Norwegian Minister of International Development Heikki Eidsvoll Holmås discusses his country’s theories and actions in creating greater sustainable growth in developing nations
How do you explain Norway’s success, stability and wealth?
Norway has fair distribution of income. From 1935 onward to 1989 there was a decrease in income differences in Norway. After that we had an increase and it has gone down again over the last few years of our government. Equality is important because equal societies are better societies than those with huge income differences. This is simply because people feel like they are in the same boat. People take care of each other and there is trust. If you look at other economies around the world and ask economists, they will tell you that trust is key to a well-functioning market. It is good for the people, the nation, and the markets. This is what we have discovered in Norway and all Nordic the countries. We are very closely linked together.
It is possible to draw a Scandinavian link even though we have quite different systems. It is true also that we are closely affiliated to the UK. Fair distribution is key to our development policies because it is good for our countries. In countries with low-income inequality we have people who live longer, less teenage pregnancy and lower crime rates. That is why we should not split the world into ‘rich’ and ‘poor’ countries, but rather look at the individual countries and see what they are doing with their income distribution policies. For instance, how can I go to a low income, single mother in Norway and tell her that her tax money should go to sponsor development policies for a country that does nothing to let the rich people pay for the development of the poor?
That has been key to my development policies.
We support distribution in income in our policies. Making sure that countries get a large chunk of the economic development in the country has been key to us. We see there are many countries where most of the money goes to a small number of people that then go abroad rather than staying in the country. For example, in Norway we have 78% taxation of oil revenues, which leads to a high income to many people. We make certain that the money goes to the wellbeing of everyone, not only to the top people and a few oil companies. That has been key to our natural resources policies.
As mentioned earlier, there is a fresh new vision in the international development arena. There is a strong focus on women empowerment and the concept of owning your own solutions is getting momentum. We now talk about partners and no longer beneficiaries. We talk about stakeholders’ participation and not top-down decision making. How has Norway adapted to this new framework for development and NGO empowerment?
One thing that has been important to us is local ownership. That is key. Everyone is talking about it, but people need to do something about it. It has become a cliché. But our key issue is to shift our development processes from saying that we will supply the different services that the country needs to making certain that A. that country gets the income to make it possible for it to finance its own solution, and B. that the country has the capacity to build it. It is about going from building roads to the making certain that they have the capacity to build their own roads and going from handing over the money for the roads to making certain that they have a tax system that works to get the access to the amount of money that is needed.
If you look at the lower income or middle-income developing countries, such as Guatemala or Mexico or El Salvador, they have a tax share of GDP of 10-11%. In Norway we have 44%, Sweden and Belgium have 48%, Brazil is going up to 34%. For sure you cannot finance any sort of well-functioning welfare system on education, health, roads or infrastructure if you don’t have any money. You need to have a higher tax share. That is part of what I’m talking about with fair distribution. It is about getting a state to a point where they can self-finance.
But in these countries, the work and economic transactions are mainly informal and hence harder to collect taxes.
Yes. That is in really poor countries. In some of the middle-income countries it is different. Brazil, by increasing its minimum wages and working hard to formalise the economy, has increased the amount of formalised work in the economy. That is a middle-income country.
I think that one of the things that we have learned in Norway over time is that instead of going after only the big fish when it comes to taxation, making certain that you have a broad tax base is the key. You don’t have to have very high taxes, but you have to make certain you have a broad base and people are paying them. There is a double benefit to that. The first is that you have a broad base, so you get a larger formalisation of the work and you get better statistics and a better overview of the economy as a whole and you can regulate it better. The second is that you reinforce in people the concept of citizenship, because if you are paying taxes, you demand.
One thing that is important if you want to be a democracy is to make certain that the citizens of the country point their demands at the people who are responsible. People in poorer countries ask us for help, but we say that we will help their government but they have to demand that their government helps them because it’s really them who should be the responsible party, not us.
It is destabilising to just hand out money. If you want to spend your development aid properly, it is making certain that you are not building up parallel structures to the governments of the states. In some situations, such as war conflicts, it could be a temporary solution, but you don’t want to build up a parallel situation. The state and the government need to take responsibility of its own citizens and you need to make sure the people are demanding things from their governments. Paying a little bit of tax stabilises the state because if you take their money, they will demand things.
Tracking the result of development projects is not an easy task, especially since many projects are not measured in a quantitative manner and their success does not depend on quantity. What monitoring tools do you have from the Ministry to see if the progress you plan is happening and yields results?
There are two things. One is that we have increased our systems to make sure we avoid corruption. We have done a lot on that regard. There is a massive increase in the cases where there is suspected corruption, which is good because I don’t see it as an increase of corruption but rather a sign of us getting an overview of what we are facing. We are also demanding the money back in some of the cases where it is right and we are pressing charges against the local authorities. Fighting corruption is really key.
