By Julian Dierkes
One of my all-time favourite authors is 村上春樹. He rose to fame initially with his book, Norwegian Wood (ノルウェイの森). That was a reference to a Beatles song, of course. And thus the title of this post, combining literature, music, pop culture, and the Beatles memorial in Ulaanbaatar to talk about looking at the Norwegian sovereign wealth fund as an example for Mongolia.
Norway as Best Practice in Turning Resource Wealth into a Sustainable Economy
There is no question that Norway is the, er, gold standard in turning natural resources into wealth that can power a sustainable economy.
And thus, the Norwegian example is often brought up as an example to follow, i.e. “best practice”, for Mongolia to turn natural resources into wealth that can be employed to create a sustainable economy.
Most Mongolian policy-makers and civil society activists will have heard the case for the Norwegian practice at one point or another by now.
In a nutshell, here’s the prescription: deposit revenues from natural resources (oil in the Norwegian case, copper, gold, coal, etc. for Mongolia) in a savings account, set up very strict rules how this savings account is invested and how revenues can be spent, only spend income from wealth, not principal. Versions of this have been enacted around the world, or at least there have been attempts to do this, as most observers agree that the Norwegian case is best practice.
The initial Twitter discussion and subsequently this post was prompted by a World Economic Forum tweet that the Norwegian wealth fund has now reached US$1trillion.
— World Economic Forum (@wef) September 21, 2017
And who wouldn’t want US$1tr or US$185k/person? These per person sums would be even higher in Mongolia, of course, as the population is only 3/5 or so of the Norwegian population.
And, various attempts have been made to create similar funds in Mongolia. For example, the ill-fated windfalls profits tax that was set up in 2006 at a time of very high gold and copper prices, included a provision that a 1/3 of the revenue generated toward a budget surplus would be deposited in a Human Development Fund. While the tax lasted (until the OT Investment Agreement in 2009) this fund received substantial amounts. But then, a large portion of that fund was distributed to citizens as a populist election ploy in 2012. I’m actually not entirely sure whether that Fund still exists/holds any significant amounts in it. Anyone?
But while the case for Norway as best practice is clear, is the Norwegian experience relevant to Mongolia?
It seems to me that there are a number of preconditions for the Norwegian model that do not hold for Mongolia.
— Julian Dierkes (@jdierkes) September 22, 2017
This led to responses from a number of tweeps.
Mongolian MP A Undraa who had re-tweeted the WEF tweet that got me started.
hi Julian. Yes, agree, the bulk minerals we export, and oil and gas w sea port are different beasts. Aspiration would not hurt.
— Агваанлувсан УНДРАА (@undraa_mongolia) September 22, 2017
Others also replied to my tweet.
We have a common mistake of comparing to countries: welfare for Sweden, entrepreneurship the US; productivity China, moral Japan etc.
— Aлтан. Алим (@altanalim) September 22, 2017
And, economist and former MP S Demberel:
Kazak.,Chili,Norway are countries we refer to often.No one of them is aprioprate unless rule of law restored &political interv.stopped.
— Demberel Sambuu (@Demberel_S) September 22, 2017
Here is a quick list of the factors that impede implementation of a Norwegian model in Mongolia. I’ve listed them in order of their importance in my estimation:
- Absence of a political system and culture that encourages substantive debate about policy alternatives. Ultimately, Norwegian policy makers formed a consensus that some kind of savings fund was the right direction to take. But this consensus emerged after alternatives were considered and debated by parties that looked at alternatives from different ideological points of view. Once a decision was reached, it was implemented and continues to be safe-guarded and adjusted. Political debates in Mongolia have not generally focused on policy alternatives. Neither of the two large parties actually stands for a particular perspective on hugely important questions like the pursuit of revenues based on mineral wealth and the use of these revenues for development. Linked to this lack of an ideological and policy-orientation of political parties is the perception of political office as an earnings opportunity for individuals elected into office.
In my eyes, this is such a fundamental requirement for the kind of long-term policy that aims for collective benefit and demands patience that I would see it as a sine qua non (i.e. a necessary pre-condition) for implementation of a Norwegian model.
