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

For his paper, Professor Arnason received a gift from a local artist.

Professor Ragnar Arnason, Chairman of RNH Academic Council, was the keynote speaker at the conference of North American Association of Fisheries Economists in La Paz in Baja California in Mexico 22–24 March 2017. His paper was called “Catch shares: Potential for Optimal Use of Marine Resources.” More and More nations are introducing systems of transferable and permanent catch shares in their fisheries. The Icelandic system of individual transferable quotas is an example.

Professor Arnason will also be a keynote speaker at the conference of the European Association of Fisheries Economists at Dublin Castle in Ireland 25–27 April where he will speak about “Fishing Rights”, private use rights or even property rights to marine resources. Arnason wrote, with two co-authors, a much-discussed report for FAO and the World Bank, The Sunken Billions, about the enormous waste in international fisheries, brought about by more or less open access to the fish stocks instead of limiting their utilisation to holders of rights to do so. Arnason is, with Professor Thrainn Eggertsson, the best-known Icelandic economist internationally.

Dwight Lee, Federico Fernandez and John Fund (speaking).

The Association of Libertarian High School Students, led by Isak Hallmundsson, RNH and the Austrian Economics Center in Vienna, led by Dr. Barbara Kolm, held a well-attended “Free Market Road Show” in the University of Reykjavik Saturday 1 April 2017. John Fund from National Review and Fox News spoke about the new populism which was the expression of frustration and grievances by people who felt that they were ruled by an international elite of bureaucrats and intellectuals who were closer to each other than to the voters of their nations. Fund emphasised the progress brought about by free international trade. In the discussion after Fund’s talk Professor Hannes H. Gissurarson stressed that conservative liberals should not abandon international free trade, but that they should direct attention to the international elites which worked against the interests of taxpayers and consumers, safely ensconced in their faceless and non-responsible citadels in international organisations, universities and the like.

Álvarez.

Federico Fernandez  from the Austrian Economics Center defended the share economy, including airbn accommodation and Uber transport. Professor Dwight R. Lee from the University of Georgia in Atlanta reminded the audience of the fact that government intervention rarely was effective in reaching their stated goals. One advantage of market competition was that people had to stop making mistakes, because they made a loss on them, whereas in public institutions they continued making them, because they were subsidised by taxpayers’ money. Gordon Kerr, a financial analyst from London, discussed weaknesses in the fiscal and monetary system prevailing in Europe. Gloria Álvarez from Guatemala criticized Latin American populism, inspired by the Castro Brothers in Cuba and by Hugo Chávez in Venezuela.

Thordarson giving his speech. Álvarez (obscured) to his left, Bragason and Kerr to his right.

Foreign Minister Gudlaugur Thor Thordarson gave the final remarks. He argued that Trump’s election in the US and Brexit were not comparable. Trump was against international free trade, whereas most Brexit supporters were in favour of it. The Icelanders ought to concentrate on selling fish and their other products, but not join other alliances than those required by their interests, such as NATO. He had however not seen any signs of a changed US foreign policy under Trump. In addition to Isak Hallmundsson, Magnus Orn Gunnarsson organised the event, and historian Bjorn Jon Bragason chaired the meeting. John Fund was interviewed on Icelandic television about American politics and Gloria Álvarez in the business magazine Vidskiptabladid. In the evening the participants met at the Petersen bar in Reykjavik centre for a more informal discussion.

The participation by RNH in the Free Market Road Show formed a part of its joint project with ACRE, the Alliance of Conservatives and Reformists in Europe, on “Europe, Iceland and the Future of Capitalism.”

Jonsson’s presentation. Photo: Kristinn Ingvarsson.

