ACCOUNTABILITY, TRANSPARENCY AND EFFICIENCY THE NORDIC MODELS HANNES H. GISSURARSON www.europeanreform.org @europeanreform A Brussels-based free market, euro-realist think-tank and publisher, established in 2010 under the patronage of Baroness Thatcher. We have satellite offices in London, Rome and Warsaw. New Direction - The Foundation for European Reform is registered in Belgium as a non-for-profit organisation (ASBL) and is partly funded by the European Parliament. REGISTERED OFFICE: Rue du Trône, 4, 1000 Bruxelles, Belgium. EXECUTIVE DIRECTOR: Naweed Khan. www.europeanreform.org @europeanreform The European Parliament and New Direction assume no responsibility for the opinions expressed in this publication. Sole liability rests with the author. The Nordic Models Prof Hannes H. Gissurarson AUTHOR TABLE OF CONTENTS 1 INTRODUCTION 6 2 ECONOMIC LIBERALISM IN SWEDEN AND FINLAND 8 3 THE THREE SWEDISH MODELS 16 4 ECONOMIC LIBERALISM IN DENMARK AND NORWAY 24 5 ICELAND: PRIVATE ENFORCEMENT OF LAW 28 6 THE LIBERAL AWAKENING: JON SIGURDSSON 33 7 BASTIAT, MILL AND CASSEL IN ICELAND 38 8 MISES AND HAYEK IN ICELAND 44 9 HAYEK, BUCHANAN, AND FRIEDMAN IN ICELAND 47 10 THE ICELANDIC ITQ SYSTEM IN THE FISHERIES 52 Prof Hannes H. Gissurarson 11 LIBERAL REFORMS OF THE ODDSSON GOVERNMENTS 57 12 CRITICS OF ODDSSON’S LIBERAL REFORMS 64 Dr Hannes H. Gissurarson, Professor of Politics in the 13 THE 2008 ICELANDIC BANK COLLAPSE 73 School of Social Sciences at the University of Iceland. 14 ERRORS AND LOGICAL FLAWS IN THE ANTI-LIBERAL NARRATIVE 77 15 UNSUBSTANTIATED CLAIMS IN THE ANTI-LIBERAL NARRATIVE 80 16 SOME HALF-TRUTHS IN THE ANTI-LIBERAL NARRATIVE 87 17 IMPLAUSIBLE EXPLANATIONS OF THE BANK COLLAPSE 92 18 ICELAND’S REMARKABLE RECOVERY 97 19 CONCLUSIONS AND RECOMMENDATIONS 105 4 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 5 The Nordic Models Prof Hannes H. Gissurarson 1 INTRODUCTION he five Nordic countries, Sweden, Denmark, introduced in the 1950s to the 1970s turned out to be Commonwealth and the present system of In Iceland, the mine has exploded and the Finland, Norway, and Iceland, are rightly untenable. Moreover, there is in fact no one Nordic individual, transferable quotas in the fisheries; canaries are dead. Iceland was the first to fall. T regarded as successful societies. They are model, even if there are some resemblances between the individualist tradition in Icelandic history The most dramatic. The warning to others. The affluent, but without a wide gap between rich and the three Scandinavian societies, Sweden, Denmark, and literature, stretching back to the original people have survived to learn that neoliberal poor. They provide social security, but without a and Norway, with Finland and Iceland being different settlement of the island in 874–930; and the meltdowns have nothing to do with genetics significant erosion, it seems, of their freedoms. They are in various respects. Indeed, because the ‘Swedish writers, activists, and political leaders who and everything to do with neoliberal economics small, but they all enjoy a good reputation around the model’ is frequently invoked, a distinction can be made have defined, defended, and practised freedom and the political cronies who promote world as peaceful, civilised democracies. The Nordic between at least three Swedish models, the liberal one in Iceland, Jon Sigurdsson, the leader of the corruption, engineer multinational corporate nations are healthy and well-educated and the crime of 1850–1970, the social democratic one of 1970–1990, struggle for independence, Prime Minister Jon cooptation of governments, and orchestrate rate is low. But what is it that other nations can learn and the present model of a liberal, restrained welfare Thorlaksson, and others. A special emphasis massive propaganda assaults on news, on from the Nordic success story? Harvard economist state. It is also not true that social democracy captures is put on the comprehensive liberal reforms of literature, and, most insidiously, on common and UN development expert Jeffrey D. Sachs is in any essence of the Nordic nations. They, especially the 1991–2004, when David Oddsson was prime sense.2 no doubt about the answer. He recalls Friedrich A. Swedes, have strong liberal traditions. What has made minister, and the many flaws in the anti-liberal Hayek’s warning against socialism, ‘Road to Serfdom’, the Nordic countries successful is their combination narrative widely presented abroad by his At the end of 2016 two other academics write: and argues that he was wrong and that the Nordic of open economies, free trade, competitive export critics. Finally, the dramatic 2008 Icelandic ‘Iceland is the only existing advanced economy countries prove it. ‘In strong and vibrant democracies, industries, protection of property rights and the rule of bank collapse is discussed and explained. It counterfactual to the inevitability of neoliberal a generous welfare state is not a road to serfdom but law on the one hand and social