Iceland is a tiny country, with less than 330,000 inhabitants, so she can hardly be expected to have made major contributions to economic liberalism. Nevertheless, two original and relatively efficient institutions were developed in this remote North Atlantic island, those being the system of private law enforcement during the Commonwealth period, 930-1262, and the modern system of individual transferable quotas in the fisheries. Moreover, as related in my previous paper in this journal, in the 19th and 20th centuries Iceland saw a liberal tradition develop (in the classical sense of the word ‘liberalism’), with Jon Sigurdsson, Arnljotur Olafsson, Jon Thorlaksson, Benjamin Eiriksson, Olafur Bjornsson, and others defending free trade and limited government (Gissurarson 2017). In the 1980s, a strong liberal movement arose in Iceland, influenced not only by those native liberals, but also by Friedrich A. Hayek, Milton Friedman, and James M. Buchanan, who made inspiring visits to the country. Many members of this new liberal movement belonged to the Independence Party which had been founded in 1929 to defend the tradition of Jon Sigurdsson against encroaching socialism and interventionism. In 1991 the Independence Party leader David Oddsson formed a coalition government with the Social Democrats which set about opening up the economy and transferring power from politicians and bureaucrats to taxpayers and consumers. This ambitious liberal programme was continued in coalition governments of the Independence Party and the rural-based Progressive Party in 1995-2007, with Oddsson stepping down as Prime Minister in 2004 and accepting a position as governor of the Central Bank of Iceland (CBI) a year later. The liberal reforms were comprehensive: The system of individual transferable quotas in the fisheries was not only maintained but reformed, by removing various exemptions from it and facilitating quota transfers; the pension funds were strengthened; inflation was tamed; public companies were privatised; taxes were cut. The result was an unbroken period of economic growth from 1994 to 2007 (Statice 2017a). But for reasons that will be explained, Iceland became a victim of her own success, and during the 2007-2008 international financial crisis the Icelandic banking sector collapsed. This in turn gave some credence to antiliberal narratives in Iceland and abroad about both the 1991-2004 reforms and the 2008 collapse. A Nobel Laureate in economics wrote that Iceland’s economy “was in effect hijacked by a combination of free-market ideology and crony capitalism” and that thus it was brought down (Krugman 2010). In this paper, it will be argued that these narratives are without sound basis in fact. Translations from Icelandic sources are the author’s own.
|Fræðitímarit||Econ Journal Watch|
|Útgáfustaða||Útgefið - sep. 2017|
© 2017 by Econ Journal Watch.