- Corruption. If a substantial portion of revenues does not arrive in state coffers, these funds cannot be saved/invested. This is precisely the step in the resources -> sustainable economy chain that the Extractive Industries Transparency Initiative is aimed at. Mongolia has long participated and continues to be certified, yet the impact on corruption, at least on perceived corruption has not been significant.
- Relative human development. When oil was discovered in Norway in the late 1960s, the country and its population was not rich in a European context, but it was clearly better off than Mongolia was in 2000, or even today. Politically, it was thus much easier to preach patience and delayed gratification through savings and future income to Norwegians than to the many young Mongolians that have been fed a steady diet of “wealth is just around the corner now”.
- Geopolitical location. Norwegian decisions were made in the context of a constitutional monarchy that has had a powerful parliament since the early 19th century. All its neighbours have similar forms of government and while Norway has stayed outside of the European Union, it was a founding member of the UN and of NATO and is closely tied to other European institutions. The political consideration of policy alternatives and the implementation of political decisions is well-institutionalized in and around Norway.
- Follow-through on policy implementation. In 2015, Mendee devoted a whole series of posts to the failure of policy in Mongolia. In numerous reports on Mongolia, whether these are focused on human rights, corruption, gender equality, or any other prominent subject of policy-making, the observation is repeated that the Mongolian parliament passes a lot of good laws that cover many pressing issues, but that these are often not implemented to full effect. That lack of implementation is linked to the recurring rotation of personnel (partly due to political culture, see above) which weakens the government’s capacity, but it also seems closely linked to the nature of political competition among office holders.
- Offshore oil discovered by a seafaring nation in close proximity to oil-consuming OECD countries is relatively easy to sell and consumption has held study throughout Norway’s producing era even though the price has fluctuated massively.
A number of the responses to my tweet emphasized the rule of law as a necessary condition. I was a little surprised by that. If “rule of law” is a euphemism for anti-corruption, then yes, obviously, this is a very important factor and I have included it above.
If the “rule of law” in this case means that the judiciary is independent from political interference and that individuals have reasonable confidence in the predictability (on the basis of law) of judicial and bureaucratic decisions, then this strikes me as a minor factor in considering the applicability of the Norwegian experience to Mongolia.
Development Policy Conclusions
Yes, Mongolians should aspire to a non-mining economy that is environmentally and socially sustainable. Norway provides an admirable inspiration for the aspiration.
Yes, the Norwegian experience should be discussed and understood, though I think that many Mongolians involved in development projects and policy have done so at this point.
No, I don’t think that the Norwegian experience provides concrete guidance to steps that the Mongolian government should take right now.
When foreigners like myself get ourselves involved in Mongolian development, I am careful to aim to join Mongolians in identifying appropriate and relevant practice as a guide to possible Mongolian policies. I don’t think that the “best practice” mantra is always helpful in the pursuit of development. Note that is it this conclusion that is also at the basis for my appreciation of and interest in the International Cooperation Fund, Mongolia’s development program, though the current budget situation leaves that program moribund, I suspect.
I do believe strongly that Mongolians would be better served by political parties and a political culture that is organized around fundamental and somewhat ideological disagreements about the policy challenges and alternatives that present themselves. That seems to me to be a precondition for other projects like anti-corruption, economic policies, etc.
Currently, some of the reformist forces in the MPP seem to offer some hope that there are debates about political substance rather than electoral strategy underway and that this is in part a reaction to the uninspired leadership of M Enkhbold and his associates who never seemed to have developed an interest in actual policy.
For the DP, there is a significant question regarding the opportunity that any reformist forces might have. Since the party was founded around democracy and because that goal has been achieved, there does not seem to be any political core to the party anymore. So far at least, Pres. Battulga has also not spoken about a political agenda that he is pursuing.
Finally, some attempts to create political and electoral alternatives give some hope whether that was the “XUN” party (before it descended into infighting and power games) or this year’s “blank ballot” movement. Even attempts at the creation of alternatives would be a contribution to a more substantive political culture.
As a social scientist, some of these musings should be much more informed by the vast research literature on the pre-conditions for Norwegian wealth, but also on the resource curse. However, in line with the spontaneous conversation that erupted on Twitter around this topic, and in the middle of a busy teaching term, I restrict myself to observations (hopefully not a “hot take”, but a “lukewarm take”) here.