Go read this interview with the President of Iceland, Ólafur Ragnar Grímsson.
As you may recall, their economy cratered a few years ago, brought on by the collapse of their banks (sound familiar?). But instead of bailing out their financial institutions, they let them go broke. Then the country stood up to demands from world banks that the country assume the debts of their failed banks and enact extreme austerity measures — or else. It was close to blackmail, but the country said no. And … nothing happened. In fact, their economy is recovering faster than the rest of Europe (and faster than the US).
It is a good and instructive read. Nothing radical at all, and is mostly common sense:
As everybody knows now, we did not pump public money into the failed banks. We treated them like private companies that went bankrupt, and we let them fail. Some people say we did it because we didn’t have any other option, there is clearly something in that argument, but it does not change the fact that it turned out to be a wise move for whatever reason. Whereas in many other countries, the prevailing orthodoxy is you pump public money into banks and you make taxpayers responsible for the banks in the long run, and somehow treat the banks as if they are holier institutions in the economy than manufacturing companies, commercial companies, IT companies, or whatever. And I have never really understood the argument: why a private bank or financial fund is somehow holier for the well being and future of the economy than the industrial sector, the IT sector, the creative sector, or the manufacturing sector.
So if you add all of this together and throw in the devaluation of the currency as well, it’s clear that what some people have called the Icelandic model includes a number of measures and approaches that have not been adopted in other countries. On the contrary, it includes some methods in the process that go directly against what has been adopted in other countries. But the outcome is the Icelandic economy is recovering faster and more effectively than any other economy, including the British and the American that suffered from a big financial crisis in 2008.
So why aren’t other countries learning from what they did? Grímsson provides the answer in the interview, when he warns against countries becoming addicted to their financial sector.
In responding to the crisis, Iceland treated it “not only as an economic challenge but also as a fundamental social, political, and even a judicial challenge.” Instead of bailing out rich investors and foreign banks, using money they would have to take away from providing services for the poor, they protected social and health services. In other words, they put their country and its people ahead of the banks. Is that really so hard to do?