Gissurarson: We Must Defend Free Trade

Dr. Klaus, former President of the Czech Republic, gives his speech.

Gisli Hauksson, RNH Board Chairman, Hannes H. Gissurarson, RNH Academic Director, and Jonas Sigurgeirsson, RNH Managing Director, attended the regional meeting of the MPS, Mont Pèlerin Society, in Seoul in South Korea 7–10 May 2017. The MPS is an international society of classical liberal and conservative scholars and activists founded in Switzerland in April 1947 by Friedrich A. Hayek, Frank H. Knight, Ludwig von Mises, Karl R. Popper, Milton Friedman and others. The speakers in Seoul included Nobel Laureates Vernon Smith and Lars Peter Hansen and renowned economists Professor Israel Kirzner, a specialist on entrepreneurship, and Professor John B. Taylor, after whom the Taylor Rule in banking and finance is named. Dr. Vaclav Klaus, former President of the Czech Republic, and Hwang Kyo-ahn, acting President of Korea, also addressed the meeting. It so happened that the Korean presidential elections took place 9 May, while the meeting was still going on.

Acting Korean President Hwang givesa an address

Many topics were discussed at the meeting, including growth and inequality, welfare and taxation, the international financial system, Korean security and the Korean economy. Discussions are confidential except people may of course reveal what they say themselves. Hannes H. Gissurarson was commentator on three papers on the Korean economy. He agreed with the lecturers that economic growth in Korea had indeed been spectacular. In early 1960s South Korea was a desperately poor country, but in 2016 its economy was the 11th largest in the world. In 1950, GDP per capita (the usual criterion of wealth) was about 1% of the average in the OECD countries. Then the Korean War broke out and raged for three years, with 1,5 million people being killed and 40% of Korea’s industry being destroyed. But in 1970 Korea’s GDP per capita had risen to 14% of the OECD average, and in 2016 to 85%.

Dr. Ed Feulner of the Heritage Foundation giving a luncheon address on his impressions of Korea over the years.

Gissurarson submitted that the Korean success story had been despite government intervention, but not because of it. He pointed out that relatively small states were often successful because they were homogeneous, with a high level of trust and social cohesion. This was doubtlessly an important factor in the success of the Nordic countries which also all respected the rule of law and free trade. Crucially, their economies had been open. Gissurarson added that bilateral free trade agreements such as those the Koreans were seeking were probably sometimes the least worst option, but that what was desirable was to see an international free trade area, without any tariffs or customs whatsoever. Nations harmed themselves by protecting their domestic production from competition. Free trade agreements could also harm third nations: Korea had for example suffered from a free trade agreement between Mexico and the US.

Sigurgeirsson, Gissurarson and Hauksson. To the right is the logo of the meeting: The two Koreas at night.

The Koreans had, Gissurarson submitted, avoided the great mistake made by many ruling elites in emerging countries of neglecting agriculture. While Korean heavy industry certainly received help in the forms of tax exemptions and cheap credit, a land reform was implemented in Korea creating conditions for efficient food production with modern technology. Moreover, economic intervention in the economy was mostly aimed at encouraging export, but not at protecting domestic companies. The road ahead was, as elsewhere, to abolish discrimination between companies as well as economic sectors and to open up the economy to competition from abroad.

In the discussion about whether to compensate domestic companies for the abolition of tariff protection, Gissurarson recalled when he in Iceland in 1984 introduced a central bank governor to Milton Friedman with the words: “Here is a person, Professor Friedman, who would be out of a job if your recommendations were followed in Iceland.” Friedman was quick to reply: “No, he would not be out of a job: He would just have to move to a more productive job.” Gissurarson said that this was the law of the market. When circumstances changed, people had to move to more productive jobs and more productive sectors of the economy. Undeniably, however, this could be problematic and cause political turmoil, as seemed to be the case now in some Western countries.

Gissurarson discussed another example of an unpopular, but ultimately beneficial increase in productivity. This was moving a factory from a high-pay to a low-pay country. In fact, such a move brought about the redistribution of money from the rich to the poor employees—which presumably should be welcomed by humanitarians. Relatively highly paid people lost one opportunity to sell their services which did not make much of a difference to them, whereas poor people in the receiving country gained an opportunity to better their conditions through hard work. The redistribution taking place was also only in the short term, because in the long term those who lost an opportunity were indirectly compensated by economic growth. As the good produced in the factory now became cheaper than before, a profit was created, to be used to lower the price of the good or to become an addition to the profit of the factory, or both. Whichever was the case, the total supply of goods in society increased.