Two experts in finance, Professors Asgeir Jonsson and Hersir Sigurgeirsson of the University of Iceland, presented the main findings of their new book,  The Icelandic Financial Crisis: A Study Into the World’s Smallest Currency Area, at a conference at the University of Iceland 1 March 2017. Among many interesting facts and figures in their book are the following:

• By the Emergency Act of 6 October 2008, passed under the then coalition government of the Independence Party and the Social Democrats, but initiated by the Central Bank, Iceland chose not to “socialise” the cost of the 2008 collapse of all three main Icelandic banks, or in other words to pass the cost over to taxpayers. Bank shareholders lost the whole value of their shares, and bondholders lost a lot of the value of their bonds, whereas depositors lost nothing.
• It turned out that in the end, the Treasury lost nothing either. Indeed, it made a gain. The reason was that the Treasury was, because of the currency controls imposed in the beginning of the crash, in a strong bargaining position against the creditors to the old banks (mainly hedge funds) who were willing to accept heavy discounts on their claims in order to have the remainder paid out in foreign currencies. The centre-right government which came into power in 2013 regarded it as fair that the old banks (or rather their estates) should bear the costs that they had imposed on the nation.
• The Emergency Act, by giving depositors priority over other creditors of the banks, brought about a transfer of about €10 billion from those creditors—not least German banks—to the depositors—not least affluent Englishmen. There was a widespread misunderstanding abroad that the Emergency Act discriminated between foreign and domestic depositors which it did not do: it discriminated between depositors and bondholders.
• The outlook for Iceland was pretty bleak, however, in the beginning of the crash. Public debt increased by 70% of GDP as a result of the crash, more than in any other European country except Ireland. Iceland was widely, if wrongly, regarded as bankrupt.
• The British and Dutch governments, having unilaterally compensated all depositors in Landsbanki’s branches in their respective countries, demanded that the Icelandic Treasury pay them back, with interest. This would have amounted to an obligation of about €4 billion, or about half of Iceland’s GDP. Ultimately, Landsbanki’s estate could reimburse the two governments. While their demands caused a bitter dispute with Iceland, they were eventually rejected by the EFTA Court.
• The main costs for the Treasury of the crash stemmed from the loss the Central Bank made on its loans to the banks—around €2 billion, €1.7 billion because of non-secured loans to the banks and €245 million because of an emergency loan to Kaupthing with collateral in Danish FIH Bank—and from the collapse of a savings association in Keflavik, €140 million. Even if the authors refrain themselves from political judgements, these losses could have been less if Mar Gudmundsson, CBI Governor from 2009, had not made a bad deal in selling FIH Bank and if Steingrimur J. Sigfusson, Finance Minister 2009–11, had not insisted on helping the savings association in Keflavik.
• Despite Iceland’s success, it is not necessarily a model which should be imitated elsewhere, the authors persuasively argue in their book. Iceland’s special circumstances facilitated the two-fold strategy of “ring-fencing” by establishing new domestic banks on the basis of domestic deposits and putting the foreign operations of the old banks into resolution and of transferring the costs of the crash from depositors to bondholders (largely foreign).
• The rapid recovery of Iceland should not surprise people as much as it did: The Icelandic economy is basically sound, resting on the pillars of profitable fisheries, ample energy resources and considerable human capital, to which was added a sudden and unexpected tourist boom after the crash. Moreover, the banks’ assets turned to be much more valuable than originally expected.

Heimisdottir makes a point to Jonsson, Sigurgeirsson and Hannesson. Photo Kristinn Ingvarsson.

Participating in a panel after the authors’ presentations were Dr. Sigurdur Hannesson, special adviser to the 2013–6 government, Kristrun Heimisdottir, Assistant to the Foreign Minister during the crash (Ingibjorg S. Gisladottir from the Social Democrats) and Johannes Karl Sveinsson, legal adviser to the government. Heimisdottir lamented the fact that the Icelanders did not stand together in the face of adversity as did the Danes, for example. Instead, some politicians used the opportunity to seek vengeance for old grievances. She also emphasised that Iceland had to reconsider her foreign policy in light of the fact that she had very few real friends. The Americans were not any more protecting Iceland as they had done during the Cold War, as shown by their refusal to make dollar swap deals with the CBI before the collapse, at the same time as they made such deals with the three Scandinavian central banks, enabling those central banks to rescue local banks.