This blog was first posted on the Planning Resource website on 19 March 2012.
“One of Norwegian society’s strengths lies in the fact that we have economic development spread all over the country. This enables us to get the most out of our natural, cultural and human resources, and is how we have laid the foundation of our prosperity and welfare.” This statement opens an official commentary on Rural and Regional Policy published by the Norwegian Ministry of Local Government and Regional Development. In contrast, as I write this blog, the UK government is announcing a kind of regional policy in reverse: it will take money out of weaker regional economies by holding down the pay of public sector employees working in such regions. So is the left of centre Norwegian government’s regional policy a dinosaur?
Any regional policy is shaped by geography. Norway has plenty of sparsely populated regions that are remote from Oslo. The distance from the far north to the capital is the same as that from Oslo to Rome. The topography of mountains and fjords exacerbates the challenges. The Oslo conurbation has become one of the most attractive in Europe, with high wages and an exceptional quality of life. It is a magnet for young people.
So far, so consistent with the New Economic Geography that stresses the economic benefits of agglomerations. Nobody could seriously question the significance of the capital to Norway’s economy. The Greater Oslo population is around 1.2 M in a country of just under 5M. However, the Ministry asserts that more centralisation will not mean greater prosperity. Therefore the grants made through regional policy have increased by 55% since 2006.
Investing in regions
Norwegian rural and regional policy supports innovation, entrepreneurship and municipal business development funds. The funds are mainly channelled through elected county and municipal authorities. Activities under the programme include grants and loans to businesses, start-up grants for entrepreneurs, incubators, support for clusters and innovation and also local community development.
The country is divided into four categories for regional aid. The northern most part of Norway gets the most favourable support package. Since 1975 there has been no social security tax on companies there, whereas in Oslo the rate is currently 14.1%. Residents also have a reduced rate of income tax. Also important is the remission granted for repayment on loans for higher education. Child benefit rates are also more generous in “Action Zone North”; electricity is cheaper there, and the investment tax on new construction is also reduced.
Evaluations have shown that these measures have helped slow depopulation – and, just as important, stem the “brain drain”, thus sustaining skills levels in the workforce.
Institutions to promote growth and innovation
Fundamentally, Norway’s approach combines welfare measures with a business development strategy that has a spatial dimension. For example, one part of the policy is a programme called “Merkur” that seeks to stem the loss of small grocery stores in rural areas. The argument is that such enterprises are vital anchors for the residents: once they close people are more likely to move away. The programme tries to make these stores more attractive, in particular through seeing them as centres for social activity.
SIVA is the Industrial Development Corporation of Norway. It is a small agency that oversees, and channels seed grants and venture funds into, a business parks programme. Its headquarters are not in Oslo, but in a small town in a rural region. It operates a “Business Gardens” programme that seeks to foster new jobs in knowledge-based industries in rural areas. This is an initiative that has been running for more than a decade, and has built networks connecting small towns outside the capital city region. SIVA was set up in 1968 – a measure of longevity unthinkable for any public agency in the UK! It now has some ownership in 150 companies.
Another important public sector partner in delivery of regional development is Innovation Norway. This has the capacity to connect local knowledge into international networks. There is also a centre for rural development, which has offices in three small peripheral towns. It actively supports local development initiatives.
Another arm to Norway’s regional policy is a special fund for ventures that seek to make use of natural and cultural resources in a sustainable manner. There is also strong support for training of young entrepreneurs, which begins in the schools. As noted in my recent book, over 9% of Norway’s adult population are involved in early stage entrepreneurial activity – compared with less than 6% in UK. There is also mentoring scheme for young entrepreneurs and a programme that targets entrepreneurship amongst women.
It is also worth noting that while Norway’s flagship cluster programme “Centres of Expertise” does not have a regional dimension, in practice there is a good geographical spread of the 12 centres, with six of them based in towns on the west coast, with one as far north as Bodo that is focused on aquaculture.
What we see in Norway is a sophisticated and inclusive approach to regional development. While there are certainly subsidies from the taxpayer to businesses and residents in less favoured regions, there is also acceptance that the cities, and Oslo region in particular, play a crucial role in innovation and development.
This is not an old-style attempt to shift jobs from the centre to the periphery. Rather it is a national policy that seeks to play to the strengths of different places through putting innovation and entrepreneurship at the heart of regional development. However, that does not mean withdrawing public investment so that the private sector is not “crowded out”. Quite the reverse: Norway is increasing its regional policy spend so that profitable new businesses will grow and places far from the capital will still be able to offer residents and immigrants good jobs, while companies will be able to access a skilled labour force.
However, the policy is not just about businesses. It recognises that to have successful businesses in peripheral regions you also need adequate provision of services and open, inclusive communities that can access and share culture and leisure activities. Not surprisingly, this also means that the country councils and municipal councils have a central role in the design and delivery of regional development actions in their areas. Norway is still a very decentralised country with 429 municipal councils, the smallest of which has only 216 residents.