Words by

Haukur S. Magnússon

@haukursm

Vilhjálmur Árnason is a professor of philosophy at the University of Iceland, as well as chair of the board of the Centre for Ethics at the university. He has dedicated his studies especially to moral theory, applied ethics and political philosophy. Vilhjálmur was leader of a special three-person working group on ethics that was mandated in the Special Investigation Commission legislation by Alþingi.

The purpose of the working group was to investigate the ethics and work practices connected to the banking collapse of 2008, and their findings may be read in Volume 8 of the SIC report. The group was comprised of two philosophers (Vilhjálmur and Salvör Nordal) and a historian (Kristín Ástgeirsdóttir), and its report is a stunning and thought-provoking read. As it has not yet been translated to Icelandic, The Grapevine thought it would be a good idea to meet up with Vilhjálmur and discuss it with him, so you English-speakers out there might get an idea of what’s in there.

At the SIC press conference in April, it was evident how many media representatives seemed to misunderstand the point and purpose of your committee, asking who should be charged and for your explicit moral verdict. A lot of people seem to believe your task was passing judgment…
Our committee had its purpose defined in the law. If the law had called for us passing moral judgment we would have done that, but it called for a wide ranging analysis. Our committee’s commission letter from the president of Alþingi explicitly stated that our enquiry into ethics and work practices should not be limited to the business sector. In deliberations in the Parliament it was emphasised that we should place our findings in a wide social context.

We were also convinced from early on that one couldn’t explain actions and events in the political and business sectors without placing them in this context, and we felt it was more important to emphasise what needed improvement in the prevailing work practices, mindset, governance and values than passing judgement on particular persons.

Inevitably, however, we mention lots of names in our report. There are many people involved and most of them are of the stature that even though you avoid stating their name explicitly—for instance by giving their job title—everyone would still know who’s being talked about. But our ambition was to examine the course of events in light of certain key factors and to draw out the common elements. Those are what interest us.

Blaming ‘greed’ would be superficial

Could you say that your committee’s underlying goal was to pinpoint the ethics and ethical inclinations of our entire community, to learn what sort of society would beget such a system with such built in flaws, and so on?
Yes, you could word it that way. I’ll just take a concrete example: A lot of people want to explain the bankers’ behaviour using the word greed. Greed is a moral concept, a vice, it is one of the seven deadly sins and that in itself makes it a meaningful concept. However, in our opinion it would be a superficial analysis that attempted to explain the bankers’ actions primarily by their greed. Of course, there was greed, there was a lot of greed, but the banks had in place a motivational system that outright encouraged such behaviour. Such systems can be supervised and changed.

This is important to note, because if one connects it to the government, then part of the whole deregulation ideology involved a certain individualism. Individual bankers were blamed, not the ideology or the regulatory framework. When banks went overboard in paying bonuses and absurdly high wages, critics would wag their moralistic finger, saying people weren’t being responsible in how they treated their freedom, that in reality we had been unfortunate with the people who were in charge of the banks, that they weren’t morally sound enough.

No blaming the EEA

And surely they weren’t, there were a lot of signs pointing to that, but the authorities had many means of imposing a stricter frame—which was definitely needed. It was absolutely necessary to impose some boundaries on the options and leeway these businessmen and bankers had, but the authorities didn’t, and instead strived to maintain a deregulated environment. That is no coincidence; it was part of the prevailing ideology.
They sometimes like to explain or excuse it by pointing to EEA regulations that we adopted, but those were just a minimal framework legislation and we had full authority to devise and maintain a regulatory environment fitting for this small nation. But the government decided not to, the ideology implied  that a mostly unregulated environment would unleash the full powers and potential of these young entrepreneurs.

Then when they turn out to have abused this environment, they are met with moralistic concerns from the authorities. They get scolded and told, “you should behave better!” There was a lack of resolute administrative actions or attempts to regulate the environment and control the frame and context within which the bankers could work.

Ethicists aren’t meant to judge, but to analyse…?
Yes, that’s an important distinction to make. I find it rather embarrassing when I am giving these interviews after the report was released and journalists ask me, “what about the politicians? Who should resign? Who shouldn’t resign?” I don’t want to answer these kinds of questions. I think this is important when it comes to politics and the analysis thereof, we are analysing the principles and norms they judge themselves by, whether a particular politician resigns or not is a matter of implementation that I do not have any specific opinion of as a moral analyst.

Are we all to blame?

