Professor Hannes H. Gissurarson, RNH Academic Director, read a paper to a seminar on “Piketty’s Challenge” at the Centre for Free Economic Thought at the Tallinn Business School in Estonia 30 April 2015. In his widely discussed book, Capital in the 21st Century, French economist Thomas Piketty demanded extensive global redistribution of income, because it had become much more unequal than in the past. Professor Gissurarson pointed out the great difference between the approaches of Piketty and American philosopher John Rawls: Piketty was upset by the fact that some people were richer than most, whereas Rawls was concerned with the problem when many people were poor. Indeed, capitalism was able to create much wealth. It has historically been the mechanism by which people in many countries had gone from poverty to affluence, as the evidence showed. It was interesting, Professor Gissurarson submitted, to compare Australia and Argentina—two large countries in the Southern hemisphere, with vast natural resources, and inhabited mainly by European immigrants—and Singapore and Jamaica—two tropical islands and formerly British colonies—and West and East Germany and South and North Korea. It was also interesting to compare some of the Canadian provinces and the Northernmost states of the United States to the Nordic countries. The conclusion was always the same: wealth was created by economic freedom. Undeniably, measurements showed an unequal income distribution in capitalist countries, but in the United States this was at least partly caused by a steady stream of immigrants entering the country, penniless in the beginning, but slowly and surely advancing economically. Measurements of income distribution by the Gini coefficient (or alternatively by comparison of the 1% highest-income earners and the rest) were often misleading, Professor Gissurarson added, because it showed greater inequality in the case of a relative increase of the numbers of pensionists or graduate students, brought about by longer life expectancy or more time spent on education, whereas both of those social changes were generally thought to be desirable.

Professor Gissurarson pointed out that global income distribution had actually become more equal in the last few years, because hundreds of millions of Indians and Chinese had migrated into capitalism. Possibly, however, income distribution had become less equal in the West, and then for two reasons: competition from China and India had stabilised the income of unskilled labour; and individuals with non-reproducible talents or abilities, for example film stars, entertainers and entrepreneurs, now had found themselves operating on the global rather than the local market. When living standards of Western workers were investigated, the fact should not also be disregarded that the quality and diversity of goods had vastly improved. A worker needed much less time nowadays to work for the goods available than he did in the past. Professor Gissurarson then asked whether anything was wrong with an unequal distribution anyway, if it came about as a result of free choice. He took an example. Milton Friedman advertises a lecture, charging $50 per person. The lecture is attended by 500 people. Friedman is now richer by $25,000, whereas each of the people attending is poorer by $50. But everybody is happy. Where is the problem? Professor Gissurarson said that we should be able to sleep even if other people do well.

The seminar at the Tallinn Business School was well attended, with US economist Dr Richard Rahn acting as commentator. Meelis Kitsing, the Director of the Centre for Free Economic Thought, chaired the meeting. A discussion followed after the lecture and the comments. The question was raised whether entrepreneurs needed the astronomical income they were deriving at present. Would they not be just as creative with less income? Professor Gissurarson replied that income should not be regarded as mainly an incentive to contribute, but rather as information provided to the participants in the market process. Income distribution in a free market served as a means of discovering and distributing necessary information about how people could fulfil their own needs as well as those of others. When the flow of information was halted or reduced by government redistribution of income, people were deprived of this information. Professor Gissurarson’s lecture formed a part of the joint project by RNH and AECR on “Europe, Iceland and the Future of Capitalism”.

Tallinn Business School Slides by Gissurarson

Gissurarson giving his lecture on 29 April 2015.

On 24–26 April 2015, Professor Hannes H. Gissurarson, RNH Academic Director, attended the annual conference on international affairs in Tallinn, Estonia, named after Lennart Meri, Estonian President in 1992–2001. The speakers at the conference included Toomas H. Ilves, President of Estonia, Radek Sikorski, former Polish Foreign Minister and presently Speaker of the Polish Parliament, Ana de Palacio, former Spanish Foreign Minister, Uffe Ellemann-Jensen, former Danish Foreign Minister, Swedish writer Anders Aslund and many government ministers from the Baltic countries. Some of the lecturers have visited Iceland under the auspices of RNH or of similar organisations, for example François Heisbourg and Andrei Ilarionov. The main topic of the conference was the situation in countries on Russia’s border, the Ukraine as well as the countries of Central and Eastern Europe. The participation by Professor Gissurarson in the conference formed a part of the joint RNH and AECR project on “Europe, Iceland and the Future of Capitalism”. In the evening of 24 April Professor Gissurarson attended a dinner party given by President Ilves for a few of the conference attendees. During his stay in Tallinn, Professor Gissurarson also paid a visit to Dr Mart Laar, former Estonian Prime Minister and presently Chairman of the Board of the Estonian Central Bank.

