Political science professor Hannes Hólmsteinn Gissurarson is a peculiar fellow. An ardent follower of the free market teachings of F.A. von Hayek and Milton Friedman, he is often referred to as the Independence Party’s chief ideologue and has been credited with laying down the lines for the massive de-regulation and privatisation process Iceland underwent during the past two decades. Indeed, he openly and loudly takes credit for it, and the ensuing era of great fortune and prosperity that Iceland seemed to experience as a result.
Now, of course, phrases like ‘Icelandic prosperity’ and ‘economic miracles’ seem far removed and distant, dark dreams from the past.
So did the professor’s plan go wrong? Is the collapse a result of his teachings and influence within the Independence Party, the party who’s eighteen-year reign of governing Iceland saw the island grow from humble fishing outpost to de-regulated free market paradise to rapidly sinking death rock?
Are the ideologies flawed, or were our implementations of them flawed–or was the collapse perhaps caused by something completely different? We caught up with Gissurarson, an excellent conversationalist, and had a chat about the whole thing.
Most of our readers are likely not familiar with you. Could you tell us a bit about yourself?
My name is Hannes Hólmsteinn Gissurarson, and I am a professor of Political Science at the University of Iceland. I am also an independent writer; I have written several books, fifteen in all, on diverse subjects: biographies, books on property rights and fishery managements, and on political philosophy, my real field. I finished my doctorate in political philosophy from Oxford University in 1985 and have since then worked in Iceland.
You have also worked with the Independence Party for a long time. You’ve often been referred to as the party ideologue.
You could say that I had a lot of opportunities to implement my ideas and ideologies in the years 1991-2004, when Davíð Oddson was Prime Minister, because we are good friends and collaborators. I will gladly acknowledge that I supported a lot of the changes that were made in our economic system during that time: We increased freedom of trade and of the individual, lowered taxes, opened up the economy, privatised and deregulated. I think it was a great success. When we left the scene in 2004, Iceland was one of the richest and most free nations in the world.
So you were in a position to influence state policy and implement your ideologies because you are a friend and accomplice of the former Prime Minister?
It’s a bit more complicated than that. What happened here in Iceland was that we had for long lived under a closed economy and were stagnant in many areas. Eventually a new generation became influential around and after 1990, and I was part of that generation. I wrote books and translated books by great free-market thinkers, such as Milton Friedman and Friedrich A. Hayek. It all amounted to something, and in 1991 a new government started implementing a lot of what I had fought for in my
Maybe in light of all that influence, some have lately taken to calling you ‘the architect of Iceland’s economic collapse’…
That’s absurd. If you think about it for a second. Who would want to aim for or instigate economic collapse? Nobody wants that, but things may well collapse if they aren’t well built.
What we did in those years is that we brought Iceland to a similar standard that many of our neighbouring countries enjoy, countries such as the UK, Australia, New Zealand, the US and Canada. Iceland became one of those wealthy, free societies.
As for the collapse, bear in mind that the world is undergoing a deep recession that did not start In Iceland but in the United States, with the subprime loan market, etc. The question we should be asking isn’t what caused the depression: rather, what made it come down harder on Icelanders than any other nation? My answer to that is that there are three reasons.
Firstly, a system error surfaced in the EEA treaty, because the Icelandic banks’ operational field was the whole of Europe while their reinsurance system was confined to Iceland, and Iceland couldn’t back up such large operations. They grew too big. This is a system flaw: the fields of operations and reinsurance should coincide.
The second reason is the bullishness of the Brits, which isn’t discussed much in Iceland. For a while, they put our Ministry of Finance and our Central Bank on a list of terrorist organisations like the Taliban and Al Qaeda. You can see how ridiculous that is when Iceland doesn’t even have an army. Some say they did this to prevent the Icelandic banks from siphoning funds away from the UK, but right before this happened Lehman Bros went bankrupt and they transported a lot of funds from the UK back to the US. Still, the Brits didn’t put the US government or Central Bank on a list of terrorist organisations. Why? Because Iceland is small enough to push around. The US is too large to be bullied like that.
But haven’t they been saying that they invoked the so-called ‘terrorist law’ to prevent a Lehman Brothers-style siphoning from happening again? That by the time they discovered what Lehman Bros were up to, using the law was useless.
