Norway and Sweden are regularly lauded as economic and social super-models. Free market capitalism and a generously backed welfare state? Tick. A commitment to private ownership and a robust public sector? Tick. Strong growth balanced by high levels of redistribution? Tick again.
That’s quite a bunch of paradoxes to unravel when trying to grasp the success of both: Sweden and Norway are regarded as the gold standard when it comes to egalitarianism and wealth creation.
But with this usually come several pre-cooked assumptions of high taxation, salaries and higher levels of social cohesion.
Tax, herrings and great furniture
Some slight laziness is present in these expectations. One misnomer is that Scandinavian corporate taxation is uncompetitive. It’s not. Many Nordic nations have lower corporate tax rates than the US as well as a greater degree of free trade in some areas.
Inequality is on the rise. According to the OECD, growth in social and economic inequality has risen faster in liberal Sweden since the 1980s than in any other OECD region, helped by the deregulation of credit plus government tax cuts.
However Norwegian and Swedish income tax does tend to raise a lot of revenue because taxation is rather flat. “They tax most people at these high rates, not just high-income taxpayers,” acknowledges taxfoundation.org.
One major factor responsible for Scandinavian success – it is rare to work more than 40 hours a week or even work late – is high productivity. Sweden ranked second globally (just behind Switzerland) in the Global Innovation Index which scores economic performance on 81 distinct indicators.
What is the Nordic model, exactly?
The Nordic Model is Scandinavia’s attempt to blend free market economics with progressive taxation and state provision of essential services, namely energy, public transport and education. The Nordic Model rejects some of the neoliberalism of the West with an emphasis on resources allocation, free healthcare, gender equality and the promotion of family life.
If this sounds slightly suffocating the Norwegian School of Management claims greater collectivity means less dependence on others – and more individual freedom.
Including the freedom to do very little of anything. Come July, much of Sweden closes down. Even some police stations and hospitals shut their doors. Long summer breaks, so regional culture claims, are linked to higher overall annual productivity: long work breaks replenish job performance.
The Nordic Model has proved durable and successful. But it faces, like most other European countries, some fracturing from right-wing populist political parties as economic immigration increases – more of that shortly.
Higher house prices in both countries not to mention higher personal debt levels are also creating further pressure. It’s not all perfect.
Norwegian wealth is recent
Peace-loving, progressive Norway (like Sweden) is a creation of the 20th century. Before this time the region was as tribal as most other European regions.
Economic success in the land of lakes, fjords and forests should be seen in the historical long run: half a century ago Norway was one of the poorest countries in Europe with more than 40% of a household budget being spent on food.
Striking oil in the Norwegian sector of the North Sea – a rich seam of oil and gas deposits was discovered at Ekofisk 180 miles out from land in 1969 – changed all that.
At the time Norwegians had come close to giving up on discovering oil on the Norwegian Continental Shelf. But US technical expertise from the Phillips Petroleum Company ultimately shattered OPEC’s grip on the global oil market and made Norway rich.
Only 4% of Norway’s oil fund assets can be spent every year (though many Norwegians would understandably like to see that proportion rise). Barry Bosworth, an economist at the Brookings Institution, told ABC News in 2014 that the Norwegian fund should be regarded as a model way to run a sovereign wealth fund.
"Norway has done an excellent job of saving and investing a portion of its oil revenues for future generations.”
Sweden’s prosperity is a ‘quiet revolution’
Sweden’s rise to prosperity and stability does without the rocket fuel of Norway’s North Sea oil and gas reserves. What differentiates the two reaches back to 1945.
Sweden emerged out of the Second World War with much of its infrastructure intact due to its decision to stay neutral (indeed Sweden’s neutrality made war a boom time for exports). In the early 1950s Swedish government spending was below that of the US. It went on to make up for this with a massive, and ultimately unaffordable, public sector hiring binge between 1970-1990.
By the 1990s the country was in dire financial straits. Between 1990-1993 unemployment took off and GDP crashed by more than 5%. Sweden’s real estate boom crashed and burned. Welfare spending was out of control.
During the noughties there was widespread finance, media and telecoms deregulation and an increased focus on exports. Long term debt levels fell.
In 1993 Sweden’s public debt represented 70% of GDP. By 2010 this had slumped to 37%. Typically Swedish, this economic change was achieved by quiet revolution. However, Sweden’s public sector still remains high by most West European standards.