Gissurarson stressed that liberal political leaders had to maintain their support for international free trade. It was still relevant what the Anglo-German politician John Prince Smith observed in the 19th century: If you see a potential customer in someone, your propensity to shoot at him or her diminishes. No less relevant was a comment often attributed to Frédéric Bastiat, but probably first uttered by IBM’s Thomas Watson: If goods cannot cross borders, soldiers will.

Professor Peter Boettke of George Mason University is the President of the Mont Pèlerin Society. The chairman of the programme committee for the Seoul meeting was Professor Pedro Schwartz from Spain, but the three co-chairmen of the local organising committee were Kyu-Jae Jeong, Tae-shin Kwon and Inchul Kim. The next regional meeting will be in Stockholm 2–5 November 2017 about the threat to liberty from increasing populism in the West, followed by a general meeting in the Canary Islands 30 September to 6 October 2018. The participation by the Icelandic guests affiliated with the RNH formed a part in the joint project by RNH and ACRE, the Alliance of Conservatives and Reformists in Europe, on “Europe, Iceland and the Future of Capitalism.”

Session on freedom and entrepreneurship. From left: MPS Treasurer J. R. Clark, Professor Israel Kirzner and Nobel Laureates Lars Peter Hansen and Vernon Smith.

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Boyes’ Book on Bank Collapse Criticized

Street riots in Reykjavik after the 2008 bank collapse.

In the 2017 Spring Issue of the magazine Thjodmal, Professor Hannes H. Gissurarson, RNH Academic Director, published a long dissection in English of the book Meltdown Iceland by British journalist Roger Boyes. As the first full-length book on the 2008 Icelandic bank collapse, it shaped the views of many foreigners about this event. According to Boyes himself, who does not speak Icelandic, his most important sources in Iceland were the economists Thorvaldur Gylfason, Gylfi Magnusson and Katrin Olafsdottir. Gissurarson however points out many errors in Boyes’ book, trivial as well as important. For example, Boyes asserts that Landsbanki shareholder Bjorgolfur Gudmundsson’s father was director of an oil company, whereas in fact it was his father-in-law who had that position. The author also asserts that prominent lawyer Jon Steinar Gunnlaugsson became Chief Justice of the Iceland’s Supreme Court, which he never did.

In his paper, Professor Gissurarson analyses how Boyes repeats many myths thrown around by Icelandic journalists, often in imitation of their foreign colleagues, for example about an ‘octopus’ in control of the Icelandic economy until the 1990s. The truth of the matter was that the group referred to only controlled one of the ten biggest companies in Iceland; most other big companies were owned by the state, or by the cooperative movement, or they were marketing organisations for the fisheries. Boyes also tells a story about an encounter between Milton Friedman and Prime Minister David Oddsson whereas in fact they never met. Again, Boyes suggests that the publishers of Oddsson’s two collections of short stories (Olafur Ragnarsson and Petur Mar Olafsson) received political favours from him which Olafsson strongly denies on their behalf and of which no example has been produced.

Acording to Professor Gissurarson, Boyes repeats some misunderstandings of the Icelandic system of quotas in the fisheries, for example that the quota holders received something for nothing from the government. Gissurarson points out the general conclusion of fisheries economics that the only right of which others were deprived by confining fishing to quota holders was the right to harvest fish in the Icelandic waters at zero profit, which is by definition a worthless right. Boyes’ account of the Icesave dispute is also, Gissurarson submits, coloured by the views of the British Labour government which needlessly and brutally invoked an anti-terrorist law against Iceland in the midst of the financial crisis. Many other matters are discussed in the paper by Professor Gissurarson who is at present writing a report on the banking collapse for the Icelandic Ministry of Finance.