That might well be, but they still had Landsbankinn on their list of terrorist organisations for months. Why didn’t they punish the US Treasury, Central Bank and the Lehman Bros by putting them on that
Anyway, the main point is that the British government bullied a small nation around, and their actions caused the banks’ assets and holdings to decrease in value way beyond what was reasonable. It was a measure that cost the Icelandic state incredible amounts of money.
Lastly, the third reason is the recklessness of Icelandic bankers. This is the only thing that’s being discussed in Iceland, although I am not of the opinion that it’s the main reason for Iceland being hit harder than any other nation. But it is something everyone can have an opinion on, and this is why it’s such a big part of the discourse. But I think these three reasons explain why Iceland is hit harder than any other nation.
If everything went so great in Iceland until 2004, when Davíð Oddson stepped down as PM, what went wrong after that?
Firstly, there was weak political leadership and secondly, the nation’s balance of power was upset. In a civilised society, no one party may hold too much power. You need to have a certain counterbalance between different parties, mutual restraint and supervision. And in Iceland it happened that Goliath beat David; the tycoons, aided by the President of Iceland, acquired ownership of all the media in Iceland—except for the Grapevine—and simply secured total media power over the country.
Iceland in the years 2004–2008 turned into Klondike, a gold rush town where capitalists were completely unrestrained and unsupervised. I am of the opinion that capitalists can be very useful, but only under the right rules and regulations: then they benefit others with their great capabilities and diligence. Between 2004 and 2008, this wasn’t ensured, for instance because the media did not provide any sort of supervision or criticism and supervisory authorities such as the Financial Supervisory Authority did not fulfil their roles well enough. Politicians egged them on and the President was a cheerleader for these men. Here in Iceland we danced around the golden calf, as the Bible says.
For what it’s worth, we at the Grapevine have been steadily running articles criticizing the system, the bankers and the politicians—even the other media—during our six year run.
But necessary oversight and useful criticism doesn’t always entail decrying the wealthy or attacking them. I believe they are useful; I am delighted on behalf of those that own yachts and private jets. But Iceland still should not have been run from their yachts and private jets. It should have been run by many different power centres. An independent judicial system, diligent media, honest politicians and hard-working capitalists, and of course the public.
There were really only two players of the game that opposed this evolution, but for different reasons. On one hand there was Davíð Oddson, who warned that this could happen and lost the battle with Goliath. Goliath beat David in the battle of the media law [a controversial bill Oddson’s government attempted to pass that would have severely constricted ownership of the Icelandic media. The law, which many believed was aimed directly at Fréttablaðið and Baugur’s move into the media world, was passed in parliament before President Ólafur Ragnar Grímsson refused to validate it]. That battle was in many ways about intellectual and political hegemony in Iceland.
Then of course the Left Greens opposed this development: they are against the accumulation of wealth. The rest of us are not against that, we just don’t want the wealthy to rule everything, sending us decrees from their yachts and private jets with those cell phones of theirs. That’s not the society we fought for. We fought for a society where the power is distributed among everyone.
But I fail to understand how everything could just… go to hell in 2004. That year, after everything had been deregulated and the banks sold off, you wrote a column in the Wall Street Journal, proclaiming that Iceland was the world’s most successful laissez-faire capitalism experiment…
And I stand by that statement. Nothing went wrong in 2004, but the roots of 2008’s defeat lie in the power structures that were upset in 2004.
But if we can boast of the most successful free market capitalism experiment, if we are in that good a standing in 2004… And we’ve in your opinion implemented most of the deregulation and governmental changes that we could handle at the time… how can you say that what we’re experiencing now isn’t a result of that?
What happened here was that a plutocracy was created. The ancient Greek philosopher Plato differentiated between tyranny, democracy and plutocracy. We went from pluralistic democracy to plutocracy after 2004.
Say you’re right. Couldn’t that shift be directly attributed to all the deregulation and privatisation you fought for, supported and boasted of?
Our regulatory environment is exactly the same as in other EEA countries so that isn’t the explanation. The main explanation of how badly the credit crisis hit us is the EEA system flaw which I pointed out and the Brits bullying. The recklessness of Icelandic bankers, which is only a small part of why things went wrong, can be attributed to a lack of oversight by the authorities, from politicians, the judicial system and the media. They did not get the right message, that they should show restraint.
