The crisis programme nearing its end

We have a restructuring crisis and have to do something about our incentive to innovate, compete and take risks, concludes Victor D. Norman. This autumn he and the rest of the researchers in the Crisis, Restructuring and Growth programme will be concluding their work.

06.11.2014 - Øyvind Torvund

"To be allowed to lead this research programme has been incredibly instructive and fun. Personally, I have learned more in the last six years than I did in the previous 20," says Professor Victor D. Norman, who has headed the Crisis, Restructuring and Growth programme.

The programme commenced in 2009 and has looked at causes of the international financial crisis, consequences in the short and long term and the consequences that the crisis will have on the need for restructuring of business and industry.

Understand things better

This autumn it will be finished. The autumn conference in Oslo now in October and the publishing of a book in November will mark the final points of the programme.

"The most important aspect of the programme is that we have produced a lot of good research. I think both we and our collaborative partners now understand things better than we did at the start of the programme. In addition, it has been unbelievably pleasant to see how much professional competence there is at the Norwegian School of Economics (NHH)," says Norman.

He thinks it has been a strength that they have involved researchers from many NHH departments: Economics, Strategy and Management and Finance. Norman thinks we ought to have more of this kind of cooperation.

"Most of the research must be conducted within a particular field because research is supposed to delve deeply, but we also need to have some comprehensive activities that draw us out of our academic silos now and then. A phenomenon like the financial crisis is very well-suited to this because it has so many faces," says Norman.

A restructuring crisis

With regard to the actual crisis for the global economy and what they have learned, Norman thinks it is clear that this was a restructuring crisis that was primarily due to globalisation and partly to new technology.

"The plan was that Asia was going to take over a substantial part of the manufacturing of industrial goods so that the rest of the world could import cheap industrial goods from Asia. Then we would use the freed-up resources to develop new knowledge-based economic growth."

According to Norman, the problem was that they dismantled their industry in North America, Europe and Japan without managing to develop something new. This resulted in a decline in the willingness to invest in western business and industry. The financial crisis revealed the latent failure of demand that arose because we stopped investing in western countries.

"Western countries will not emerge from this recession until the willingness to invest picks up again. There is a need for innovation so that the knowledge society attains a real economic content. That was our diagnosis early on in the programme, and everything that has happened since then confirms that it is the problem," says Norman.

Fantastic for Norway

For Norway, however, the crisis has gone better than we might have feared. The sharp decline was followed by an equally rapid climb, but the problem lurks beneath the surface here as well.

"Norway's development has been really fantastic, but if we take a closer look at the data, it is primarily the investment of oil revenue and the housing investment that have kept us going. The basic failure of investment in other business and industry is just as marked here as in other countries. We are just lucky that we have a couple of sectors that are keeping the wheels rapidly spinning," says Norman.

According to him, the reason for the restructuring crisis is that the labour market, the capital market and the innovation market are not functioning well enough to create the new industries and activities.

"That is why we have to look at the incentives to innovate, compete and take risks. Those are the three things that are supposed to drive the new industries that we shall make our living from. One of the main challenges here is that the venture capital market for small and medium-sized firms is poorly developed. They will be the locomotive in the restructuring to something new," says Norman.

This article was first published in NHH Bulletin nr. 3 2014, in Norwegian.