Category Archives: finance

solutions to current political dogma 2 – Iceland

Katrin Jacobsdottir, of the Left-Green Movement, Prime Minister of Iceland since December 2017

So there are problems with modern democracy, especially for those governmental systems that have congealed into a two-party race to be top dog for the next election cycle, with each new winning party tending to dismantle the policies of the previous government. There are also major problems of money in politics, especially in those nations, like the US, in which the rich-poor divide is problematic and worsening.

Of course these problems pale into insignificance as we witness the attempt to snuff out democracy altogether in Miyanmar. The democratic world watches this as if helpless, as if the matter shouldn’t be dealt with urgently and internationally. The only country that seems to want to do anything about the situation is China – to lend a hand with the butchery, in order to protect its business interests there. We need to strengthen international forces against those who ride roughshod over human rights in such a flagrant, corrupt and arrogant way.

After that venting of spleen I’ll return to the comfort of our lucky country and those like it. The fact is that these modern democracies and capitalist nations have a dynamism that traditional governing systems, laws and work practices are unable to keep up with, and the increasing concentration of wealth and power in the hands of financial elites is leaving behind a demoralised sector of society, formerly known as the working class. Traditional jobs are gone or transformed, leaving many feeling outcast, bewildered and defeated. But of course many of the young, or young-at-heart, in this sector have ideas and energy to spare, and are seeking a like-minded community.

The examples of participatory democracy and community action that follow have been introduced to me by Jess Scully in her book Glimpses of utopia: real ideas for a fairer world, and I will do my own research to follow up areas of interest and new developments.

  1. Iceland

As a person not well-versed in global finance, I always wondered how a failure of regulation in the US banking system led to a global financial crisis, where national governments felt obliged to bail out banks outside of the USA. The Reserve Bank of Australia (RBA) has an explainer on this, citing ‘linkages in the global financial system’, which I kind of guessed. But does the financial system have to be linked up in this way, and what if a particular government refused to bail out their nation’s banks?

The RBA mentions Iceland as one of many countries in which excessive lending, encouraged and facilitated by banks, was happening in the pre-GFC boom years. All of this was a result of lack of foresight (booms are always followed by busts), greed (the loans were sold on to investors as ‘mortgage-backed securities’ (MBS) which became increasingly opaque and complex) and corruption (due to lack of regulation, fraud in the form of overstating borrowers’ income and lying about the safety and value of MBS products). The international linkages included the facts that the housing boom was more or less worldwide, that US banks had an international presence, and that foreign banks were large-scale investors in MBS and other higher-return products.

So it’s likely that the major problem here was and is lack of regulation and independent oversight. I might go into the Australian situation in another post, but the situation of Iceland is unusual because the GFC led to a massive re-evaluation of its political and economic structure.

Iceland’s banks were deregulated in the early 2000s, and in the following years, its banking system went more than a bit crazy, creating paper billionnaires almost overnight. Clearly the dodgy deals were more flagrant than elsewhere, and when the crash came, many bank CEOs and some government officials were tried and jailed. But there was no bail-out. As Gudrun Johnsen, a member of the special commission set up to learn from the collapse, put it, ‘The banks were 10 times the GDP of Iceland; 20 times the state budget. They were too big to bail out’.

What did occur was a change of government, a rewriting of the Icelandic constitution, and an unprecedented period of financial and political reform, set off by the Pots and Pans Revolution. Much of this involved participatory democracy, including online crowdsourcing (in the case of creating a new constitution), the building of an online platform, Better Reykjavik, later rebranded as Better Neighbourhoods, and the encouraging of ideas and systems transcending political duopolies. All of this was quite unusual in Iceland, a nation not given to revolutionary activity, and it has only been partially successful. In 2013 a more conservative government was returned, but the political landscape has been altered, and political sensitivities have heightened. These comments from two analysts after the 2013 elections give a sense of the new situation:

While the grassroots movement that overthrew the government after the crash remains disillusioned and disappointed, its impact should not be under-estimated. One important development in its wake, and an important emerging theme for further research, is a series of experiments with direct democracy and social media. Soon after the crash, a crowd-sourcing company drew upon social media to prepare for a National Meeting (Þjóðfundur) of 1,000 participants for outlining a new constitution. While the end result of this work remains unclear, and much depends on the formal, indirect democracy of the Parliament, it seems safe to say that the public has been sensitized to new avenues for democracy and alerted to potential signs of corruption.

It may not seem like much, but the protests and what followed from them were something of a revelation for Icelanders – apparently the biggest show of public dissatisfaction with its leaders in a thousand years, together with positive, participatory action to improve the political and social situation there, using new technologies and social media. As we all know, social media is very much a double-edged sword, but it is here to stay (until something else comes up), and we can’t really afford to ignore it.

Next I will look at how Taiwan is dealing with its new democratic freedoms.

References

https://asia.nikkei.com/Spotlight/Myanmar-Coup/Myanmar-coup-Week-from-Feb.-20-to-March-18-UN-team-urges-whistleblowers-to-report-illegal-orders

https://asia.nikkei.com/Spotlight/Myanmar-Coup/Myanmar-crisis-drags-China-into-chaos-after-factories-torched

https://www.rba.gov.au/education/resources/explainers/the-global-financial-crisis.html

https://www.bbc.com/news/business-35485876

https://en.wikipedia.org/wiki/2009_Icelandic_financial_crisis_protests

Jess Scully, Glimpses of utopia: real ideas for a fairer world.