Four years ago, this remote country on the edge of the Arctic Circle became the most spectacular casualty of the 2008 global financial crisis.
Practically overnight, Iceland’s banking system collapsed, taking the currency and much of the rest of the economy with it. The krona plunged by some 75% in a matter of days before it essentially stopped trading altogether. The country’s three large banks, which had between them borrowed the equivalent of many times Iceland’s annual economic output, imploded as money rushed out of Iceland even faster than it had poured in during the boom years.
By the middle of 2009, it no longer felt like hyperbole to suggest that Iceland, economically at least, could sink beneath the waves altogether. The krona was on a fast track to worthlessness. International creditors, including the governments of Britain and Holland, were demanding huge sums that Iceland patently did not have in recompense for losses suffered when the banking system fell apart.
But in the past couple of years, Iceland has staged a recovery of a sort. Unemployment is down to nearly 5%, although work-force participation isn’t what it was in the boom years, and there’s been some emigration from the population of 320,000. After shrinking 6.6% in 2009 and 4% in 2010, Iceland’s economy grew 2.6% last year and could hit 3% this year.
The rebound is in no small part thanks to the business that has been the island’s mainstay for a millenniumfishing. Fish account for more than 40% of Iceland’s total exports.
What’s more, fishing in Iceland is profitable. It wasn’t always so. In the 1970s, Iceland’s fish stocks were collapsing, and the industry in trouble. But starting in the late ’70s and ’80s, the government in Reykjavik introduced a kind of property right into its fisheries, called an individual transferable quota, or ITQ.
The quotas represent the right to take a percentage of the total allowable catch set by the government. And these quotas can be bought, sold and borrowed against. ITQs have become a valuable asset in their own right, and have allowed the owners of these fishing rights to rationalize their operations, increasing productivity and profits in a business long plagued by overcapitalization and poor returns.
In fact, Iceland’s fishing-rights system has been so successful that, in its own way, it helped contribute to the country’s financial boom: The strength of its fishing industry helped the country earn the triple-A credit rating that in turn allowed its banks to set off on the unprecedented global expansion that ultimately ended in the 2008 bust. The fishermen themselves also poured their money into (bad) investments in the boom years, helping to stoke the Icelandic bubble.
Those banks are now shadows of their former selves, but the fishermen are still here. This is where the saga takes a dark turn, however. In the wake of the financial crisis, the government of the time was swept aside in favor of a left-wing coalition that has made it its mission to undermine the property-rights system that has served the country so welland has helped it recover from the crash. It has put forward legislation to restrict the buying and selling of quotas, and to allocate more of the catch rights politically.
There are many reasons for this antagonism toward the current system. Opponents argue that the fisheries belong to the nation and should never have been “privatized.” They claim the original recipients of the quotas in the 1980s didn’t pay for them and therefore received an unwarranted windfall.
There is also a kind of class warfare argument at work: The most successful fishing companies have reinvested their profits by buying out others’ quotas, leading to an industry increasingly concentrated in a few hands. This has led to calls in Iceland for some way to redistribute those fishing rights to those shut out of the industry and unwilling or unable to pay the market rate for gaining access.
The waters around Iceland may belong to the nation, or to no one. But no one disputes that when the right to fish them was unrestricted, the fishermen nearly fished themselves out of their heritage altogether. The ITQ reforms came in after fishing stocks collapsed in the 1970s. Up to that point, the fishermen were spending more and more to catch less and less. They were headed for a crash of their own.
Today, fish exports are a precious source of foreign exchange for a country that, four years after the crisis, still imposes draconian currency controls on its population to keep the krona from falling further. Even families wishing to take a vacation abroad must seek permission to get the dollars or euros they need for their trip.
This country, with a population about equal to Malmö, Sweden, is one of the top-20 fishing nations in the world. Undoing the reforms that saved Iceland’s fisheries, at a time when the country is still recovering from the worst economic shock in its long history, smacks of economic suicide. And yet the government in Reykjavik, it seems, would rather pursue some ideal of redistributive justice, even if it damages a fragile economy.
2012 Dow Jones & Company, Inc.