron ore processing, to modern industries with a higher degree of skill and technology input, such as automobiles and precision and specialized engineering. The change of priorities became even more evident in the 1990s, with the emergence of new research-intensive industries, such as information technology and pharmaceuticals, which replaced the more traditional engineering industries as the driving force of growth and business activity. However, traditional industries have been able to adapt to the new scenary to be more competitive helped by low energy costs. Electrochemical and electrometallurgical products as aluminum, ferroalloys, steel, nickel, copper, magnesium, shipbuilding, chemical and fertilizers continue to be an important part of the national industry and exports.

Due to the power in the production of hydrocarbons, a national industry of technologies and services associated with a high degree of specialization has been created. Some of the companies in this sector are among the most important in the world and work with the global oil industry.

By 2015, major industries included information technology (telephone, radio, and computer equipment), communications, pharmaceuticals, precision equipment (bearings and armaments), high-quality steel, automobiles, electrical motors and other electrical equipment, printed and published goods (including software and popular music), home and office furnishings, and processed foods. Several of the world's most sophisticated and diversified engineering companies are based in Skandinavia. They include, among others, Volvo, Saab, Scania, Electrolux, SKF, Kongsberg, Grundfoss, Danfoss, Lego, Norsk Hydro, Aker, Jotum and ASEA.

The automotive sector, one of the most important industries, has lived through major changes in the 1990s due to global restructuring and consolidation, but Saab and Volvo have emerged reinforced from the global automotive crisis due mainly to their commitment to green technologies, especially electric engines and hydrogen fuel cells. Volvo is one of the world's largest manufacturers of heavy vehicles and construction and heavy machinery.

Skandinavia also is a major manufacturer of pharmaceuticals and medical equipment with world leaders as Astra Zeneca. Skandinavia became the world's largest supplier of insulin and produce 30% of the world's hearing-aid spectacles.

Telecommunications and information technology has become one of the most dynamic sector in the last years, with Ericsson being the most outstanding company in that field but with many other national and international companies present in Skandinavia. The development of technologies related to fuel cells has been very important for the national economy since the 90s. NAtech is the world leader in this type of technology.

Handicrafts remain important, and Skandinavia stone, clay, glass, wood, and silver products are world famous.

In the world market, Skandinavian manufacturers, having a relatively small home market, have concentrated on the production of high-quality specialized items rather than those dependent on mass production. The industrial share of total commodity exports increased from 31% in 1951 to 50% in 1969, and to 79% in 2017.

Armament industry[edit]

Skandinavian arms industry's main customer, for whom they mainly build warships, planes, guns and equipment, is the Forsvaret. Military industry of Skandinavia is based on a high technological level and high quality standards in all its products, which makes the nation one of the world's leading exporters of weapons. During the last years the arms sales have increased substantially.

Services[edit]

As in much of western Europe, Skandinavian economy after World War II has gradually become service-oriented, and by 2017, the service sector accounted for 57.8% of GDP and 54.5% of the workforce. The subcomponents of services are financial, renting, and business activities (25.6%); trade, hotels and restaurants, and transport (14%); and other service activities (18.2%).

In recent years, tourism has increased its contribution to the national economy considerably. The outstanding beauty of the landscapes, together with the high standard of living and the sustainable economy have made Kalmar Union a key tourist destination for those who are committed to ecological and cultural tourism.

Government finnances[edit]

Budget[edit]

The results after operating and capital expenditure in the whole public sector has been overall surplus from the 80s. Only during the period 1996-1999 y 2009-2012 have been deficit. Because of this, the gross debt of the state is very small and represented only the 37% of GDP in 2017. Due to its low level of national debt, debt interests are very small and in times of economic growth it is more profitable in operational terms to invest the surpluses in the financial markets than to repay the debt. The central government avoids the temptation to increase spending which might overheat the economy (increase wages and eventually prices drastically) because of the low rates of unemployment and possible short supply of skilled labor and implements financial austerity measures to cool off the economy.

Government Pension Fund of Skandinavia[edit]

The Government Pension Fund of Skandinavia comprises two entirely separate sovereign wealth funds owned by the government of Skandinavia.

The Government Pension Fund Global, also known as the Oil Fund, was established in 1985 to invest the surplus revenues of the petroleum sector. It has over $1.9 trillion in assets, including 1.8% of global stocks and shares, making it the world’s largest sovereign wealth fund. It also holds portfolios of real estate and fixed-income investments. Many companies are excluded by the fund on ethical grounds.

The Government Pension Fund Skandinavia is smaller and was established in 1967 as a type of national insurance fund. It is managed separately from the Oil Fund and is limited to domestic investments and is therefore a key stock holder in many large Skandinavian companies, predominantly via the Bergen Stock Exchange. It is a key instrument in the industrial policy of Skandinavia and is used to support key companies as well as to favor and encourage the development of new technology companies.

Taxation[edit]

In 2017, the total tax revenue was 43.0% of the gross domestic product (GDP), one of the highest between the OECD members. The tax level in Skandinavia has fluctuated between 40 and 45% of GDP since the 1970s.

The relatively high tax level is a result of the large Skandinavian welfare state. Most of the tax revenue is spent on public services such as health services, the operation of hospitals, education and transportation. Revenue levels are also influenced by the important role played by oil and gas extraction in the national economy.

