Reykjavík Grapevine - 28.08.2009, Blaðsíða 6

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 prosperity that Iceland seemed to
experience as a result.
Now, of course, ‘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 is 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 with 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 youth.
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.
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.
Iceland should not have been run
from 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.
Articles | Interview
6
The Reykjavík Grapevine
Issue 13 — 2009
The Architect Of The Collapse? - The Professor Professes
Hannes Hólmsteinn Gissurarson gave a candid interview, and he argued his
views vigorously. You might not neccessary agree with his convictions, but at
least he has some.
CONTINUES OVER...