The ghostliness of once prosperous Detroit, the cradle of the American auto industry, shows how terminal the Dutch disease can be. The city reduced to a third of its population, filled with crime, was completely reliant on one single industry that faltered during the last financial crisis. Dependent on a severely affected industry, without backup in any other sector, the city simply shut down.
This is not the only example of the Dutch disease that emerged about 60 years ago when the Dutch manufacturing sector drastically declined due to excessive reliance on gas exploitation. The British The Economist quickly coined this term, which today refers not only to dependence on one resource but also on one industry/branch/sector or one (too) large company.
In the EU, it seems, this is a practice that is quite polished. Not yet in the direction of collapse, but towards unwanted dependence. Probably the most famous example is Denmark, a country with less than six million inhabitants, which is home to many multinational corporations like Lego or the carrier Maersk, whose trains rumble through Croatia daily. However, the influence of Novo Nordisk is unique (not only) in Danish history.
Last year, most of the economic growth was attributed to the pharmaceutical industry. The Danish economy grew by 1.9 percent in 2022 – 1.7 percentage points contributed by the pharmaceutical industry. Novo Nordisk’s profit in the first half of this year jumped by as much as 45 percent, to nearly six billion dollars, primarily driven by demand for equally famous drugs Ozempic and Wegovy, the holy grails of weight loss. The company’s influence is so great that it even affects interest rates.
However, for Denmark, the key fact is: if it weren’t for Novo Nordisk, there would have been no growth in the first six months of this year. Only a few individuals are aware of the problem, as due to the enormous contribution to GDP growth and the state budget, the government maintains two budget records, with and without the influence of the pharmaceutical giant. If nothing else, at least they are aware of how good it is to know what would happen if the emperor remained naked.
And since we are already talking about stripping things down, here’s a small digression – if Denmark maintains double GDP statistics due to pharmaceuticals, should Croatia do the same, heavily dependent on tourism that can die due to any security whisper?
Some have been blessed with sun and sea, others with oil
The chief economist of the Croatian Chamber of Economy Goran Šaravanja says that, given that tourism does not exist as an independent statistical category in national accounts, as is the case with the pharmaceutical industry, it is not so simple to maintain separate statistics.
– The discussion in society about rent-seeking and the risk that tourism limits the developmental potential of the Croatian economy indicates sufficient awareness of the risks. Given that the State Bureau of Statistics has limited resources, it would be better to address other statistical priorities – Šaravanja briefly and clearly conveys on a topic that only a few have been willing to speak about, as most economists, including institutions, have categorized the topic as ‘scientific papers’.
However, let us not complain, examples present themselves anyway. Interestingly, with the exception of tourism-dependent countries (Mediterranean), symptoms of dependence on one industry are mostly shown by developed Western countries.
Viktor Viljevac from the Faculty of Economics in Zagreb cites Norway as an example of a European country dominated by one sector. – In a similar way that Mediterranean countries have been ‘blessed’ with sun and sea, Norway has been ‘blessed’ with rich oil and natural gas deposits in the North, Norwegian, and Barents seas.
Despite many existing differences, the similarity with tourist countries is seen in that in both cases it is about wealth in natural resources. Keeping this in mind, in 2021, the oil and gas industry accounted for about 20 percent of Norway’s GDP. If we look at 2022, Norway greatly benefited from the geopolitical situation related to the war in Ukraine, which caused oil and gas prices to rise, and the reduction of imports from Russia was partially compensated by Norway itself.
The impact of rising prices on revenues was extremely large, and Norwegian revenues from the sale (predominantly exports) of oil and gas in 2022 were record high, far exceeding those of 2021. Consequently, tax revenues related to oil and gas increased threefold compared to 2021. Long-term, it goes without saying that any monoculture presents potential risks. For the Norwegian economy, the risk is the general trends towards a transition to renewable and cleaner energy sources in the context of the green transition – Viljevac points out.
That this is already generating troubles in paradise is shown by the latest data indicating that Norway has officially entered recession – due to a lack of foreign demand for gas. And this despite the fact that it has practically replaced most of the Russian gas imported by the EU with its own sources.
Which countries, including members, are dependent on one industry or one company, how vulnerable a country is because of this, and what we can learn from the infamous examples of dependence can be read in the new
digital and printed issue of Lider.