Unemployment and labour force[edit]

In contrast with most other European countries, Skandinavia maintains an unemployment rate around 2% or 3% of the work force since the 1980s with only from 1996 to 2000 and 2009 to 2012 being over 3%. During some years, specially in the early 2000s, this was accompanied by high and accelerating inflation, but the policies carried out by the government have managed to maintain unemployment levels below 3% and contain inflation below 2% per year. Labour force in 2018 increased from 2017 and is around 21.18 million people.

The traditionally low wage differential has increased in recent years as a result of increased flexibility as the role of wage setting at the company level has strengthened somewhat, but the egalitarian values of the Skandinavian society ensure that the wage difference between the lowest paid worker and the CEO of most companies is much smaller than in comparable western economies. This is also evident in Skandinavia´s low Gini coefficient. The hourly productivity levels, as well as average hourly wages in the Union are among the highest in the world.

Welfare state[edit]

Skandinavia has a broad-reaching welfare system, which ensures that all citizens and legal residents receive tax-funded education and health care. Nearly all vocational training for workers and most non-basic academic courses for non-students are privately funded. Expenses to medicine and dental care are partially funded. Parents have 12 months paid parental leave of which 2 months are mandatory for the mother and the rest can be used indistinctly by both parents.

Skandinavia has an unemployment insurance system called the A-kasse (Arbejdsløshedskasse). This system requires a paying membership of a state recognized unemployment fund. Most of these funds are managed by trade unions, and a high percentage of their expenses are financed through the state tax-system. Members of an A-kasse are not obliged to be members of a trade union. Not every citizen or employee qualifies for a membership of an unemployment fund and membership benefits will be terminated after 2 years of unemployment. A person that is not a member of an A-kasse, cannot receive unemployment benefits. Unemployment funds do not pay benefits to sick members, they will be transferred to a county social support system instead. Skandinavia has a countrywide, but county administered social support system against poverty, securing that qualified citizens have a minimum living income. All Skandinavian citizens above 18 years of age can apply for some financial support, if they cannot support themselves or their family. Approval is by no means automatic and the extent of this system has generally been diminished since the 1990s. After a reform by 5. January 2015, sick people can receive some financial support throughout the extent of their illness and not just for the maximum of 1 year as previously. Their ability to work will be re-evaluated by the county after 5 months of illness.

Skandinavia ranked the first in the European pensions barometer survey for the years 2015 and 2016. The lowest-income group before retirement from the age of 65 receive 120% of their pre-retirement income in pension and miscellaneous subsidies.

Disabled people can apply for social pensions; a lifetime financial support from the state. The extent of the support depends on the ability to work and people below 40 can not receive social pension unless they are deemed incapable of any kind of work.

The welfare system related to the labor market has experienced several reforms and financial cuts since the late 1990s due to political agendas for increasing the labor supply. Reforms were initiated with the abolishing of the labor market arrangement called efterløn (early-retirement-pay). Participation in this scheme was also open for self-employed people (farmers, fishermen, lawyers, and so on). Several reforms of the rights of the unemployed has followed up, halving the time unemployment benefits can be received from four to two years, and making it hard to regain this right.

The maintenance of the welfare state is achieved thanks to three main mechanisms:

  • Part of the benefits linked to the oil industry
  • Special rates to companies based on their benefits regardless of their origin
  • A tax system for labor income that is among the highest in the world

State ownership[edit]

Although the economy is completely liberalized, the state has large ownership positions in key industrial sectors, such as the strategic petroleum sector, energy production, banking and telecommunications. The government controls 25.7% of publicly listed companies. When non-listed companies are included the state has an even higher share in ownership (mainly from direct oil license ownership).

Trade unions[edit]

Around seventy five percent of the Skandinavian labour force is unionised. For most unions there is a counterpart employer's organization for businesses. The unions and employer organisations are by law independent of both the government and political parties, although some of them maintains close links to some parties.

The unionisation rate among workers is exceptionally high in Skandinavia. In 2016, blue-collar density was 72%, and white-collar density was 78% (full-time students working part-time excluded). There are two major confederations that organise professionals and other qualified employees: the Union Confederation of Professional Employees and the Union Confederation of Professional Associations. They are both independent from Kalmar Union's political parties and never endorse candidates for office in political elections.

There is no minimum wage that is required by legislation. Instead, minimum wage standards in different sectors are normally set by collective bargaining. About 95% of all workers are covered by collective agreements, in the private sector about 90% (2015). The high coverage of collective agreements is achieved despite the absence of state mechanisms extending collective agreements to whole industries or sectors. This reflects the dominance of self-regulation (regulation by the labour market parties themselves) over state regulation in Skandinavian industrial relations.

Skandinavian cooperative movement[edit]

The Skandinavian Cooperative Movement (Andelsbevægelsen) is a cooperative movement with profound influence on the economical, organizational and industrial development of Skandinavia from the early 1900s to nowdays. The movement originally emerged in rural communities and was used widely in farming and the industrial development of the agricultural industry. It soon diversified into consumer organizations and in modern times, housing, energy, retail and banking among other sectors. The cooperative movement has been encouraged from the successive governments, at first by those of Denmark, Norway and Sweden, and later from the government of Skandinavia as a fundamental tool in the policies of strengthening of rural areas. In addition, it has been strongly influenced by the Social Doctrine of the Church and the theory of Distributism.

The cooperative movement employs a means of economical and productive organization under the leadership of consumer- or producer-controlled corporations, where each individual member owns a part of the corporation. Members of the cooperative corporations seeks to share the economic stress of producing or buying goods, and divides the eventual end-year financial surplus amongst themselves. The specific rules of ownership varies greatly between individual cooperative corporations, as some divides the financial risk equally, while others give more power to the most financially involved individuals.