Mr. Roger Schjerva
State Secretary in the Ministry of Finance, Norway

Government Transformation and Social Income Redistribution

Balanced Economic-Social Development and Building up a Harmonious Society
Haikou, Hainan, China. 10-11 December 2005

1. Greetings

Your Excellencies, ladies and gentlemen.

It is a great pleasure for me to attend this conference here in Haikou, organised by the China Institute for Reform and Development (CIRD) together with Norwegian, Swedish and German institutions and sponsors.

First of all, I would like to thank the organisers and the other hosts, for the great hospitality and friendliness we have met here in Haikou.

I am looking forward to the opportunity this conference gives me to discuss welfare and redistribution with political colleagues and experts.

2. About China

As you know, during the last decades China has experienced a tremendous and very impressive economic growth. After 25 years of reform and opening up to the outside world, China has established a framework for an economy with public ownership as the basis, but with a very dynamic private sector developing parallel to the public activities. The sustained and rapid economic growth in China has impressed the whole world.

China is important for Norway in many ways. For example your products of high quality are sold in our markets at low prices. Your demand for oil give high oilprices and higher revenue for us. Your growth gives us both high oilprice and a low inflation rate. Some of us have given this effect the name double Chinese cocktail.

According to the latest analysis by the investment bank Goldman and Sachs, China is ranked as number 11 among the countries with the largest growth potential. But of course Norway beats you, we are ranked as number 5.

As far as I understand, China’s further development is now confronted with a number of challenges that have to be dealt with: reduce expanding income differences, how to achieve a balanced regional development, how to deal with provision of public goods and services, and how to generate good employment opportunities and social welfare for people in all parts of the country. Topics that are related to: education, health care, social safety nets, taxation, as well as other aspects related to social income redistribution.

As you may know, after the World War II, Norway and other Nordic countries have followed a policy, which in some contexts has been termed a “third road” or the “Nordic model”. The model has also been called a compromise between capitalism and socialism. This political model is characterised by giving consideration to both efficiency and equity in economic development. Why have we chosen this model? As I see it, it’s all about uniting two basic moral principles: On one hand all individuals have the same value and on the other hand every individual should be paid according to their effort. In practice we have been able to combine a high and sustained economic growth with a universal social security system. Having said that, we are of course also facing many challenges relating to how to keep and develop our model further in a globalised and rapid changing world economy. Furthermore, the strong increase in the number of retired people will in the near future put a large pressure on the public budget.

To finance this we have established a petroleum fund. Most of the income from the oil is being saved in this fund. This fund is investing in selected countries. If the fund is to invest in a country, the country has to fulfil certain criteria. To be placed on the country-list, the country has to have an open market for foreigners and a legal system which protects the investor’s rights. It is also required that the country has a certain minimum of political and macroeconomic stability. China was placed on the country-list in 2004. Today the fund has only invested about half a billion NOK in China, but this will probably rise.

3. The Norwegian welfare state anddistribution of welfare

The Nordic countries have established a political-economic system in which the government sector plays an important role in trying to reduce social inequalities along several dimensions.

Social security and quality of life for all inhabitants are the most important goal for the Norwegian government. How is our political system solving this? Let me exemplify this.

First: The Norwegian health service is financed almost entirely by the government. However, public health service depends not only on the public health and care service but also on housing standards, working conditions, the external environment and the individual living habits. Therefore, improved working conditions and better living conditions in general, are important from a health policy point of view. “Good health” is not at product of the health sector alone, but comes as a result of an overall welfare policy and as a consequence of how the society as such functions.

Second: Education for all is another central element of the government’s policies for improving the individuals’ quality of life, to increase the value added of the society and to secure a better distribution of resources and income. This close connection between education and welfare goals is the main reason for having publicly financed schools and universities in Norway. I would like to stress the importance of this, because I believe that a well functioning welfare society must be based upon the distribution of knowledge and education to the whole population, and this is the government´s responsibility to achieve. For example in Norway, as well as in the other Nordic countries, the government provides loans at lower interest rate and scholarships for young people who wants to go to the university. Through arrangements like this, we seek to create equal opportunities for everyone. In that way everyone gets the chance to participate in the economic development.

Third: Services for the young and elderly. This is important, not only for the young and elderly, but also for all women. The government’s effort has made it possible for all women to participate in the labour force. The Nordic countries have the highest women participation in the labour force in the world. In this way the productive workforce is being doubled. We double our access to competence, talents and effort from the population. Women liberation makes economic profit.

In addition, it is an important policy goal to reduce income differentials. This is in part done by providing a basic safety net to ensure that everybody should be able to live above a certain minimum level of living standard. There is also an extensive range of social security benefits in cases of sickness, disability, unemployment etc. This extensive welfare state has of course to be financed, and this is the reason for having a relatively high level of taxes in the Nordic countries. In order to reduce inequalities further, taxes are higher for people with high income and wealth than for people at low and medium income levels.

4. The Norwegian regional policy

The general differences in social development between rural and urban areas are low in Norway.

The low level of rural-urban development imbalances in Norway is reflected not only in the fact that rural residents have approximately the same income level of social benefits and public facilities as urban residents. In addition, they also have the same democratic rights and development opportunities. As a matter of fact, voters in peripheral regions are favoured through a higher representation in the Norwegian Parliament (the Storting).

5. Presentation of the new Government of Norway (Soria-Moria)

The national election in September gave Norway a new government. The people once again elected a government which has its foundation in the Nordic model. This government, which I represent, feel a strong obligation to pass on the best traditions of the Nordic model into a new future. In the declaration we say:

“

The Nordic model is based on universal welfare schemes, in cooperation with and between the workers’ and employers’ organisations, and a competitive private sector. A high level of welfare and economic growth, high productivity and low rate of unemployment are all results of an active public sector which has, in cooperation with the business sector, organisations and the population created a good society. The new Government of Norway will build on these experiences.”

Further we say in the declaration, something that also is important for the policy of distribution:

“The economic growth has to be sustainable so that future generations possibilities to fulfil their needs is not undermined.”

In other words: Distributions among generations.

6.Concrete cooperation between experts and researchers

The current cooperation between Chinese and Norwegian researchers and policy makers on topics we are to discuss at this conference, will be fruitful in terms of exchange of knowledge and insight.

We hope that this conference can be a step to further develop long term research cooperation between China and Norway. Policy development in this area should be based on facts and the best professional analysis available. I am sure this conference will contribute to that.

I am looking forward to the speeches that are going to be presented here at the conference and to interesting discussions and exchange of opinions.

Thank you.