A lot of people ponder the responsibility of Icelanders as a collective. Do our collective moral paradigms and what we consider “acceptable behaviour”—not to mention how we cast our vote and behave as citizens, especially considering that many people actively tried to warn us—make us morally responsible for what went on?
This is an interesting question that we address at the end of our report. We ask: Are we all “guilty”? Are we all accessories? Did we all dance along? What is our collective responsibility?

And people respond to those questions very differently. Some will agree that we are all responsible in a way, and that it’s important we now examine and reconsider our values and ourselves. Others will get extremely defensive and say that whether or not they bought a flat screen TV and took loans is beside the point; they certainly aren’t responsible for the banks crashing.

This question demands serious consideration. When discussing the public’s accountability it is, of course, of an entirely different nature than, say, bankers who participated in very specific actions. The bankers are responsible for all the shady business dealings they participated in, and politicians are responsible for creating a free and unregulated space for them in which to conduct that business. The media is responsible for failing to keep the public well informed and giving them better grounds on which to base their beliefs and opinions.

Am I a passive vessel?

I think there are three things we can look to in regards to the public of Iceland. Firstly, we are all participating in a social discourse. There was a prevalent idea or image of Icelanders as smart businessmen. That we were experiencing a time of great prosperity, going full speed ahead. I think many people can see themselves as having participated in and contributed to that discourse. It’s a question philosophers ask themselves a lot of times, how ready are you to carry on a rumour or a common belief without considering whether it is at all substantiated?

I think the aforementioned belief is one that we know was exaggerated and carried on without merit, and without careful  examination or consideration from those that carried it forward. It is at all times important to ask oneself: am I a passive vessel for the stream of the ideas that is moving around in society, or am I as a citizen responsible for examining them and taking a considered stance before passing them along.

The second thing is that we are all consumers. This is especially worthy of consideration given the fact that Icelanders generally are a rather gluttonous and excessive group, frugality and prudence have not been in fashion here for the past decades and one of the reasons for the economic collapse hitting individuals as hard as it did is that they made decisions that they now have to pay for. Consumption grew enormously, and many of us borrowed heavily. This is something worth pondering; even though it did not cause the economic collapse, our mode of thinking and culture of excess certainly set the stage for what was to come and added to how hard we were hit. These values are part of the conditions that frame our ultimate downfall.

Thirdly, we are citizens in a democratic state, and thus responsible for our government. We chose our politicians, and by default the conditions created for our bankers too. Every coalition government of the years leading up to the collapse had declarations that cited—among other things—the stated goals of strengthening the financial sector, of keeping the banks in the country and keeping the burden of regulation and supervision as light as possible. We now know the end results of these goals, but one could say that we were living in a virtual reality—very few were conscious of what was really happening here and their words of warning were not heeded.

A nationwide disrespect for law and order

One could ask whether there is not a difference in degree rather than nature between the gas station attendant that offers his friends and family “questionable” discounts and the bankster that lines the pockets of his friends and associates. Does the former enable the latter—does a society that constantly sells its moral values short not beget crooked bankers and politicians, and the damage they can bring?
Yes, one thing that’s very prevalent through our analysis is a nationwide disrespect for law and order. We often take pride in this, and are even prone to make fun of Scandinavians that are much more orderly, law-abiding and disciplined than we are. It is often the case with nations or large groups of people that their virtues and flaws are intertwined. We like boasting of characteristics such as flexibility and the ability to labour in spurts, ready for everything and not being limited by tradition or rules. But the bad side of this coin is the discount we are willing to give of our principles and laws; this created the position that enabled our financial system to grow out of hand. Then our purported assets became very dangerous to ourselves as a people and as a nation.

Some say our society became shrouded in secrecy…
Yes, there was a permeating secrecy or lack of transparency. The small size of our society is very relevant to this. In an appendix to our report, which investigates the collapse in light of social or political psychology, Hulda Þórisdóttir writes about the small, homogenous society—we also refer to this in our findings. People are used to sticking together, like a small family, knowingly or unknowingly emphasising unity, solidarity and trust, for example between politicians and the bankers. These are of course good qualities in a proper place, but in that context they became downright harmful.

The level of trust between the political and financial sectors was far too great, not to mention between the supervisory authorities and the bankers. It’s striking to note that it was pretty much a stated policy of the Financial Supervisory Authority to trust the banks and their managers. The head of the FSA remarks in the report that he assumed “these were honest men,” which is of course a great attitude for people to have in general, but very unrealistic in the situation that had been created.

