In our never ending pursuit to make relevant use of economic principles, Urban Economics has overlayed our very own Pint of Lager Index (POLI) with The Economist’s Big Mac Index (BMI) with some interesting results.
The real standout in terms of overvalued currencies (and thereby expensive beers and burgers in relative terms), are the well to do Scandinavian nations including Denmark, Sweden and Norway as well as currency safe-haven Switzerland. History and previous releases of the Big Mac Index also reveal that this has been the case for some time due to a series of factors including government regulation, policy and stability.
The most extreme anomaly within the indices is Norway which as we dig deeper provides some insight as to why the Krone, is adjudicated to be comparatively overvalued when things are held equal in beer and burger terms and it’s not because their Big Macs are made with Jarlsberg cheese.
Norway Fast Facts
· Largest sovereign wealth fund in the world valued at 3,561 billion Krone ($610b AUD) as at June 31 2012 and growing.
· High level of state owned petroleum and gas operations (resource profits are the primary input to the sovereign wealth fund)
· Europe’s lowest unemployment rate at 3.2% through 2011 according to the European Union Labour Force Survey Annual (the next closest was Switzerland at 4.2%)
· Healthcare is provided free to all citizens of Norway
· There are no fees payable by students attending public universities and colleges in Norway which make up over 90% of higher education providers.
· Despite having significant gas and oil reserves, Norway consistently has higher petrol prices compared to other developed nations which includes tax of around 65% currently around (AUD) $2.60 per litre. (Similarly resourced Venezuela costs around 13c for a litre).
Lessons for Australia?
Australia like Norway is resource rich and has relatively low unemployment. For the most part, this is where the similarities with Norway’s economy end.
Australia does not have a sovereign wealth fund although Western Australia on the back of their resources are starting one, Malcolm Turnbull would like to initiate a national future fund and Wayne Swan would like to spread the wealth around as regard resources. The concept is not entirely lost in Australia however, with a federal future fund set up in 2006 to cover the liability of government superannuation on the back of the sale of Telstra shares and budget surpluses. This was expanded in 2008 to include nation building initiative funds for infrastructure, education and health.
The majority of Australia’s resources are not controlled by the government but by large multinationals such as Rio Tinto (the only Australian company ethically banned from association with the Norwegian wealth fund for a poor environmental record in Norway’s view)
Healthcare in Australia is steadily transitioning to require more citizens to have private health cover. The Private Health Insurance Administration Council estimates that there are around 10.5 million people with health insurance policies or close to 46% of the population.
Higher education costs in Australia are constantly under debate however, no comparison can be drawn to Norway’s free and accessible system.
So while our overlay of beer and burgers points to Norway as being a tough place to have a cheap night out, further investigation reveals that Norway’s citizens are well placed to enjoy a future free from the financial difficulties encountered throughout much of Europe. Australia also has the potential to make better use of our rich resources, but in the meantime, we’ll enjoy our reasonably priced Big Macs and beer.