On 29 April 2015, Professor Gissurarson gave an address at the Estonian Parliament on the Icelandic communist movement and the Baltic nations. The lecture was sponsored by the Estonian Member of Parliament and historian Dr Mart Nutt. In his paper, Professor Gissurarson provided an outline of the development of the radical left movement in Iceland, from the autumn of 1918 when Brynjolfur Bjarnason—long one of the most influential members of the movement—turned into a communist by witnessing a street riot in Copenhagen, and to the autumn of 1998 when the last action of the People’s Alliance leadership, before the party was dissolved, was to accept an invitation by the communist party of Cuba to visit. The delegation to Cuba included Chairman Margret Frimannsdottir and former Chairman Svavar Gestsson, who had in his youth attended a school for communist cadres in East Berlin. Professor Gissurarson submitted that both the communist party—a branch of Comintern, the Communist International—which operated in 1930–1938, and its successor, the Socialist Unity Party, which operated as a political party until 1956 and after that as a part of a broader electoral alliance, were loyal to Moscow, as amply confirmed by documents found in Moscow archives after the collapse of the Soviet Union. Those two parties accepted significant secret financial contributions from Moscow, enabling them to buy or build four large houses in Reykjavik and to employ several people, making quite a difference in tiny Iceland, with a population in the 1930s  of a little more than 100,000 people. There was only one example of the Socialist Unity Party not towing the Moscow line, and this was that it refused to condemn the communist parties of Yugoslavia and Albania when those parties fell out of favour in the Kremlin.

26 August 1991. From left: David Oddsson, Jon Baldvin Hannibalsson, A. Saudargas, Lithuania, J. Jurkans, Latvia, og Lennart Meri, Estonia.

Professor Gissurarson discussed the Baltic nations in this context. A Latvian woman, Liba Fridland, had toured Iceland in 1923, giving lectures on the Bolshevik Revolution, describing communist despotism in vivid details. As a result, she had been fiercely attacked in the press by communists. A Lithuanian refugee, Teodoras Bieliackinas, had written a series of articles in Morgunbladid in 1946 on the oppression of the Baltic countries. Consequently, he had been condemned by the communist press as a “Lithuanian fascist” despite the fact that he was Jewish (in fact, his father, the distinguished lawyer Simonas Bieliackinas, perished in Auschwitz). When the Public Book Club (Almenna bokafelagid) was established in 1955 to counter the communist influence in Icelandic culture, its first publication was a book by Ants Oras, an Estonian Professor of Literature, on the oppression in the Baltic countries, Baltic Eclipse (Orlaganott yfir Eystrasaltslondum). In 1957, the President of Iceland and the Foreign Minister, both staunch anti-communists, had received the Estonian Prime Minister in Exile, Dr August Rei, despite the protests of the Soviet Ambassador. In 1973, the Public Book Club had published a book by Estonian-Swedish journalist Anders Küng, Estonia: A Small Nation Under Foreign Yoke (Eistland: Smathjod undir oki erlends valds). Describing the enforced Russification of this small nation, it was translated by a young law student, David Oddsson, who was to become Prime Minister of Iceland in 1991. One of Oddsson’s first actions in office was to reaffirm the recognition by Iceland of the sovereignty of the Baltic countries. Iceland had, as most Western countries, never recognised the Soviet occupation of the Baltic countries.