The other side of that is that our general auditor builds and supports countries in building their own general auditor. Many countries are doing that. There was a big corruption case in Uganda recently. I am glad that it was not ourselves that figured it out, but the general auditor in Uganda. That is the best way to fight corruption – by making sure you have the systems in the countries to fight it themselves.
The other way is that we are the most open agency in both corruption and transparency when it comes to disclosing all of our facts and figures. We are also developing more and more transparency on how money is being spent. This is all on the internet and it is possible to access it online. That should be used everywhere as a way to fight corruption. We are also doing massive reporting more and more. We are developing the way that we are monitoring the progress. We want to go from seeing what has been done to what are the results of what we are doing. That is very difficult. Fighting for human rights is very difficult; it is about what kinds of changes should be made in society and that is very long term. We need to find different ways of making certain that we see that the things we want are happening. It is easy to see how many vaccines have been produced, but it is harder to see what the impact has been on the health of society. Both sides are equally important, though, to have a well-functioning healthcare system.
The most important lesson learned from Norway is that it is important to promote gender equality. I think it is morally right that men and women have equal opportunities. The battle is fought on all levels of society. One is the right to decide their own sexuality; this has to do with contraception, abortions and rape. The other side is the economic independence. Another side is representation. We have some good figures in Norway. If you look at women in Norway, we have almost the same participation in the workforce of women and men. That is more important to Norway than all of our oil wealth put together. Many know that oil has made us rich, but our wealth relies on the women in Norway who are working in our society. If you do not have oil, you know where your wealth is – it’s in making certain that women have equal opportunities. If you do have oil, there is no reason to run stupid policies. That is really important. We have policies to promote women participating in the work force. It has to do with representation.
If you don’t have equal representation of men and women, how can you ensure that you have different experiences being represented?
We now have a 50-50 share in the government of men and women in Norway. We have had at least 40% women in all parts of government since 1986. Now we have 50%. We’ve had a very strong promotion of kindergarten so that we have a right to school from age one. We have a very strong focus on men taking their share of parental leave as well. These are big political issues in Norway and it has been over the last 10-15 years.
I’m not saying that developing countries need to go there now, but I am saying that you need to have the representation and you need to have decision-making and you need to let women control their own bodies. There is no way a country can be able to sustain a growth rate if the average women is having six or seven children. That investment is so massive it would take away from everything else. It is both right morally and economically. Gender equality is highly promoted.
Also we promote renewable energy. We need energy for development. We need sustainable, renewable energy. The extra cost needed for renewable energy is something that developed countries should contribute to make certain they have the investment and the investment is being done in green energy rather than fossil fuels because the world cannot sustain this if all developing countries should enter the same trap as we walked into. We need to shake it off in our own countries; this extra investment is much needed.
The big problem with renewable energy is that the capital cost is very high but the operation cost is very low. It is expensive to invest in the first place, but the sun itself is free. It is very expensive to build dams, but when it rains, it rains – you don’t have to pay for it. Same thing could be said about wind. There is a risk in unstable countries that makes it more expensive, which leads them into the diesel business. Electricity is very expensive so the poorest countries have the most expensive electricity while the richer countries have the least expensive and that is simply unfair. And it is unsustainable.
What is the coordination between your ministry and private companies?
There are two ways. Investment and access to investment in developing countries have been a priority for my government. We have increased our spending in Norfund because they have the knowhow of different countries. They specialise in different countries, particularly in sub-Saharan Africa and also in the energy sector on making certain that you get the investments there. They are a for-profit non-profit organisation. All the money that is being invested, they get back in earnings and they reinvest it. It doesn’t go to the state. It is for-profit investments, but it all goes back into new investments in developing countries. It is their knowhow. The big oil companies go where the oil is. They usually grow with them. We have an oil for development programme and a tax for development programme that we have invested in many countries where the Norwegian companies are present. I am very interested in making certain that these countries get a share of their income.
The oil for development programme is our most asked for programme. We make sure money is spent for all people, not just certain people. If a Norwegian company wants to enter into a country, they want to do it in a decent way and they want to draw upon our knowledge of development aid because we have a history and a trust between the government and the country. They want to be perceived as a decent company. We could typically do development aid to support the government so that they have a strong capacity to be able to tackle problems should they arise. This is some of what we have done in Zambia where we have had a tax for development programme, where they have increased their tax income gains by 25% from 2011 to 2012.
I’m not saying that this is only because of Norwegian development aid, but it is definitely the work that we have been doing together with them all the time to make sure that they have a fair share of their income of the natural resources. This is a very good example of how we want to do more of our development policies by making countries be able to draw more of their own income and utilise their income potential through taxes and decent ways of organising their natural resources, and on the other side, making certain that everyone is able to benefit from the income of the country so you avoid the resource curse and turn it into a blessing instead. There, we have a lot of experience and I think this is an experience we need to share with our counterparts in other countries.