The newspaper DV recently made considerable hay out of the fact that from 2005–2008 Iceland was the second largest market in the world for the Danish luxury home electronics brand Bang & Olufsen. This is according to one of the owners of the now bankrupt Bang & Olufsen store in Reykjavík. Only rich Russians bought more of these overpriced Danish designer electronics, and we’re not talking about ‘per capita’ measures. No, in absolute terms Iceland was the second largest market in the entire world for Bang & Olufsen. The news site Eyjan.is declared in a headline that “every second household in Iceland” owns a B&O gadget.
KEEPING UP WITH THE GRISWOLDS
Considering the cultural atmosphere of pre-crash Iceland this should not come as a surprise. The firm’s home electronics have long been associated with the ostentatious display of newfound wealth. A case in point: the insufferable yuppies who live next door to the Griswold family in Chevy Chase’s ‘Christmas Vacation’ owned a Bang & Olufsen stereo, killed by Clark Griswold in a memorable scene. In the yuppiefied world of Iceland anno 2007, where it seemed every second person drove a Range Rover, corporate and finance types ruled supreme and every two bit businessman was a budding corporate Viking, planning mergers and acquisitions abroad, it made perfect sense that every second home be stocked with Bang & Olufsen.
During the height of the bubble Iceland became a major market for many other luxury items. For example, during the first ten months of 2007 more Range Rovers were sold in Iceland than in Sweden and Denmark combined, and in January 2008 sales estimates anticipated that the Icelandic market would absorb as many top of the line Toyota Land Cruiser 200s as the entire British market. All kinds of other extravagant luxury items, from Beluga Caviar and Japanese Kobe beef to designer furniture and overpriced stereo equipment, sold like hotcakes.
This explosion of expensive luxury consumption was one of the results of rising income inequality. According to research by Stefán Ólafsson and Arnaldur Sölvi Kristjánsson at the University of Iceland, income inequality grew faster in Iceland during the period 1993–2007 than in any other OECD country. The average income of people in the wealthiest 1% went from being roughly five times the average income in 1993 to being 27 times higher in 2007. By 2007, 39,4% of all income was made by the richest 10%. Half of this went to the wealthiest 1%, who commanded 19,8% of all personal income.
“MY BELUGA NEEDS MORE GOLD FLAKES”
But it wasn’t only the top percentile looking for ways to blow its newfound wealth that consumed like there was no tomorrow. Average people were also increasing their consumption. From 2002 to 2008, personal consumption grew in real terms by some 29%, while incomes grew by only half as much, or 15%. Much of this increased consumption was therefore paid for by increasing debt. From 2002 to 2008, household debt grew by 77%. Iceland went through a general consumer boom.
The great mass of people renewed their cars, home appliances, exchanged tube TVs for flat-screens and took more trips abroad. While all of this spending was clearly excessive (as evidenced by growing debt) it was, however, not on par with the extravagance of the financial oligarchs who served risotto garnished with gold flakes.
It is both unfair and incorrect to conflate the two. The Icelandic consumer boom has at least two sets of actors: the top 1–10% and the rest of the population, the average middle class Jane who took out a home mortgage to pay for an upgrade to her kitchen, a trip to Tenerife and a travel trailer for the family. This is opposed to the top 1%, the new class of financiers who took out loans to pay for various financial shenanigans, and then bought private jets, Kobe beef and Beluga caviar for the proceeds. Then, of course, there was a large segment of the Icelandic population that simply had no opportunity to participate in the great boom. Those who work at low wage jobs, single mothers and pensioners were largely left behind.
It is therefore unfair to say that “everyone” participated in the same consumer boom: There is a difference in kind between the wasteful extravagance of one group and the excessive spending of the other. The two are nonetheless closely related, and it is this relationship that might explain what fuelled the Icelandic consumption boom.
SOCIAL AND CULTURAL INSECURITY
Consumption is a social practice. People use it to signal what groups they belong to, or want to belong to, and how they want to be viewed by others. This frequently assumes the form of competitive conspicuous consumption, first described by the 19th century economist Thorsten Veblen. Veblen argued that the haute bourgeoisie of the times used conspicuous consumption to engage in a competition of social status.
