Lively Debate on Small States

Gissurarson and Professor Jensen at the latter’s home 11 August 2017.

RNH Academic Director Professor Hannes H. Gissurarson gave a paper in a workshop on international relations at the Nordic Political Science Association Congress in Odense 8–12 August. The title of his paper was “In Defence of Small States”, where he argued against the doubts expressed after the 2008 Icelandic bank collapse by Professors Anne Sibert and Baldur Thorhallsson that Iceland was large enough to be sustainable as a state. Professor Gissurarson recalled similar doubts expressed by Rousseau, Marx and Engels and by Professor Alfred Cobban, before he turned to Sibert’s argument which was that small states were more costly to maintain than big ones. Gissurarson pointed out that this was not always true: Outlays per capita on public goods such as law and order and external security were actually lower in Iceland and the other Nordic countries than in the US or UK. The reason was that the small states were homogeneous, cohesive, transparent and non-aggressive, with a strong civic culture. The transparency in small states also reduced the likelihood of “hard” corruption such as extortion or bribery, although arguably there was scope there for clientilism and favouritism (which also could be observed, of course, in bigger states such as China, India and Brazil). Indeed, small states tended to be more wealthy than big ones, not least because their economies were open. The economic integration of the last half century had greatly benefited small states and perhaps paradoxically made political integration less necessary.

Professor Gissurarson discussed the “shelter theory” put forward by his colleague at the University of Iceland, Professor Thorhallsson, a former alternate MP for the Social Democrats and leading advocate of EU membership for Iceland. According to Thorhallsson Iceland needed a shelter such as the EU, not least after the US abandoned her. Gissurarson argued however that Icelandic history demonstrated quite the opposite. When the Icelanders thought they had gained a shelter under the Norwegian and later the Danish crown, they had actually been caught in a trap: The crown had isolated them, imposed monopoly trade on the country and worked with local landowners to stifle the development of fisheries. The result had been a series of famines on an island surrounded by fertile fishing grounds. The crown had cared little about Iceland, trying thrice to sell her to King Henry VIII and once to German Hansa merchants. In the 19th century, the Danish government had also seriously considered the idea of handing Iceland over to the Prussians in exchange for Northern Schleswig. When the Swedes had seized Norway in compensation for having to give Finland to the Russians, they had not bothered to include Iceland, even if she was an old Norwegian tributary.

Gissurarson pointed out that shelters were usually places of temporary relief from bad weather or danger. Therefore the concept was hardly applicable to fruitful cultural exchanges between nations of different sizes, or to mutual gains by trade for individuals and enterprises. The core of truth in the “shelter theory” was however that small states, with their limited military power, were vulnerable and needed alliances and even protectors. The military alliance between Iceland and the US in 1941–2006 when the US undertook to defend Iceland and maintained a base there had been successful. Iceland should, Professor Gissurarson submitted, seek to revive the alliance with the US and also to improve and strengthen the ties with her other North Atlantic neighbours, Norway, the UK and Canada. This did not mean that she should not pursue good relations with the EU which was indeed a very important trading partner. But the EU did not have the same military might as the US, and European political integration had probably reached its upper limit. Professor Gissurarson recalled that Jon Sigurdsson, the leader of Iceland’s independence struggle, had wanted to trade with many nations, not only with one.

Gissurarson Slides in Odense

A lively discussion, chaired by Danish Professor Anders Wivel, followed the paper. The commentator, Norwegian Professor Gunnar Fermann, expressed his satisfaction that this important issue was being actively debated in Iceland. He added that he himself shared many of the criticisms directed by Professor Gissurarson against the EU. Sverrir Steinsson, a graduate student who co-write a paper with Professor Thorhallsson on the “shelter theory”, stressed that the theory was independent of political views in Iceland on EU-membership and that perhaps in his critique, Professor Gissurarson had chosen some examples of outliers rather than more relevant data. Other participants wondered how a small state should be defined, whether a big nation supposed to give shelter to a small one would not require something in return, and if the real shelter which Iceland should seek would not be the Nordic community rather than the EU.

In Denmark, Professor Gissurarson used the opportunity to pay a visit 11 August to the distinguished historian Professor Bent Jensen who lives near Odense. In 2012, Jensen was the first lecturer to visit Iceland on the invitation of RNH. He has published several books about Stalin, Russia and the Stalinist apologists in the West, as well as a history of Denmark in the Cold War. Gissurarson and Jensen discussed how to remember the 100th anniversary of the Bolshevik Revolution in Russia 7 November 2017. It started the advance of communism which had claimed 100 million lives in the 20th century and still lingers on in North Korea and Cuba. From Denmark Professor Gissurarson went to England and paid a visit 14 August to Lord Mervyn King, former Governor of the Bank of England. Gissurarson interviewed Lord King about the international financial crisis and the 2008 Icelandic bank collapse on which he is preparing a report for the Icelandic Ministry of Finance. Gissurarson’s participation in the NOPSA conference and the meeting with Lord King 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 Communism”, whereas the meeting with Professor Jensen formed a part of the joint project of RNH and ACRE on “Europe of the Victims”.