Paper in English by Gissurarson on Meltdown Iceland

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Gissurarson: Memory of Victims

Professor Hannes H. Gissurarson, RNH Academic Director, read a paper at a seminar in the European Parliament in Brussels 26 April 2017: Why should the memory of the victims of totalitarianism be kept alive? The Platform of European Memory and Conscience, of which RNH is a member, and the City of Brussels are jointly preparing a memorial to the victims, to be placed on one of the City’s square. A competition about its design has been launched. Professor Gissurarson recalled that there was no disagreement about keeping alive the memory of the victims of the Holocaust, one of the most terrible events in world history. People wanted to register their respect for the victims and also to try and hinder than anything like this would repeat itself. Still the will and the interest was wanting to keep up the memory of the victims of communism. The Holocaust was a unique event in world history. But the systemic extermination of potential or real opponents of communism was also unique. National socialism and communism were closely related.

In this context Prof. Gissurarson recalled that the despots Stalin and Mao did not lose a war so their misdeeds were not exposed at any Nuremberg trials. The main duty of the historian is, according to Gissurarson, to seek the truth. The conclusions were unequivocal: The evidence becoming available in the former communist states demonstrated that Robert Conquest and Aleksandr Solzhenitsyn were right about the criminal nature of communism. Prof. Gissurarson added that even his own small and peaceful nation on a remote and wind-swept island in the North Atlantic had had some encounters with totalitarianism: He told the story of German communist and Soviet resident Vera Hertzsch, who had a child by Icelandic economist Benjamin Eiriksson; both mother and child perished in the Gulag. hee also told the story of German Jewess and refugee in Iceland Henny Goldstein Ottosson, whose brother (with his whole family) was murdered by the Nazis, in Auschwitz and Natzweiler, and whose former husband and the father of her child was also murdered by them, in Auschwitz. Prof. Gissurarson furthermore briefly mentioned the series of anti-totalitarian works being republished by the Public Book Club (which was founded in 1955 to counter the dominance of unrepentant Stalinists in Icelandic cultural life).

Prof. Gissurarson said that the historian also had a duty to listen to, or even to recreate, the voices of those who had been silenced by force. The despots should not be allowed to leave this world in quiet satisfaction that their misdeeds had not been recognised and registered. In this context, he quoted French historian Chateaubriand: “When in the silence of abjection, no sound can be heard save that of the chains of the slave and the voice of the informer; when all tremble before the tyrant, and it is as dangerous to incur his favour as to merit his displeasure, the historian appears, entrusted with the vengeance of the people. Nero prospers in vain, for Tacitus has already been born within the empire.” Prof. Gissurarson’s contribution to the seminar formed a part of the joint project by RNH and ACRE, the Alliance of Conservatives and Reformists in Europe, on “Europe of the Victims”.

Gissurarson Slides in Brussels

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Gissurarson: Iceland A Two-Faced Janus

From left: Nordal, Thorisdottir, Heimisdottir, Jonsson and Gissurarson. Photo: Kristinn Ingvarsson.

RNH Academic director, Professor Hannes H. Gissurarson, was a speaker at a conference 19 April 2017 organised by the Institute of International Affairs at the University of Iceland, the Icelandic Ministry of Foreign Affairs and others on Iceland’s future role in international affairs. He recalled that the Roman god Janus had two faces looking in different directions. Iceland was like that: She was located in the middle of the North Atlantic and had to look both west, to America, and east, to Europe. Gissurarson took issue with the thesis promoted by Professors Anne Sibert and Baldur Thorhallsson that Iceland was too small to be sustainable on her own and that she had therefore to seek shelter in the European Union. Gissurarson said that, on the contrary, Jon Sigurdsson’s arguments for independence, presented in mid-19th century, were still valid. Small states had indeed proliferated in the 20th century, for two good reasons. First, they benefited from the international division of labour made possible by free trade, or ‘globalisation’; second, the advance of democracy had brought about a general recognition of the right to national self-determination. Gissurarson pointed out that economies of scale did not always apply to small states, for example in the maintenance of law and order, because small states were frequently more homogeneous than big ones, typically also enjoying a higher level of trust and more transparency. Often the economies of small states were more open and flexible than those of big ones, which might explain why they tended to be more affluent.

