Introduction

The long postwar period of seemingly perpetual prosperity and economic stability came to an end by the early 1970s. On the international scene this was symbolised by the demise of the Bretton Wood accord and the global commitment to fixed exchange rates. Economic growth turned sluggish, more volatile and subject to greater variations across countries. High inflation in combination with widespread unemployment coined a new term, stagflation. The confidence of the Keynesian consensus was replaced by uncertainty. Decisionmakers and economists alike came to question the ability of the postwar policy model to address present challenges. In the course of the next decade economic policy tilted distinctively in a more liberal, market-oriented direction.

In the 1970s Norway became a decisive outlier. True, as a small open economy it shared much of the common economic misery experienced in the Western world: traditional industries suffered when overall European growth turned sluggish; Norway had its fair share and more of high inflation; and the country had to find it way in a world where fixed exchange rates no longer served as a compass. But this was counterbalanced by the discoveries of oil and gas in the North Sea. These findings fundamentally altered its prospects and signalled the beginning of an era that would make Norway one of the wealthiest countries in the world. While the trend growth in the golden era had been close to the European average, Norway's growth record in the following decades was well above. Unemployment remained at low levels throughout the period.

Newfound prospects of future prosperity undoubtedly influenced the way in which Norway met the turbulent 1970s. Where other countries had to consolidate the welfare state, Norway had an unprecedented freedom for further welfare reform. In healthcare, education and social security the expansionist mood of the 1960s was sustained and taken further. This new freedom made it possible for Norway to retain the postwar economic policy models well into the late 1970s. In response to the new challenges in the course of the 1970s, particularly to counterbalance weakened fiscal discipline and wage formation, all the instruments of the 1965 Credit Act came to be employed, making that decade the peak of financial repression.