Professor Gissurarson also criticized the less than sympathetic coverage of the Baltic nations in a widely-used history textbook in Iceland, New Times (Nyir timar), published in 2006 by two socialist historians, Sigurdur Ragnarsson and Gunnar Karlsson. The two authors wrote, for example (p. 246): “In 1940, the three Baltic states, Estonia, Latvia and Lithuania, were annexed [innlimud] to the Soviet Union as member republics.” Professor Gissurarson pointed out that, as the Baltic nations have always maintained themselves, the three countries were in 1940 put under military occupation, and not “annexed”. The two authors also wrote (p. 263): “In Yalta, the West recognised de facto that the Baltic States and the Eastern part of Poland would remain a part of the Soviet Union and that Eastern Europe would remain on the Soviet sphere of influence.” According to Professor Gissurarson, this was never a part of the Yalta agreement. First, the authors disregarded the fact that neither Roosevelt nor Churchill meant by a “sphere of influence” the imposition of a one-party communist police state. Second, neither the United States nor the United Kingdom recognised the Soviet occupation of the Baltic states. Then, the two authors wrote on the Soviet “glasnost” period (p. 292): “Increased freedom of speech however woke up old nationalism in many Soviet republics. The nationalist movement was strongest in the three Baltic countries, Estonia, Latvia and Lithuania, but it was also present elsewhere. Finally the Baltic countries declared their independence and seceded from the Soviet Union as they had actually the right to do according to the constitution.” Professor Gissurarson found this a very misleading account of what happened. No demand for national sovereignty needed to be awakened in the Baltic nations, as they had never accepted the Soviet occupation of their countries and had always wished to remain independent. It was also absurd to speak as if they had had a real right to secede from the Soviet Union which they had subsequently decided to use. This was the Kremlin version of events, not that of the Baltic nations. No decision had been made by the Baltic nations either to join the Soviet Union or to secede from it. Professor Gissurarson’s lecture formed a part of the joint RNH and AECR project on “Europe of the victims”.

Tallinn Slides of Gissurarson 29 April 2015

Hannes flytur erindi sitt í Tartu.

Professor Hannes H. Gissurarson, RNH Academic director, gave a lecture on the Soviet influence of the Icelandic communist movement at a University of Tartu seminar  28 April 2015. The seminar was organised by the Department of Politics, and before it, Professor Gissurarson met with the Department Chair, Professor Vello Pettai who sent his greetings to Icelandic friends, having in 2011 attended a conference in Iceland. In the lecture Professor Gissurarson provided an outline of the most important chapters in the history of the radical left in Iceland: the preparations in 1918–1930 for forming a communist party; the operations in 1930–1938 of the communist party, a branch of Comintern, the Communist International; the split of the Labour Party in 1938 and the subsequent formation of the Socialist Unity Party and its operations in 1938–1956; the split of the Labour Party in 1956 and the subsequent formation of the People’s Alliance and its operations after that, first as an electoral alliance in 1956–1968 and then as a political party in 1968–1998.

In his lecture, which formed a part of the joint project of RNH and AECR on “Europe of the Victims”, Professor Gissurarson pointed out that the traditional difference between communists and social democrats had been that the communists were not prepared to work solely within the framework of parliamentary democracy: they did not rule out violence in the political struggle, if needed. Indeed, the Icelandic communist party supported violence both in theory and practice during its lifetime, for example in labour disputes. Later, the socialists also used violence, for example when they laid a siege to the headquarters of the Independence Party in 1946 and when they attacked Parliament House in 1949. The socialists also fiercely defended the regimes of the communist bloc, all of which were established and maintained by violence. They accepted funds from those regimes, and followed instructions from Moscow, with few exceptions. The connections between the Icelandic socialists and the masters in Kremlin only ended with the Soviet invasion of Czechoslovakia in 1968. However, after that the People’s Alliance maintained connections with the communist parties of Romania and Cuba, and the last thing the leadership of the People’s Alliance did, before the dissolution of the party, was in 1998 to accept an invitation from the communist party of Cuba for a delegation to visit.

Professor Gissurarson gave an account of disputes between himself and historians Thor Whitehead and Snorri G. Bergsson on the one hand and leftwing intellectuals such as philosopher Jon Olafsson on the other hand, on the interpretation of the historical evidence. For example, Jon Olafsson asserted that the many young Icelanders who attended the Comintern schools in Moscow in 1929–1938, had not received any military training there, whereas this was contrary to the available evidence, both from the young revolutionaries themselves and from numerous other sources. Jon Olafsson also suggested that Comintern had been opposed to the 1938 foundation of the Socialist Unity Party, on the basis of an internal memorandum which a Comintern official had composed; this was however implausible, Professor Gissurarson said, as the relationship between the leadership of the Socialist Unity Party and the Kremlin had been excellent in the following years, and as the new Party had received congratulations from several communist parties at the foundation ceremony. Professor Gissurarson said that in his 2011 book on the Icelandic communist movement he had emphasised, citing many examples, that from the very beginning sufficient knowledge was available in Iceland about the tyranny and squalor in the communist countries. Morgunbladid had for example never tired of printing accounts by victims of communism in those countries, and those accounts had turned out to be more or less accurate, even if they had been contemptuously rejected by the Icelandic socialists.