All the media played along with the tycoons. And so did most politicians. The leader of the Social Democratic Alliance defended the tycoons in her Borgarnes speech in 2003. So you see, the parties that were meant to be keeping them in check did not do so.
That explains their recklessness. Personally I think they are mostly hard-working men that mean well, but things went wrong because they need to be monitored, like the rest of us.
You mean that society failed?
What happened is that the banks grew very rapidly. And they were only reinsured in Iceland, and it was discovered that this wasn’t sufficient in such a credit crisis. That is nobody’s fault. This is the main reason why things went the way they did. I am merely trying to explain the third reason to you, the recklessness of the bankers. And that was because Goliath beat David.
So it’s Fréttablaðið’s fault? The economic collapse can in part be traced to the media bill not being passed?
The fight over the media law is maybe mostly symbolic for a certain battle in society between people like Davíð Oddsson, who wanted tycoons to stay in their place, being useful and making money, and their opponents. What was the battle of 2004 about? It was about whether tycoons should own all the media and control all the opinion making in the country. We went through a great struggle between David and Goliath, where Goliath was the president of Iceland along with the tycoons; the people on the private jets and yachts. And they won.
I’ve been reading your articles and watching you on television for almost twenty years, on talk shows and on the news. I’ve heard your criticisms and suggestions and ideas on how to improve society, and how our communities are best run. And I’ve heard you boast about how successful we’ve been, as late as last year you boasted that the deregulation and privatisation of everything—the climate you claim to have helped create—contributed to the well being and wealth of the Icelandic nation. You said that we owed our prosperity to the changes that your party implemented in our system of government.
Then everything goes to hell, we find ourselves in the final chapters of ‘The Road To Serfdom’ and it’s suddenly the fault of your political opponents. You had no problem taking credit, ideological or otherwise, when things were going well, yet now you refuse to accept any responsibility whatsoever or attribute it to the system you implemented. This doesn’t make sense to me. It sounds like a huge cop-out.
I’ve already explained to you the three reasons for why the credit crisis hit Icelanders so badly, and two of them have nothing at all to do with the changes and progresses we made during the nineties and
early 2000s. The third reason, the recklessness, can be explained by lack of supervision, but that doesn’t explain anything.
The nations that are most free in the world are the ones that offer the most prosperity. It is not free market capitalism’s fault that we had a subprime loan crisis. That can be directly attributed to state intervention in the market. You cannot blame the free market for the subprime crisis, flaws in the EEA regulation or the Brits invoking terrorist law against Iceland.
As for the lack of oversight and supervision, I think that was an accident that happened, but I think that the critics of capitalism should agree with me that capitalists need to be monitored and supervised. And they weren’t between 2004 and 2008.
But isn’t deregulating the market a key factor in creating prosperity, according to you?
I am personally of the opinion that capitalists fare best when they are creating wealth. They do not fare well controlling a society and they should not buy entire political parties and media outlets, so as to avoid their criticisms.
The Social Democratic Alliance did everything the magnates wanted them to. The media did their biddings and the courts did as well. And is that the fault of libertarianism? How can you blame libertarianism for Ingibjörg Sólrún Gísladóttir saying in her Borgarnes speech that you couldn’t criticize Kaupþing?
There is a misconception going that since Davíð Oddson and his supporters were powerful between 1991 and 2004, they kept control after that, and steered the development after that. But he quit in 2004.
What is your opinion on ideological responsibility?
This is an interesting question, as I recently translated a book that will be out on Monday, called the Black Book of Communism. It was first released in France in 1997, and revolves around communism and Nazism, the main totalitarian ideologies of the 20th century. It asks whether communism is as bad as Nazism. You know that in some states, expressing Nazi opinions is illegal, and after WW II, having been a member of the Nazi party was made illegal. And they examine the question whether expressing communistic views and having been a member of a communist party should be made illegal as well, as communism cost a hundred million lives, while Nazism cost 20 million. These are bad ideologies.
