Gissurarson: Three Icelandic Examples

Although the Icelanders are a small nation, some lessons may be learned by others from the way in which they have dealt with some of their problems, RNH Academic Director Professor Hannes H. Gissurarson argued at a conference held by ECR, European Conservatives and Reformists, in London 14 January 2023. He discussed three examples. One was sound money, one of the prerequisites of a free market. Iceland had for a long time had higher levels of inflation than her neighbours which meant that Icelandic money, the krona, was not serving well one of its mean functions, to be a unit of account. The Icelanders solved this problem by creating a new currency, the indexed krona, in which all long-term contracts are made. Thus, in Iceland there are essentially two currencies in circulation, the regular and physical krona used as a medium of exchange and the indexed and invisible krona used as a unit of account.

Another problem the Icelanders faced was what has often been called ‘the tragedy of the commons’. There was open access to the fertile fishing grounds in Icelandic waters, with the result that they were over-utilised. The Icelanders solved this problem by allocating fishing rights, the so-called individual transferable quotas, ITQs, to fishing firms, initially on the basis of catch history: A firm which had been harvesting 5 per cent of the total catch in the preceding three years, received the right to harvest 5 per cent of the future total allowable catch. The fishing rights or quotas were permanent, divisible and transferable which implied that over time they ended up in the hands of those who could harvest fish most economically. Instead of frantically trying to harvest as much as possible for a given period, the fishing firms could focus on minimising costs. The ITQ system in the Icelandic fisheries has turned out to be both sustainable and profitable. In essence, private property was the solution to the problem of overfishing.

The third problem the Icelanders faced was in the financial crisis of 2007–2009. The Icelandic banking sector had grown so big that in the case of a liquidity crisis, the Central Bank of Iceland and the Treasury could not rescue it on their own. This is precisely what happened. The Icelandic government had to put the banking sector into resolution but the Parliament passed a law giving priority to the claims of depositors to the estates of the fallen banks, thus averting a run on the banks and riots in the streets. In the past, banks have often used depositors as human shields, so to speak, persuading politicians to use taxpayers’ money to rescue them out of consideration for the depositors. In good times, banks could enjoy their profits, while in bad times they could pass the bill on to the taxpayers, which led to excessive risk taking. But when the claims of depositors to estates of banks are given priority, any government guarantees to banks become superfluous. They should bear responsibility for their own actions like any other private enterprises, Gissurarson said.

Other speakers at the conference included Antonio Giordano, Dr. Barbara Kolm, Adela Mirza, Lord Callanan, Lord Wharton, and Geoffrey Van Orden CBE.

Gissurarson Slides in London 14 January 2023

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