Petur Fjeldsted interviewed Hannes on his Odense paper:

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Lecture in Denmark

RNH Academic Director Professor Hannes H. Gissurarson gives a lecture at the Nordic Political Science Congress in Odense 8–11 August 2017 where he participates in a workshop on “Foreign Policy: Nordic Perspectives and Beyond”, directed by Tuomas Forsberg and Anders Wivel in Room U68 in the premises of the University of Southern Denmark. The lecture, “In Defence of Small States,” is scheduled at 15:15 Thursday 10 August. Gunnar Fermann from NTNU is discussant. This is an abstract:

After the 2007–9 financial crisis, scholars argued that it showed Iceland’s unsustainability as a state. She needed a shelter such as the EU. In this paper, two sets of arguments are examined. One is economic and comparative: Small countries such as Iceland cannot enjoy economies of scale in public administration, production of collective goods and economic life in general, while their economy tend to be unstable and their political system characterised by nepotism and party patronage. Another set of arguments is mainly historical: Iceland, like other small countries, has always needed a shelter, which she found respectively in Norway, Denmark, and the US, and could now find in the EU. The examination here shows however that small states can enjoy the benefits of international free trade without having to join larger political units—a fact which explains the proliferation of small states. It is also not necessarily true that collective goods are more expensive in small states. Because of more trust and cohesion, law and order are for example on average cheaper to maintain in the Nordic countries than in bigger societies. While nepotism and party patronage certainly exist in small societies, they are not absent in larger ones. The examination also shows that while small states certainly need business partners, cultural exchanges and security arrangements, the risk is when they seek a shelter that they find a trap, as happened to Iceland in 1400–1800. Finally, the international strategy of a small nation like Iceland after the Cold War is discussed: Which option should she adopt, the Nordic, the North Atlantic or the Continental European? A possible answer is: All three, although in different fields, finding business partners in the European market, keeping close cultural ties with the other Nordic countries and seeking security arrangements with her Anglo-Saxon neighbours in the North Atlantic.

Four other Icelanders participate in the Congress, Sverrir Steinsson (in the same workshop as Professor Gissurarson), Hulda Thorisdottir, Gretar Thor Eythorsson and Eva Heida Onnudottir.

Gissurarson Slides in Odense

Professor Gissurarson’s participation in the NOPSA conference in Odense forms a part of the joint project of RNH and ACRE, Alliance of Conservatives and Reformists in Europe, on “Europe, Iceland, and the Future of Capitalism”.

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Saga of a Female Hero

The Public Book Club (Almenna bokafelagid) has published a book by a North Korean refugee, In Order to Live. The author, Yeonmi Park, is only 23 years old, born in October 1993. Shortly after her birth, a famine occurred in her homeland, claiming hundreds of thousands of lives. Struggling for his family’s survival, Park’s father operated on the black market, but he was eventually found out and sent to a slave camp. Her mother was also imprisoned for a while.

In the spring of 2007, Park and her mother decided to flee from North Korea. But the people who helped them over the border turned out to be human traffickers. Upon arrival in China, Park’s mother was raped, and so was Park herself after a while. Both were sold into involuntary marriages. The man who took care of Park was in some ways in love with her, but he treated her badly. The mother and daughter did not give up, however, and in February 2009 they managed to reach Mongolia, having walked in the bitter cold for several days over the Gobi desert. After some uncertainty, they were handed over to the South Korean authorities.

In the autumn of 2014, Park became a hit in an international television programme, 50 million people watching her speech on Youtube in the course of two days. Her book was published in English in 2015. Now pursuing university studies in the US, Park also devotes a lot of effort to make the world aware of human rights violations in North Korea. The publication of the Icelandic translation of the book is supported by RNH as a part of the joint project with ACRE, the Alliance of Conservatives and Reformists in Europe, on “Europe of the Victims: Remembering Communism.” The director of the Public Book Club, Jonas Sigurgeirsson, had the opportunity at the Mont Pelerin Society regional meeting in Seoul in May 2017 of speaking to Park’s English teachers. North Korea is one of the two remaining communist countries in the world, with Cuba. In the night, satellite photographs illustrate well the difference between communism and capitalism:


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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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