Now, those that favour communism, aren’t they responsible? You can ask these questions, and I think asking them is only natural. And the answer is that everyone that has favoured the free market, a freedom of choice on consumer products and everything else, I don’t think that people who favour consumer choice and freedom of trade can be held responsible for the fact that capitalism fluctuates and goes through periods of instability. It’s thankfully not as stable as a system where everyone is equally poor, and where nothing happens. I would say that it’s very strange if the free market thinkers are blamed for world recession.
That being said, as soon as you create freedom, you create a risk, do you not? As soon as you leave your parents’ house as a young man, you are at a risk. But if you get yourself in trouble, is that somebody else’s fault? The main thing should be to limit the damage to the one that causes it.
And that’s one of the reason’s I feel it’s absurd for us to accept responsibility for the damage that Landsbanki caused with Icesave. We never signed any commitments. I believe that those that do well should reap the benefits, and those who do ill should equally suffer the consequences. The Icelandic nation should therefore not cover Landsbankinn’s debt. How can a nation be expected to pay the debt of private companies?
But speaking of responsibility, are we, then, responsible for letting things go too far?
If I make a mistake, I freely admit it. And I think I’ve been wrong in two or three instances. I did not believe the men behind Baugur [father and son team Jóhannes Jónsson and Jón Ásgeir Jóhannesson] were such bad businessmen as we are now witnessing. I thought their investments were sensible. I was shocked by their ruthlessness and aggressiveness, but I assumed they were smart businessmen. That was one mistake.
Another thing that surprised me was that Landsbankinn invested so much money in them.
Lastly, I believe I should have better supported Davíð Oddson when he criticised the magnates. I grew up on Hayek and Friedman, on their beliefs that wealthy capitalists were useful for society. As I said before, that is still my conviction, and it is backed up by centuries of experience and evidence. But I still should have supported Davíð more strongly in his fight against Goliath.
Which Icelandic party bears the most responsibility for our current state of affairs?
The Baugur team. It is obvious, and I am not saying this out of personal hatred or dislike. They are the biggest debtors; we have a credit bubble and who took these loans? It was them and their friends, the men with the cellular phones on the yachts and in the private jets.
You’ve been quoted as saying that everyone, save for Davíð Oddson, is responsible for the recession…
I used one reference from the Bible earlier, about the dance around the golden calf. There is another reference relevant here; the voice in the wilderness. I feel at times that Oddsson was the voice in the wilderness. I am not saying that he was infallible or perfect, or that everything he did was right—he made his mistakes like everyone else, he is frail and human. But he was the first to see the dangers of the ascending plutocracy.
But doesn’t that place an unfair burden on him, even?
But who else…? I’ll ask you a simple question, who else, on normal premises instead of a sick hatred for the wealthy, warned about the dangers of the Icelandic plutocracy?
Sick hatred for the wealthy?
Yes, I am talking about the Left Green party. They are against the wealthy, because they dislike them. But answer me this, who else warned of the plutocracy?
But is it fair to make it a condition to have supported tycoons that weren’t the Baugur father-son team or their friends?
Other people’s success doesn’t bother me; it doesn’t deprive me of sleep. I think the Left Greens are a completely different story. ‘Distribute misery equally,’ that’s the leftist creed.
Finally, do you have any suggestions as to solve this whole kreppa thing?
Yes, I do. I would have done exactly like Davíð Oddson advised in the beginning of the recession. I would have temporarily nationalised the Icelandic banks and told the foreign creditors to seize their foreign assets to cover the debt. ‘It’s your problem and your responsibility, you loaned them money against these assets,’ we could say. Then I would have tried to secure loans from the Russians and Chinese, and I would not have gone to the International Monetary Fund. Had we done this, we would have escaped a deep depression, even though it would have been tougher for a few months. We would have survived, and escaped recession sooner. The fundaments of our society are strong; we have a very good infrastructure and human capital, as well as great natural resources. This is how I would have done it. It would have been a drastic remedy, and it would have required strong leadership. But we didn’t have that, so maybe it’s useless to talk about it.
But this solution is a little late to implement. Any thoughts on what we should be doing now?
We should not ratify the Icesave agreement and re-enter negotiations. This case has been poorly handled; we should get the courts to determine how much we owe. Anyone can see how absurd it is that a few individuals that run a private enterprise can make an entire nation accountable for their debt of untold hundreds of billions.