The Position of Institutions in the Development of Norway

اقتصاد و توسعه منطقه ای

Article 5, Volume 30, Issue 26, February 2024, Pages 124-162   

Document Type: Original Article

DOI: 10.22067/erd.2024.83315.1188

Author

Reza Rahmati^*

Assistant Professor, Department of Political Science, Bu_Ali Sina University, Hamedan, Iran.

Abstract

1- INTRODUCTION
Traditionally, oil has been mentioned as a commodity that has a distant relationship with development. Consedring the oil producing countries, especially the countries that converge with the Middle East region in terms of geographical, political and bio-economic conditions, shows that the relationship between oil on the one hand and the capabilities of the government on the other hand, there are in this area.
It seems that a common denominator is that the government has been powerful in terms of control but weak in terms of political, economic and cultural capabilities. Regarding the reasons for underdevelopment in countries that have abundant resources, many perspectives and levels of analysis have been discussed; economic, political, social and even cultural reasons. Therefore, the view from the angle of political economy can be explanatory to a great extent.
However, in some countries, oil is not only considered the main variable of underdevelopment, but also has become a part of the development process. Norway is one of the countries where oil has not been the only cause of backwardness, but in a systematic process, it has acted as an important part of the realities of the system based on public welfare and social services.
The question that arises here is what caused Norway not to be captured by the mystery of "resource curse" and "Dutch disease"? In response to this question, the hypothesis of the research is that the institutional capabilities in Norway have led to the formation of a powerful government along with other institutional resources and these economic and political institutions are capable both in oil production and the allocation of oil revenues in the national budget and in the system. Their distribution shows a developed performance.
 
2- THEORETICAL FRAMEWORK
The important issue is the effects of the type of political systems and political institutions similar to the government on the levels and quality of the economy. In addition, according to Daron Acemoglu and James Robinson, subsequently, the effects of political institutions or political alignments on economic relations cannot be hidden (Acemoglu & Robinson, 2012).
Therefore, economics as the science of understanding the optimal and productive human behavior is affected by politics and political processes, and politics as "authoritative allocation of values for a society" (Easton, 1957: 383-400), or "struggle over authority" (Lindblom, 1997) is affected by economic institutions. Therefore, the institution's role in both economy and politics is considered a central role. Institutions are defined from different perspectives and levels. Of course, the definition of institutions also suffers from the same plague that other concepts in human sciences suffer from; It means lack of consensus in the definition.

1. Institutions

Among political economy thinkers, there is less consensus definition of institution, even among institutionalists, there is no single definition of institution, each thinker has chosen an independent definition of this concept based on his research flow or intellectual project. Some of them have defined institution as follows: a set of behavioral rules created by humans in order to manage and shape human interactions, which helps them to some extent, expectations from have the actions of others (North, 1990).
One of the most utilitarian definitions of institution was provided by Hamilton, an institutional economist (Hamilton, 1932: 84). He considered the institution as "an intellectual or practical path regarding the prevalence and permanence of a certain group that is engraved in the group habits or customs of a people". This definition explains Veblen's previous definition of institution as "fixed habits of thought common to all human beings" (Veblen, 1919: 239).
Or with the same interpretation of North, they are considered "the rules of the game in society or the limits invented by humans that shape human interaction" (North 1990: 3).
 

2. Development in the Attitude of Institutionalism

Some believe that institutionalism lacks a systematic core theory (Hodgson, 1998: 174) and therefore, institutionalism has a gradual view of categories similar to development, which means its lack of theoretical coherence.
The lack of institutional resources causes the rule of law not to exist, or the rule of law suffers a systematic weakness. This is the reason why strong economic and political institutions lead to the formation of a strong and powerful government. Some researchers even argue that institutions can differentiate the quality of use of governance and even the quality of statecraft. Ideas similar to that oil causes the formation of rentierism. The rentier economy is a sick economy. Oil makes governments addicted to rents and they are the result of an understanding of the relationship between resources and development, which confirms that countries with rich resources are facing setbacks in terms of development.
This idea follows that "institutions are weaker in countries with rich resources" (Van Der Ploeg, 2010).
The starting point of this idea is, on the one hand, the theoretical formulations related to rentierism, and on the other hand, the empirical evidence regarding the underdevelopment of resource-rich states.
Rich resources cause an increase in resources and capital accumulation by the government and ruling elites, an increase in resources causes political rulers to become economic investors, windfall resources make the government independent from all political and economic institutions, and the background It creates a big and fat government that intervenes in the public and private spheres. A big state not only does not provide the basis for the formation of economic and political institutions, but also becomes a political super-institution. The super-institution of the government takes the place of the government as an institution of institutions and an institution alongside other institutions. By taking over the system of extraction, production, distribution and redistribution, the government's super-institution has ordered the economy and this issue causes the creation of an institutional vicious circle.
 
