ECONOMIC DEVELOPMENT SINCE 1979
The strength of statistics on national accounts lies in the many opportunities to analyze the long-term economic development. Moreover, the use of internationally agreed guidelines makes it possible to compare the economy of Greenland to the economies of other countries.
Growth
At the introduction of the Home Rule Government in 1979, the GDP was DKK 2.213 million while in 2007 it amounted to DKK 10.924 million. This corresponds to an average annual growth of almost 6 per cent. Part of this development is due to an increase in prices (inflation); to take this into account, the GDP is also calculated in constant prices. The economic development can therefore be assessed without the increases in prices, as a measure of the changes in the volume of production.
The real GDP in 2007 amounted to 3.486 DKK million so that the average annual growth in real terms since 1979 has been at 1,6 per cent.
The population has also increased throughout the period. The real GDP per capita has grown by approximately 1 per cent on average in the period since 1979. The development has resulted in a general increase in prosperity and living standards in society. The question of how this wealth has been distributed among groups in the population is not something the national accounts describe. This income distribution is the subject of another section.
In more affluent western countries, the growth per capita is typically 2-3 per cent per year, thus doubling the wealth in approximately 30 years. Among the countries with the most rapid growth is China at 8 per cent per year. In many African countries, the growth of the population exceeds the economic growth so that these countries become poorer every year.
Economic Trends
Economic development has not been smooth. There have been periods of higher growth rates - booms - where the growth has been over 2 per cent. Such periods lead to increased employment and decreases in unemployment. Periods of lower growth rates below 2 per cent are called recessions: Employment declines and unemployment rises. Figure 1 depicts the economic trends since 1979. Specifically, the years 1985-1989 appear as a period of very high growth rates, primarily due to favourable opportunities for fishing and hunting. That boom ended abruptly in 1990, and the economy underwent four consecutive years with a very strong economic downturn and even negative growth rates and by consequence decreasing production. It had a background in a crisis within the fishing industry while the fiscal policy was tightened. Among other things, a freeze on public investment was introduced. After a long period of relatively favorable conditions in the late 1990's, the economy went into a new recession in 2002, primarily due to stagnation in the fishing industry. In 2004, the development seems to have turned with substantial GDP growth rates. This is among other things due to increased consumption and investment in the private sector.
The fluctuations in the GDP growth rates are somewhat higher than in e.g. Denmark. This is among other things due to the heavy dependence on the fishing industry.
Figure 1
Annual GDP Growth Rates in Constant Prices
Source: Statistics Greenland
The Functional Income Distribution
The functional income distribution illustrates how the GFI is divided between salaries for employees and profits to owners of businesses unlike the personal income distribution, which highlights the distribution of all types of income distributed to persons / households. Salaries to employees amounted to 8.752 DKK million in 2007, representing approximately 80 per cent of GFI - also known as the wage share. This is a very high proportion seen in an international perspective. In Denmark, the percentage was about 63 per cent in 2007. Part of the explanation for the high level is that the government and service sector requires much labour. It plays a significantly greater role than in many other countries where private parties undertake a wide range of tasks. Moreover, a small population is spread over a vast area. This implies that many tasks must be undertaken with no prospect of obtaining economies of scale in the production. The wage share was rising up to the early 1990's when it peaked at around 90 per cent. The increase had a background in real wages and increasing employment in this period. Since 1993, the ratio has been reduced and has for a number of years been stable around 80 per cent.
Figure 2
Salaries to Employees in Per Cent of GFI
Source: Statistics Greenland
Total State Expenditure in Greenland
In the act on the Home Rule Government of Greenland of 29 November 1978, the administrative areas which can be transferred to the legislative and administrative authority of the home rule government are listed. Since the introduction of the home rule government on 1 May 1979, there has been a gradual transfer of competencies and responsibility from the Danish political authorities to the Greenlandic political authorities.
In the short term, Greenland has not even been able to fund all new areas of responsibility. As the home rule government has taken over more fields, an annual subsidy for the operation has been granted by the Danish state. These grants are collectively referred to as the block grant. There are still a number of areas for which the Danish government holds responsibility. This means that the state in addition to the block grant funds a range of fields of responsibility in Greenland, such as the police, the judicial system, and the Prison Service.
In 2007, the expenditure of the Danish government in Greenland amounted to 3.866 DKK million, equivalent to 26,3 per cent of the available GNP. By the introduction of the Home Rule Government of Greenland, the percentage was just over 40 per cent. The share has gradually been reduced so that the economy of Greenland has become less dependent on subsidies. The reduced share is primarily explained by the fact that the production of Greenland has grown faster than the block grant in this period.
Figure 3
State Expenditure in Per Cent of Available GNI
Source: Statistics Greenland
Public Economy
The public sector plays a major role in the economy.
Public administration and services produce services for collective consumption. These are services provided free or virtually free of charge and made available to the public. These include education, health care, and care for children and the elderly as well as administrative services in the Home Rule Government and municipalities. The cost of the public consumption totalled DKK 5.941 million in 2007, representing approximately 54 per cent of the GDP. In an international perspective, this is a very high proportion. In Denmark where public administrative services have a major importance for the economy, the proportion is only about 25 per cent. As in many other countries there is a tendency towards growth in the government share of the economy over time. This also applies to Greenland. See Figure 4.
Figure 4
Collective Consumption in Per Cent of GDP
Source: Statistics Greenland
Normally, a large public consumption will result in a high tax burden, which can be measured as the total taxes and duties in relation to the available GDI - called the modified burden of taxation, amounting to 24 per cent in 2007.
In Denmark, the modified burden of taxation was nearly 28 per cent in 2007.
The reason that it is possible to maintain a relatively low level of taxation and an extensive public economy is primarily the block grant.
Figure 5
Taxes in Per Cent of the Available GDI
Source: Statistics Greenland
The public sector includes in addition to general administration and service a number of public companies, i.e. companies operating on market terms, and owned and/or controlled by the government. Examples of such companies include Royal Greenland Ltd and Great Greenland Ltd. There is currently no comprehensive statistical summary of the public sector. In an overview, a number of key figures for the economy of the public corporations can be seen. According to a conservative estimate, the public sector economy amounts to approximately 70 per cent of GDP.