Iceland’s foreign policy should first and foremost have the two limited and practical aims, Professor Gissurarson submitted, of selling fish and other goods and services and of seeking security for a small country without her own military. He quoted the late Icelandic Prime Minister Bjarni Benediktsson: “The respect for a small country in the international arena is inversely proportional to her loquaciousness there.” Even if the Icelanders had been disappointed in their traditional allies during recent difficulties, they were now faced with two alternatives. The Atlantic option meant increased cooperation with their neighbours in the North Atlantic, Norway, the UK, the US and Canada, and also with their friends in the Faroe Islands and Greenland. The EU option, on the other hand, meant increased integration with the countries on the continent. While the two options were not necessarily mutually exclusive, the Atlantic one seemed more natural and also more desirable: the UK was Iceland’s biggest single customer, and the US was by far the most powerful country in the world, with the military might to protect Iceland. Historically, the Anglo-Saxon powers and the Nordic countries had also fostered values such as freedom, democracy and the rule of law. However, in the modern world the Icelanders should take care not to lose their identity. They had to maintain the delicate ties woven by more than thirty generations living in the same country, speaking the same language and sharing the same memories. While the Icelanders had to be conscious of their tiny size, they should not be overwhelmed by it; instead, they should try to overcome it.

On the same panel, economist Asgeir Jonsson observed that monetary sovereignty had proved effective in helping the Icelanders over the 2008 bank collapse, but that in the long term it had produced instability. Using David Held’s distinction between sovereignty and self-governance, philosopher Salvor Nordal argued that some nations might be formally sovereign, but with limited control over their own affairs. According to lawyer Kristrun Heimisdottir, former Assistant to the Foreign Minister, the 2008 Icelandic bank collapse had demonstrated to the Icelanders that they were on their own in the modern world. Consequently they had, she added, to undertake a thorough review of national security. Psychologist Hulda Thorisdottir presented new surveys on the attitudes and opinions of the Icelanders, showing that the level of trust had not significantly gone down despite the bank collapse. The level of trust remained higher in the Nordic countries than elsewhere. In response, Professor Gissurarson pointed out that the high level of trust and widespread sense of solidarity enjoyed by the Nordic nations were important factors in their relative success. He also expressed his agreement with a point made by Heimisdottir that there was an important difference between the election of Donald Trump in the US and Brexit in the UK: Trump was a protectionist, whereas the leadership of the Conservative Party was firmly for free trade. Gissurarson’s lecture formed a part of the joint project of RNH and ACRE, the Alliance of Conservatives and Reformists in Europe, on “Europe, Iceland, and the Future of Capitalism.”

Gissurarson Slides Reykjavik 19 April 2017

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Gissurarson: Allocation on Basis of Catch History Preferable

Professor Hannes H. Gissurarson, RNH Academic Director, gave a paper about the Icelandic system of Individual Transferable Quotas, ITQs, in the fisheries at a luncheon meeting of the Washington Policy Center in Seattle in the state of Washington Friday 14 April 2017. He recalled that he had first put forward the idea of defining private use rights to fish stocks at a conference in Iceland in the autumn of 1980, and that he had been ridiculed in the socialist newspaper afterwards. Hannes said that fisheries economists all agreed that open access to fishing grounds led to overfishing: The number of boats increased to the level where no profit was any longer to be gained from harvesting. The problem of reducing the number of boats (i.e. fishing effort) could be resolved in two ways. One possibility was to define exclusive and transferable use rights to the fish stocks on the basis of catch history. The other possibility was to auction off the fishing rights. The first method was more feasible because then no great existing interests were threatened. Nobody made a loss. The number of boats (i.e. fishing effort) would decrease naturally, in a spontaneous evolution where the more efficient would buy out the less efficient. The great disadvantage of the second method was that a great number of the fishermen would be driven out from the waters, almost all at once, and not bought out in by virtue of quota transfers.

This was the explanation, Professor Gissurarson submitted, why initial allocation on the basis of catch history had almost invariably been chosen when fishing grounds had been enclosed by the introduction of fishing rights. This had been done in Iceland with great success. Unlike the auction method, the initial allocation of fishing rights on the basis of catch history was Pareto optimal: Nobody lost; everybody gained. Such an initial allocation of rights also satisfied Locke’s proviso for the just appropriation of private goods from the commons, that nobody would be made worse off by it. The only right which others than quota holders was deprived of was the right to harvest fish at zero profit, as fisheries economists had demonstrated, a worthless right. Gissurarson’s talk was well received, with a lively discussion following it. In some coastal states of the U.S., quota systems are now being introduced in the fisheries. Gissurarson’s book, The Icelandic Fisheries: Sustainable and Profitable, was published in late 2015 and is freely available online. Professor Gissurarson’s talk formed a part of the joint project by RNH and ACRE, Alliance of Conservatives and Reformists in Europe, on “Europe, Iceland, and the Future of Capitalism.”

