Norway's Government Pension Fund

Norway started a pension fund in 1990 as a way to invest petroleum income that comes from taxes, licenses, and the state’s direct investment. The idea was to smooth out the income from a highly volatile sector as well as to provide income past the point where Norway’s hydrocarbon resources begin to decline. What an adult thing to do. Today the fund is worth more than $1 trillion (that’s 1,000 billion or a million millions). It’s the largest sovereign wealth fund in the world and it owns 1.3% of stocks worldwide. In short, it's a juggernaut.

There are 5.2 million people in Norway so that’s roughly $195,000 per Norwegian. Norway’s GDP is about $370 billion per year, so the fund is roughly 3x GDP. For comparison, if the US had a fund worth $195,000 per citizen we’d have a fund worth about $64 trillion, and if it were 3x our GDP it’d be worth $56 trillion. I find this interesting for several reasons:

  1. States are the ultimate long term investor. Their size and longevity allows them to make volatile investments which over time yield higher returns, not touch the earnings, and watch the money compound for amounts of time that mortals can't replicate. A fund like this could take some small percentage out every year (say 1%-3%), never touch the principal, and could either greatly reduce taxes; increase investment in roads, schools, technology, etc.; provide a better alternative to Social Security; etc. - all of which would stimulate the economy. Granted, all the investment would have a crowding out effect which would likely reduce returns worldwide since the US is so large, but that’s another story.
  2. It allows the state to exert influence beyond politics, diplomacy, the military, taxes, etc. It literally gives them a seat in the boardroom of both domestic and foreign companies so they can influence things like environmental practices and executive compensation. Call it socialist if you like, but that’s some serious realpolitik. Maybe this is a more contemporary way for governments to generate income without burdensome tax laws, stay up to date with tech/business, and to influence the economy without regulations. It’s an interesting mix of socialism and free market ideas.