Tartu Slides of Gissurarson

From the well-attended meeting. Photo: Arni Saeberg.

Six examples of unnecessary losses incurred by the fallen Icelandic banks were analysed in detail by Professor Hannes H. Gissurarson, in a lecture at the spring conference of the Institute of Business Studies at the University of Iceland 21 April 2015. Two of the examples—which Professor Gissurarson has discussed previously—are from Norway and Finland, where in the 2008 international financial crisis the central banks of those countries refused to provide subsidiaries of Glitnir Bank with liquidity, even though in both countries the companies were registered there, and paying taxes. This was different from the Swedish Central Bank which provided liquidity to Swedish companies owned by Icelandic banks. Professor Gissurarson estimated the loss from the subsequent forced assets sales in Norway and Finland to be about $460 million.

CBI Governor Mar Gudmundsson

Professor Gissurarson argued that something similar took place in Denmark two years later. In the beginning of the international financial crisis, the Danish Central Bank had provided liquidity and capital to the Danish FIH Bank, owned by Kaupthing, in the same way as to other Danish banks. FIH Bank had been used as collateral for an emergency loan which the Central Bank of Iceland, CBI, gave to Kaupthing in the beginning of the crisis. On the initiative of CBI governor David Oddsson, this was made into a comprehensive collateral, covering all potential debts by Kaupthing to the CBI. It had also been confirmed to the CBI by Danish authorities that FIH Bank was a sound collateral, with book equity of value double to the Kaupthing loan. The emergency loan was not paid back as a result of the fall of Kaupthing so the CBI gained control over the bank. However, in the autumn of 2010, the new CBI governor, Mar Gudmundsson, succumbed to pressure from Danish authorities and sold FIH Bank with only a part of the total price being paid out, whereas remaining payments would be linked to possible losses incurred by the bank in 2010–2014. In fact, the buyers were given almost unlimited discretion as to how to define losses in this period, with the result that the CBI will probably never see any of the remaining payments, even if the FIH Bank is now being dissolved, with a $860 million book equity of value which would be divided up between the buyers who would thus receive a hefty return on their investments. Professor Gissurarson criticized Governor Gudmundsson for not standing firm in 2010 against the Danish authorities and for not writing adequate safeguards into the contract with the buyers of FIH Bank. He estimated the potential loss from this to be about $460 million.

UK Prime Minister Brown

Professor Gissurarson then turned to the United Kingdom where the Labour government in early October 2008 introduced an enormous rescue package for the British banking sector at the same time as it closed down the two British banks owned by Icelandic banks, Heritable and KSF. In telephone conversations with their Icelandic colleagues prior to closing the two banks, British ministers had accused the banks of various illegalities. The British Labour government had even invoked an anti-terrorist law against various Icelandic institutions and companies, presenting them on the Treasury’s website on the same list as the Al-Qaida and Talibans. Now, however, the winding-up processes of the two banks were being completed, and it seemed clear that neither of them had really been bankrupt. The return rate to creditors was close to 100 per cent, even if enormous legal and auditing costs had been imposed on the estates. Nothing illegal had been discovered despite thorough investigations by British authorities, including the Financial Services Authority and the Serious Fraud Office. Professor Gissurarson estimated the unnecessary losses from these brutal acts by the British government to have been at least about $1.1 billion.

The total unnecessary loss in those six examples, brought about by the unhelpfulness of the Danish, Norwegian and Finnish central banks, by Icelandic foolishness in the case of FIH Bank, and by British brutality in the case of Heritable and KSF, amounted to $2 billion, according to Professor Gissurarson. His argument provoked much discussion. It made the front page of the leading daily Morgunbladid, and the government broadcasting service and two online magazines, Kjarninn and Stundin, reported it. Professor Gissurarson also wrote an online article for the business weekly Vidskiptabladid. Governor Mar Gudmundsson protested, in the case of FIH Bank, that the book equity of value was not a proper reference point in a crisis. Professor Gissurarson responded that he could agree with this, but that he had criticized the Governor for succumbing to pressure and for not safeguarding properly the interests of the CBI when FIH Bank was sold. Now the CBI would only see half the value of the 2008 emergency loan to Kaupthing, even if the collateral accepted back in 2008 had been perfectly sound and worth much more than the loan. Professor Gissurarson’s lecture formed a part of the joint research programme of RNH and AECR on “Europe, Iceland and the Future of Capitalism”.

Reykjavik Slides of Gissurarson