3- METHODOLOGY
The current research is applied-developmental in terms of its purpose and descriptive-analytical in terms of the researcher's approach. Documentary method was used to collect data and "grounded theory" method (institutionalist theory) was used to analyze them, which was introduced in the theoretical foundations section.
 
4- RESULTS & DISCUSSION

1. Democracy

Authoritarianism means anything other than empowering the government. Authoritarianism means making rulers and political institutions unaccountable. They use the main sources of rent and the result of this use of rent sources is the monopoly of power in the hands of the governing body and the closure of economic and political processes. Ranked first in the Economist Intelligence Unit's 2021 World Democracy Index, Norway has a very strong democracy. This country respects the civil liberties of its citizens and the government is held accountable by civil society actors and independent media.
 

2. Tax

Based on development indicators, it seems that there is a relationship between development and a strong tax system (Besley & Persson, 2013: 110-51). Not relying on oil for distribution resources, and relying on a strong tax system, has led to the formation of a strong democracy in Norway.
 
Chart number (1): Personal income tax in Norway (1995-2022)
 
 
(Tranding Economics, 2023)
 

3. Social Welfare

Social Progress Index (SPI) measures the level of social and environmental needs of citizens in countries. Fifty-four indicators in the field of basic human needs show the foundations of prosperity, the opportunity for progress and the relative performance of countries. This list is published by the nonprofit organization Social Progress Imperative and is based on writings by Amartya Sen, Douglass North, and Joseph Stiglitz (Economist Intelligence, 2013). The situation in Norway is at a tipping point. Norway, having a social-democratic government, has created a situation that has been placed in the first place in the social progress index in terms of social security measures.
 

4. Economic Freedom

The economic freedom index is an annual index and ranking that was created in 1995 by the Heritage Foundation and the Wall Street Journal to measure the level of economic freedom in the countries of the world. The creators of this index claim to have adopted an approach inspired by Adam Smith in The Wealth of Nations that "fundamental institutions that protect the freedoms of individuals to pursue their economic interests lead to greater prosperity for the larger society." They become" (Heritage, 2023a). The welfare states of the Nordic region are known as the states that follow the social-democratic-free market hybrid economy approach (Rahmati, 2020: 235-195). In fact, from an economic point of view, they are considered to be among the protectionist countries or the welfare state (the government that provides social and welfare services to the social classes). Norway rank is 10th among 45 countries in the European region. Norway's economy has registered an overall 2.9 points of economic freedom since 2017, with increased points for the rule of law. However, Norway's economy is still under pressure from excessive government spending (Heritage, 2023b).
 
5- CONCLUSIONS & SUGGESTIONS
The existence of economic-political institutions is an important factor affecting the formation of democracy and its determining indicators. The formation of democratic political discourse in contrast to authoritarianism can cause greater accountability and transparency in the political system and the empowerment of strong social and political forces in the political environment.
In this article, focusing on the subject of economic and political institutions, an attempt was made to examine economics and politics through the lens of institutional discourse. An attempt was made to examine the case study of Norway based on indicators obtained from institutional studies, hence indicators similar to democracy/authoritarianism, social welfare index (SPI), economic freedom index (EF), the tax index and the perception index of corruption were taken into consideration and analyzed accordingly in a comparative approach. Considering the effect of oil on the quality of the formation of institutions in Norway, it seems that the idea of resource curse and Dutch disease, which is one of the main factors of the underdevelopment of countries with abundant resources, has not happened in Norway.
In Norway, oil is not only considered a factor of underdevelopment, but due to the formation of established economic institutions, it is also considered as a basis for looking to the future. Norway is an exception to the resource curse. This country is significantly different from the usual oil producer; both in the economy of oil production and in the allocation of revenues in the national budget.
The presence of a powerful state along with various economic institutions, which are neither complicit nor forced by the government, has an impact on the Norwegian economy.

Keywords

Institution؛ Institutionalism؛ Norway؛ Oil؛ Development; ؛ Scandinavia

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