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Gissurarson: Nordic Prosperity Despite Social Democracy

Photo: Olav A. Dirkmaat.

RNH Academic Director Hannes H. Gissurarson read a paper to the annual conference of APEE, the Association of Private Enterprise Education, in Maui, one of the Hawaian Islands, 12 April 2017 on “The Nordic Models: Prosperity Despite Redistribution.” He argued that it was a myth that the Nordic countries were successful because of the long-time social democratic domination of their politics. What explained their prosperity was a strong adherence to the principles of free trade and the rule of law, protection of private property rights, and cohesion, solidarity, mutual trust and transparency, brought about by their unusally high degree of homogeniety and strong collective identity.

Gissurarson pointed out that in the 18th, 19th and early 20th century, a vibrant liberal tradition could be found in the Nordic countries, as seen in the words of Anders Chydenius, a promoter of the invisible hand before Adam Smith, and in the deeds of Prime Minister Johan August Gripenstedt who laid the foundations for Sweden’s prosperity. The liberal constitution adopted by the Norwegians in 1814 and the extensions of personal liberties in Denmark after the 1848 end of absolutism also bore witness to the strength of Nordic liberalism. Three prominent Swedish economists of the 20th century belonged to the liberal tradition, Eli Heckscher, Gustav Cassel and Bertil Ohlin. If people were speaking about the “Swedish Model”, they had to distinguish between the liberal model of 1870–1970, the social democratic model of 1970–1990, when entrepreneurship was practically stifled in Sweden, and the mixed model since 1990 when Sweden has returned to some extent to the old liberal model.

Gabriel Calzada of the Francisco Marroquin University in Guatemala, Matt Ridley and Professor Gissurarson. Photo: Parellada Centeno Javier.

Professor Gissurarson presented many data in support of his argument: For example, Swedes in the US do better than average US citizens, and much better than Swedes in Sweden. This shows the importance both of culture and institutions on performance. Another example was a comparison between the “Nordic countries” in North America such as Manitoba, Minnesota, the two Dakotas, Alberta and Saskatchewan and the five Nordic countries in Europe. The North American ones are on average much more successful economically. This shows the importance of institutions on performance.

Finally, Professor Gissurarson discussed the liberal tradition in Iceland, well expressed in the works of Jon Sigurdsson, Iceland’s leader of the 19th century Independence Struggle, Arnljotur Olafsson, the author of the first book on economics in Iceland (almost straight out of Frederic Bastiat), and Jon Thorlaksson, a strong classical liberal, Prime Minister and founder in 1929 of the Independence Party. He described the comprehensive and successful liberal reforms in 1991–2004 under David Oddsson, Prime Minister and Leader of the Independence Party, and added that even if the Icelanders had discovered America in the year 1000 and lost it again, they had also discovered and developed two unique systems of settling possible conflicts about scarce resources: The private enforcement of Law during the Icelandic Commonwealth of 930–1262, and the system of individual transferable quotas in the fisheries, implemented since 1975 and becoming comprehensive in 1991. The latter system was both sustainable and profitable, Gissurarson maintained, but it was under siege by people envious of the profits being made there. Hopefully the Icelanders would not lose it as they lost America.

At the conference, Professor Gabriel Calzada from Guatemala was elected APEE President and Professor J. R. Clark from Tennessee reelected Treasurer. Professor Gissurarson’s participation in the conference formed a part of the joint project by RNH and ACRE, the Alliance of Conservatives and Reformists in Europe, on “Europe, Iceland and the Future of Capitalism”. In Maui he had the opportunity to meet many liberal leaders and thinkers, many of whom have visited Iceland, for example Matt Ridley, Barbara Kolm, Bob Lawson, Douglas Rasmussen and Douglas den Uyl.

Gissurarson Slides in Maui 12 April 2017

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