With the rise of the middle class in the post war period this kind of conspicuous consumption became less pronounced, as American social scientists argued that consumers were more preoccupied with maintaining status and “keeping up with the Joneses”. Keeping tabs on what kind of car their neighbour drove, where they went on holiday and whether they had their kitchen remodelled—not to outdo them so much as to keep up. While the earlier type of conspicuous consumption was never present in Iceland this second type characterised Icelandic consumer society in the post-war period.
But as the American economist and social critic Juliet Schor has argued in her book ‘The Overspent American’, this dynamic has changed in the past few decades as consumers have piled on debt to finance the ratcheting up of their consumption standards. The reason, Schor argues, is that the reference groups people look to have changed. In the post-war period people looked to neighbours and friends on which to model their own consumption practices; people who were by and large within the same income bracket as they were. In the more recent past, consumers have increasingly started to model their consumption practices on people who are much higher on the income scale. Schor blames rising income inequality as well as the media portrayals of the lifestyles of the rich.
Schor argues that newly wealthy groups of corporate managers and investment bankers have had the opportunity to engage in fabulous displays of wealth that had not been seen since Veblen wrote his ‘Theory of the Leisure Class’ at the turn of the 19th century. The media pays close attention to these displays of wealth, even portraying them as a goal for the middle class. The result, Schor argues, is a growing cultural and social anxiety as the middle class desperately tries to keep up with increasingly unattainable consumption goals, piling on debt in the process.
The process Schor describes is well known from history. Classes experiencing social and economic decline frequently engage in desperate competitive consumption. Historically, though, these have been aristocratic classes who plunge into debt to finance their extravagant lifestyles in a vain attempt to cling to their cultural status in the face of rising groups of merchants or burghers. In all cases, however, we encounter an atmosphere of rapid social and economic changes and uncertainty, paired with social and cultural insecurity.
It can be argued that similar conditions emerged in Iceland in the past decade. Iceland had been a relatively egalitarian society and wealthy Icelanders rarely flaunted their wealth, and the media never paid much attention to their consumption. This changed in the 1990s as income inequality rose, creating fabulously wealthy people. And the media reported breathlessly on their spending habits.
At the same time there was a massive increase in the space given to various lifestyle reporting. Home remodelling and various luxuries got ample space in newspapers and magazines while TV shows contributed to a heightened awareness about the consumption of people who were seen to be successful, what they had in their garages, their living rooms, etc. With this the consumption references of Icelanders shifted.
Even if the average Icelander could not afford his or her own private jet, some could buy a Range Rover and those who could not afford that luxury, even with generous financing, could at least trade out their old car for a shiny new one. And many did. Just so that they would not feel left behind.
This fear of being seen as someone who is not “making it” is all the more pressing in a small society when large groups of people are making it big time. Realising that you are not one of the chosen few who gets to eat the golden risotto can fill people with a feeling of emptiness that can only be plugged with some other luxuries. Marketers exploited this by advertising and marketing all kinds of “affordable luxuries”.
WHY, ORDINARY PEOPLE?
The story about the Bang & Olufsen sales received a lot of attention primarily because it seemed to encapsulate the extravagance of Icelandic consumption prior to the crash and proves that nearly everyone (half of all households according to eyjan.is) participated in the craziness. But it probably obscures as much as it illustrates. The bulk of the sales, especially of the high-end equipment, priced in the millions of króna, could only have been bought by the nouveau riche. However, a part, even a very sizable part, of the general population, must also have been among its customers, stretching their credit card limits to buy a 500.000 ISK flat screen TV.
The critical question is why “ordinary people” felt they needed overpriced home electronics. By blaming it on some innate spendthriftness or moral failure of average Icelanders we fail to take into account the larger changes that were taking place in the Icelandic economy and society, and we fail to recognise the cultural impact of these changes.