Price regulation no longer plays a role as a macroeconomic instrument. The scope of business policy has become more general. The substantial fluctuations in the 1970s and 1980s occurred partly because the Norwegian economy did not have an anchor in the form of low and stable inflation or a stable exchange rate. High and variable inflation countered by devaluations reflected and amplified the swings in the real economy. History shows that low unemployment cannot be achieved through high inflation in the long run. Serious misjudgements have been made in this respect, particularly perhaps in the 1970s. An economic policy that fuels inflation does not generate economic growth. On the contrary, it paves the way for recession and unemployment. The fixed exchange rate policy introduced in 1986 restored confidence in monetary policy and laid the foundations for more stable economic developments in the 1990s. Capital markets have gradually become more international and more closely integrated. It is easier to invest across national borders. Today’s global economy is characterised by extensive cross-border trade in goods and services and large capital flows. For many people, the words open capital markets and globalisation have a negative connotation. Global markets are the scapegoat when jobs are lost or displaced, when the krone increases or decreases in value and when interest rates rise. Are globalisation and the freer flow of goods, services, labour and capital a matter for concern? Globalisation primarily means that countries are closely intertwined. Events in one country have repercussions for developments in others.

The bulk of the high growth in central government allocations translates into strong growth in household consumption, while growth in public services production is moderate. This is only to be expected when there is a steep increase in public sector allocations in an economy where there are no available resources. In the long run, wages must be commensurate with the value added that is generated by workers. Real wage growth is thus determined over time by developments in labour productivity in all sectors of the economy. If historical productivity growth trends persist, the long-term rate of growth in labour costs that is compatible with the inflation target is 4½ per cent. The outcome of the wage settlements we have observed in recent years is not consistent with this. During the 1990s, we saw that unemployment declined as long as wage growth in Norway was lower than wage growth among trading partners. This came to a halt in 1998, when the social partners rejected the policy of wage moderation. Unemployment stopped falling. The sharp rise in labour costs in recent years carries with it a potential for higher unemployment. Annual wage growth is projected to range between 5½ and 6 per cent this year, and substantial pay increases have already been awarded with effect from 2003. When real wage growth is higher than productivity growth, corporate profitability deteriorates. Firms will then hire fewer people and shed labour. This also leads to a heightened conflict between budget limits and service production requirements in the public sector.