When the banks were privatised, the politicians abandoned the sound principles they started out with, those of spread ownership, experienced bankers and foreign lead investors. Two relatively small groups of people, with little banking experience between them, were allotted very large shares in Iceland’s banks. They were granted a lot of leeway and the message from the government was that we should avoid “restrictive” supervision … it all amounted to a recipe for a lot of temptation; we needed to impose a lot more restraint on these sectors. But they were allowed to grow fast and far beyond our ability to regulate them.

Goals that failed tremendously

The banks were meant to supervise themselves, a goal that failed tremendously. For example, the banks employed compliance officers who have the purpose of making sure regulations and proper procedure were being followed. It was made next to impossible for these people to do their jobs properly. Not only were they constantly shorthanded, they were always kept busy with miniscule tasks, which made it impossible for them to attain a proper overview of what was going on. They were in danger of becoming useful innocents within the system.

One tragicomic example is that at one point in time one of the banks had one person acting as compliance officer while the “entertainment department” employed thirteen full time employees. It was that absurd [laughs]!

And from reading the report’s interviews with the bankers and summaries from their records one can surmise that they saw regulation and supervision as an annoying source of bother, preventing them from reaching their goals. Part of the bankers’ brilliance was regarded their ability, sometimes with the help of lawyers and accountants, to exploit legal and regulatory loopholes to their maximum benefit.

This reveals a mode of thinking that is definitely part of what got us here today; instead of considering the purpose and spirit of a law or regulation, the bankers as well as the regulatory authorities would focus on the letter and individual articles of the law. One could imagine that the purpose of a given banking regulation was to ensure a robust and healthy financial system, as well as safeguarding our society, protecting it for the common good. Instead of asking themselves whether a certain act went against the spirit and purpose of the law, bankers as well as officials focused on whether it directly breached it. One example is when Landsbanki was in the process of bringing its IceSave to Holland—which never should have happened, because at that late date our authorities should have known what it might entail—Dutch authorities were trying to restrict it. This spurred the FSA to defend the bank by referring to a letter of the law and complain that the Dutch were having macro economic worries. Such worries were certainly of vital importance.

Subject to manipulation

In regards to the family metaphor, one term that comes to mind is co-dependency…
That is a term some want to use about the way our system works. Styrmir Gunnarsson [former Morgunblaðið editor and Independence Party associate] for instance speaks of an across-the-board co-dependency and I think it is a term that might well be used in analysing our society.
There are Icelandic politicians that seem to have gotten quite far by being aggressively demanding and imposing. And no individual can get far on those terms unless this behaviour is tolerated and allowed by others. The prerequisite for someone getting ahead by being bullish and aggressive is that enough people support that behaviour and grant it room.

I think one of the things our analysis reveals is that our democratic framework is very fragile and subject to manipulation. One of the explanations for this is that politicians in Iceland seem steadfast in the belief that they renew their authority in elections every four years and that is the only time they are accountable, being free to do what they want within the ramifications of the law the rest of the time.

In nations where democracy is more mature, politicians’ power is tempered both by restraint from within the political system—for instance from the legislative power and the media—as well as advise from various educated experts and specialists.

Are Icelanders an immoral nation?
No, I think not. Icelanders are not an immoral nation. In fact I believe that there is probably no such thing as an immoral nation, as a nation can only grow from communities where moral norms are honoured and moral institutions, such as the family, are able to thrive. The family does not need rules or regulation, as a properly functioning family is governed by trust and love and a plethora of virtues that make life therein better. However, some of those virtues and moral axioms can inverse when applied to the public sphere, where various agents may be connected through mutually vested interest. Maybe Iceland has yet to evolve into a civil society…

Infertile soil
Where were the ethical and philosophical analyses on our business, political and bureaucratic sectors pre-collapse? Were they there, and no one was listening, or were—as some would have it—our institutions of higher education too dependent on financing from these channels to dare speak up loudly?

There were philosophers who criticized the ideology, the social prioritization, the obsessive materialism and consumerism in the period preceding the crisis. There were also a few economists and business analysts who consistently criticized the growth of the banks and the handling of economic affairs. However, the soil was not fertile for this criticism and it did not have any effect. There is a need to look much closer into the relationship between the university community and the financial sphere and the universities need to regulate conflicts of interests. The increased funding of higher education from the private sphere does reduce the motivation for critical awareness among those who receive it.

What surprised you the most about the report’s findings?
Generally speaking, to what extent our social reality has been fabricated by forces of image-making and how little resistance there is in Icelandic society against these forces. This is a grave concern for a democratic society and shows how weak our public sphere is.