Trading in Norway and Sweden
Norwegian and Swedish stock markets managed to avoid some of the worst of the eurozone crisis 2007-2009 sell-off. This was helped by the fact that both countries possess their own currency and debt levels were universally low, compared with much of the West.
Low central bank interest rates also played their part. However, the appreciation of the euro in 2017-2018 has meant headwinds for some Scandinavian investors (though not for Finland which adopted the euro in January 2002). There is a wealth of stand-out blue-chip names.
Bear in mind that there is substantial ownership of public companies in key strategic economic areas, particularly with natural resources. Beneath Scandinavia’s understated low profile hides some impressive stock market returns.
According to Credit Suisse, Swedish real returns were worth 8.7% a year between 1965-2015 while Norwegian returns were worth 6.3%. Both these results are ahead of US (5.3%) and other European benchmarks for this period including the Credit Suisse World Index (5.0%).
For shorter term traders, the Scandinavian stock market offers plenty of opportunity because so many stocks are under-researched – lots of inefficiencies to be grasped and taken advantage of.
Stock market basics – in brief
Norway’s main share trading market is the Oslo Børs which has roots going back to 1819. The Oslo Børs followed London’s October 1986 Big Bang by going part-electronic in 1988 while taking the full electronic plunge by 1999.
To make trading cost-effective the Oslo Børs has co-operative links with the Copenhagen Stock Exchange, Iceland Stock Exchange and Sweden’s Stockholm Exchange.
Norway’s main stock market index is the OBX which includes the top 25 most liquid Norwegian stocks on the index. It opens at 9am and closes at 4.30pm local time. The Oslo Børs All-Share hit an all-time high of 940.47 in January 2018 and a record 13.97 low in January 1983.
Sweden’s main stock market exchange lists more than 300 Swedish stocks and its history stretches back to 1863. Today it’s part-controlled by the Nasdaq OMX Group and has a market cap of 5.521trn SEK.
According to Trading Economics, the OMX 30 hit an all-time high of 1719.93 in April of 2015 and a record low of 98.86 in November of 1987. Normal trading hours are slightly longer than Norway’s at 9am-5.30pm.
Corporate big-hitters – Norway
On a country-by-country basis Norway’s Statoil – soon to be re-branded as Equinor – with revenues of €94bn is a true giant though with a 67%-33% ownership split between state and other investors. On the communications front there is Telenor (131.4bn NOK). DNB is an enormous and highly diversified Norwegian financial player (revenues of 54bn NOK).
Norsk Hydro (81.9bn NOK) is a massive aluminium and renewables player while Norwegian Orkla Group is a retail and branded goods conglomerate (revenues of 40bn NOK). Yara International is Norway’s biggest agri-chemical company (revenues of 95.2bn NOK).
Corporate big-hitters – Sweden
The list of Sweden’s publicly traded companies is much more extensive and headed by AB Volvo with revenues of $35,269m (2016), telecommunications player Ericsson ($26,004m) and multi-national fashion retailer Hennes & Mauritz AB ($22,618m), known better as H&M. A formidable ‘fast fashion’ player.
In the background is a wealth of other publicly traded operators straddling banking (Nordea, Svenska Handelsbanken), electronics (Electrolux), food and drugs (Axfood, AarhusKarlshamn), general industrials (Atlas Copco, Sandvik, Hexpol and Heliospectra), automotive (Loomis) plus healthcare (Vitriolife, BioGaia).
Defensive plays – take your pick
Many mainstream Scandinavian shares have strong defensive qualities with a substantial utility presence: mining, oil, agriculture and consumer staples though be aware too of cross-international ownership and currency volatility.
International mergers and acquisitions can also have a profound knock-on effect of Scandinavian business prospects. In March 2018 President Trump blocked Broadcom’s proposed acquisition of Qualcomm which supplies Swedish tech players Ericsson and Nokia.
Ericsson and Nokia had profound worries about R&D being slashed had a Broadcom-Qualcomm merger gone ahead. Longer term Nordic tech companies are also under increasing pressure from South Korean and Chinese players.
Nordic trading nuts and bolts
Sweden, in particular, has a high ratio of stock market investors compared to its European neighbours. More than 80% of the adult population are exposed to stock market funds.