THE BLOG
04/24/2006 08:27 am ET Updated May 25, 2011

The Oil Industry Is Driving Away With Our Future- The Norway Solution

Given the prices we are paying at the pump, given the egregious profits rung up by Big Oil and the oil patch generally, given the influence oils' billions has over our elected officials in government, given the perverse twists and turns that the oil patch has had on our policies, both foreign and domestic, given the wake up call exemplified in the grossness of Exxon-Mobil's retirement package for their Chairman Lee Raymond, the time has come for us as a people to rethink this nation's relationship to the oil industry.

In the world of oil, the word "nationalization" most often brings to mind nations where government ownership of the industry has meant technological stagnation, corrupt and politicized management, and squandering of the riches oil brings. But it doesn't have to be that way, and Norway is proof positive of the benefits the United States could reap by intelligent government management of the oil to be found on federal/public lands, the continental shelf, and with environmental sensitivity, on our nature preserves and wildlife refuges.

Norway is now the world's third largest oil exporter, behind only Saudi Arabia and Russia. The oil that it struck in 1969 was offshore, on continental shelf owned by the government. With a tradition of state development of natural resources, Norway rapidly created an oil ministry, a national oil company to develop the oilfields, and a Petroleum Directorate, which would hire the necessary experts and manage the companies invited to join the project. Significantly, after the early oil boom turned to bust and the profits were frittered away in inflationary spending, Norway set up a Government Petroleum Fund to keep the money in trust for future generations.

The fund is run on strict Norwegian principles by Knut Kjaer, a soft-spoken former central banker who rides the tram to work and lives on a civil servant's salary. But he gets top-notch returns -- "much better than the big pension funds," says an admiring economist -- and the fund had mounted to $198 billion nearly a year ago, in June 2005. Since then, added dividends have been running between $2 billion and $3 billion a month.

The fund is conservatively invested, with 59 percent in bonds and just 41 percent in equities. Though total returns have been running at 8 percent annually, the government draws down no more than 4 percent, leaving the rest to compound.

Crucially and wisely, the fund is also barred from investing in the local economy. Norway learned from its early excesses and also from the lessons of such countries as Mexico, Nigeria, Venezuela, and 16th-century Spain, all of which fell victim to the "resource curse" that produces inflation, plummeting currencies, and economic decay. Countries rich in commodities rarely do as well as nations that live by their wits, so Norway has resolved to keep most of its wealth safely offshore, with teams of professional money managers advising on investments in their countries. (Among the American teams: T. Rowe Price and Wellington Management.)

The payoff: Norway is the only large oil exporter with a solid industrial economy. Its productivity rivals that of the United States, and its high-tech startups include TOMRA, a recycling pioneer, the Web browser OPRA, and FAST, an Internet search engine. Best of all, Norway's future is secure. The national debt has been paid off. And even if the wells ran dry tomorrow, Norway would have enough in its petroleum fund to pay the entire cost of its armed forces (not by way of comparison, thank you), police, and ambulance service in perpetuity.

We could do a lot worse than follow suit, setting up a federal trust to handle the revenues from oil found on federal land/continental shelf and a national oil company to manage the development of our vast potential bonanza in Western federally-owned oil shale (over a trillion barrels, four times the declared reserves of Saudi Arabia- see "The Oil/Gas On Federal Lands Belong To Us" 3/24/06). The profits should go to a fund promoting the development of alternative energy sources, expanding our mass transportation infrastructure and on in order to get the fossil-fuel monkey off our back.

Predictably, my proposal will be attacked as nationalism, socialism, or worse. Yet given the oil industry's track record, their obscene profits extracted on our backs, and the watershed retirement package that was rewarded by Exxon-Mobil to their retiring Chairman, Lee Raymond (see "Exxon's Lee Raymond, Steward Of The Free Enterprise System" 4/15/06) it is time to end this insane industrial welfare. Handing over the profits of our natural resources to the oil patch must come to an end. Whose oil is it, anyway?