Iceland: The Vikings On the Move Again

There was a time when the Vikings did not create wealth, but robbed it from others. Those days are over. Today Iceland is one of Europe’s most prosperous economies.

Until the late 1980s Icelandic society could be described as deeply socialist. There were many state-owned companies, taxes were high and there was a lot of government interference in various fields. At that time capitalism was considered an extremist economic model. In fact any step towards liberating the economy was seen as extremist. However, there was a group of young Libertarians and Conservatives within the Icelandic Independence Party who thought otherwise. When this generation took over the leadership of the party in the early 1990s it started to put its ideas into practice: liberating the economy, introducing privatisation, lowering taxes and increasing public freedom in general.

Hannes GissurarsonWithin a decade they had turned around Iceland’s mentality. Today libertarianism and economic reforms towards a more liberalised economy are simply seen as the mainstream political ideology in Iceland. Reactionary forces, mainly on the center-left, have tried to hinder those reforms over and over again through the years. But they have not succeeded. The Independence Party has led this evolution which could very well be described as an economic revolution. The two individuals most responsible for this development in Iceland are Professor Hannes H. Gissurarson the ideologist of the movement, and Davíd Oddsson who put those ideas into practice.

Oddsson became Prime Minister of Iceland in 1991 after being elected as chairman of the Independence Party. Before that he had been mayor of Reykjavík since 1982. He was only 34 when he became mayor. His first government was a coalition with the Social Democratic Party (today a part of the Social Democratic Alliance) but since 1995 the Independence Party has governed with the Progressive Party which is a centrist party. Oddsson served as Prime Minister for more than 13 years, from May 1991 to September 2004. In accordance with the pact between the Independence Party and the Progressive Party on continued coalition after the general elections in 2003 the chairman of the Progressive Party took over as PM in September 2004 and Oddsson became Foreign Minister.

Since 1991 many state-owned companies have been privatised. These include Landsbanki Íslands (National Bank of Iceland), Búnadarbanki Íslands (now Kaupthing Bank) and the National Telephone Company (now Iceland Telecom). Taxes have been lowered significantly. Corporate taxes have been cut from 51% to 18% which has resulted in more revenue for the state than before. Income taxes have also been lowered significantly down to 24,75% and are scheduled to go down to 21,75% in 2007. Property taxes paid by individuals and companies will be abolished next year (2006) and the same goes for a special tax on high income. The VAT will be reviewed and a number of other reforms will be introduced.

The debts of the Icelandic state have furthermore been reduced by 50% since 1995. Iceland has sustained impressive GDP growth ever since that year with the sole exception of 2002. Last year the growth was 5,2% and it is forecast to be 4 to 5% for the next couple of years. Purchasing power has been growing every year and unemployment is very low at about 2% at present. And as a result of this Iceland is usually among the highest scorers in international researches on how well countries are doing.

Looking for Opportunities
In the old days, the Vikings raided foreign countries. Today the Icelanders are on the move again, but now, rather than robbing others of their wealth, they are looking for opportunities to invest their own wealth. The economic reforms of the 1990s have provided the substructure for the “break-out” of Icelandic companies to other countries in recent years, especially Denmark and the UK. Icelandic companies have bought or invested in many big companies in these countries. Icelandic businessmen now own the supermarkets Magasin du Nord and Illum in Denmark, the Danish low-fare airlines Sterling and Maersk, the British Heritable Bank and the stock-broker Teather & Greenwood. Also Mosaic Fashions Ltd. in the UK, the store chains Iceland and Booker, the toy company Hamleys, the jewellery store chain Goldsmiths, but also Geest North Sea Line in the Netherlands, and many more. The most recent investment happened only last month when Icelandic businessmen bought a 51% share in the Dutch company Daalimpex Beheer B.V., one of the biggest cold storage companies in Europe.

This sudden Icelandic “break-out” has taken many people outside Iceland by surprise. Many foreigners wonder how businessmen from a small country with less than 300,000 people can be able to achieve this and are asking where the money is coming from. There have even been some ridiculous conspiracy theories about mob money from Russia. One of the reasons for this success is the economic reforms in Iceland. These have among other things made it much easier for Icelandic companies to grow and become stronger. Another reason is that the Icelandic market is small and many Icelandic companies have reached a limit to their growth in Iceland and have therefore increasingly been looking abroad for investment opportunities. Finally Icelandic companies are simply very well run.

Thór Sigfússon, the director of Iceland’s Chamber of Commerce (ICC), was the guest in a talkshow in Iceland called “Kastljós” on August 15 which had Icelandic business life as its the topic. Sigfússon said among other things that more and more foreign journalists were coming to Iceland to write about Icelandic investments in other countries. The host then asked him why Iceland was doing so well in economic terms and then added: "It must be said that we are doing rather well aren’t we?" Sigfússon replied and said:

"Yes, and I think actually now when we’re having a lot of those journalists coming to the country – we’ve had now around 60 journalists in four months visiting us which has never happened in the history of the ICC – then they ask how come we’re having this success? And we realise very soon that what perhaps singles us out is that we are starting to get a good night’s sleep although others are doing well. Many of our neighbouring nations are not and are therefore losing talented people to other countries. We also have a certain swiftness in Icelandic business life and in Icelandic society. I’m very happy to be a representative of the business community and to be able to say that we have straightforward regulations, we have little bureaucracy and small government. So this has helped us very much."

And the Icelandic government is not about to stop reforming the economy. More tax cuts are on the drawing board, more privatisation and more deregulation. In addition serious and growing discussion has emerged in Iceland about the benefits of flat taxes.

Hjörtur J. Guðmundsson

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