cohesion, transparency, has frequently been interpreted as the failure orthodoxy.’3 In this report it will be argued that the rather to fairness, economic equality and international strong traditions, respect for hard work, a high level of of liberalism, or as left-wing intellectuals prefer rapid recovery of Iceland shows that the foundations competitiveness.’1 In this report, it will be argued that trust and homogeneity on the other hand. to call it, ‘neoliberalism’. For example, in a 2015 laid with the liberal reforms of 1991–2004 were sound: this is a misunderstanding, not only of Hayek but also, book two academics – one of them Icelandic – ‘neoliberalism’ was not the cause of the bank collapse. more importantly, of the Nordic success story. The In particular, this report focuses on liberalism assert: ‘Iceland was the canary in the global coal The Icelandic model, neither Anglo-Saxon nor system of high taxes, extensive redistribution, and in the smallest Nordic country, Iceland, mine, a warning of danger,’ adding: Scandinavian, has withstood the test of time. • general and generous welfare benefits without any analysing three aspects of it: institutions like means-testing that Scandinavian social democrats the private enforcement of law in the old 2 E. Paul Durrenberger and Gisli Palsson, Introduction, Gambling debt: Iceland’s Rise and Fall in the Global Economy, eds. E. P. Durrenberger and G. Palsson (Boulder CO: University Press of Colorado, 2015), pp. xiv and xxix. 3 Kevin Farnsworth and Zoë Irving, The limits of neoliberalism? Alternatives to Neoliberalism: Towards Equality and Democracy, eds. Bryn Jones, Mike 1 Jeffrey D. Sachs, Welfare States beyond Ideology, Scientific American, Vol. 295 (5: November 2006), p. 42. O’Donnell and Theo Papadopoulos (Bristol: Policy Press, 2017), p. 110. 6 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 7 The Nordic Models Prof Hannes H. Gissurarson In 1765, Chydenius wrote a short treatise, ‘The 1793 and was active in promoting many economic 2 National Gain’, where he, eleven years before Adam reforms with the aim of modernising Sweden. One of Smith published his celebrated ‘Wealth of Nations’, his most original ideas, presented in his old age, was gave a succinct outline of a liberal economic theory, to establish a kind of free-market zone in Lapland, the explaining how individuals seeking their own gain northern parts of Sweden and Finland, also stretching ECONOMIC LIBERALISM IN could thereby benefit others, if operating in a free, to the most northern part of Norway. competitive market and not in a political race for power. He argued that ‘every individual spontaneously The army officer Count Georg Adlersparre (1760–1835) SWEDEN AND FINLAND tries to find the place and the trade in which he can was perhaps not as original a thinker as Chydenius, best increase National gain, if laws do not prevent him but he was even more influential. He translated parts from doing so.’6 The pursuit of National gain of Adam Smith’s ‘Wealth of Nations’ for a magazine he published and was the first Swede to call himself n an accessible and thorough history of Swedish weighs everybody in the same scales, and gain ‘liberal’. After the hapless Swedish king Gustav liberalism, historian Johan Norberg points out is the right measure that shows who should IV Adolf had in 1809 lost Finland to the Russians, I that the ancient Swedish farmers were sturdy have the preference. relieves the Government Adlersparrea led a successful revolt against him. individualists who insisted on their rights against their from thousands of uneasy worries, Statutes The king’s old and childless uncle became king, and kings. He quotes a story of the Swedish Law-man and supervisions, when private and National restrictions on the freedom of the press that the two Thorgnyr told by Icelandic chronicler Snorri Sturluson. gain merge into one interest, and the harmful previous monarchs had reintroduced were abolished In early 11th century, when the Swedish king Olof selfishness, which always tries to cloak itself again. A constitution was adopted which in a perhaps wanted to wage war against Norway, Thorgnyr, on beneath the statutes, can then most surely be typical Swedish way was the result of a compromise 7 behalf of the farmers, spoke against the king at an controlled by mutual competition. between the liberals and the conservatives. Freedom assembly, praising past kings who had, unlike the of the press, of religion, and of assembly and the present one, listened to the people. ‘He wants to He also displayed a keen understanding of the division protection of property rights were guaranteed, have the Norway kingdom laid under him, which no of labour. ‘If ten men produce goods to the value of while the nobility retained some of its privileges. Swedish king before him ever desired, and therewith 100 Daler a day in one trade, but in another to a value brings war and distress on many a man,’ Thorgnyr of not more than 80, it is obvious that in the latter said.