Reversing the retreat of democracy: The case of Iceland

Thorvaldur Gylfason 19 February 2020

Haukurth

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In recent decades, the decay of social capital in its several manifestations has become a serious, evidence-based concern, brilliantly captured by Robert Putnam ́s book title, Bowling Alone (2000). Signs of declining trust, increased inequality, stunted life expectancies, corruption on the rise, and democracy in retreat are evident in an increasing number of countries (e.g. Dustmann et al. 2017). The consequences are troubling, especially perhaps in the US. According to Gallup (2019), the proportion of its American respondents expressing confidence in Congress dropped from 35% in 1988 to 11% in 2019. Transparency International (2019) lowered the corruption perceptions index for the US from 78 in 2000 to 69 in 2019, well below Canada whose score is 77. Further, Freedom House (2019) lowered the democracy score of the US from 94 in 2010 to 86 in 2019 compared with Canada’s  score of 99 and Poland’s 84 in 2019. 

By the above measures, the US now trails not only Canada but also an increasing number of European states as evidenced by a string of striking titles published by American academics, including Page and Gilens´s Democracy in America? (2017), Levitsky and Ziblatt´s How Democracies Die (2018), Mounk´s People vs. Democracy (2018), Snyder´s Road to Unfreedom (2018), and Diamond´s Ill Winds: Saving Democracy from Russian Rage, Chinese Ambition, and American Complacency (2019). The decay of social capital can be contagious. Misbehaviour by elites in the US provides cover for comparable misconduct in other countries such as US NATO partners Hungary, Poland, Turkey as well as Brazil, India, and others, undermining social capital also there. We live in a changing world.

Iceland: A case of contamination

Iceland, my beloved native country, is a less well-known case of social capital decay. This is partly because some of the available information on social capital in Iceland is imperfect (Gylfason 2019). The Economist Intelligence Unit´s democracy index for 2019 is a case in point. The index assigns Iceland a democracy score second only to that of Norway in a group of 165 countries. The EIU report grants Iceland a top score of 10 for political culture but fails to note that the Icelandic parliament resolved unanimously in 2010 that “criticism of Iceland‘s political culture must be taken seriously and [Parliament] stresses the need for lessons to be learned from it” [my translation]. Parliament resolved in 2012, less than a year before the ten-year statute of limitations was to take effect, to investigate alleged violations of the law in connection with the privatisation of the banks during 1998-2003, but it failed to implement its own resolution. Expressing no interest in finding out what went wrong in the first round of privatisation that resulted in a crash a few years later followed by renationalisation, the government nevertheless has announced its plan for a new round of bank privatisation. 

All things considered, Iceland’s political culture remains essentially unchanged. This is witnessed also by the fact that the new post-crash constitution, approved by 67% of the voters in a 2012 national referendum called by parliament, remains to be ratified by parliament, which remains beholden to local fishing vessel-owning oligarchs whose bribes to Namibian ministers recently landed the latter in jail. The government continues to grant these oligarchs about 90% of the sizable resource rent from the fisheries each year. Consequently, the oligarchs and their political clients in parliament object, in particular, to the constitutional provision that declares that “Iceland’s natural resources which are not in private ownership are the common and perpetual property of the nation. […] On the basis of law, government authorities may grant permits for the use or utilization of resources or other limited public goods against full consideration.” This provision was approved by 83% of the voters in 2012. 

Nor does the EIU report note that, in 2016, some 600 Icelanders, including the prime minister, the finance minister, and the minister of justice, were exposed in the Panama Papers, another clear indication of Iceland’s flawed political culture. Ever since he exposed the former Prime Minister on television in 2016, leading to the latter’s abrupt resignation, the sole Icelandic Pulitzer Prize-winning journalist has been unable to find employment in broadcasting in Iceland. 

Concrete signs of decay

Like the US, Iceland shows several signs of social capital decay.

  • Distrust. According to Gallup, the proportion of respondents who express trust in Iceland´s judicial system decreased from 46% in 2002 to 36% in 2018. Trust in parliament fell from 42% in 2008 to 18% in 2019 (same source). The fact that 89% of respondents still trust the Coast Guard suggests that reduced trust in parliament, the courts, and the banks cannot solely be traced to a disgruntled public. More plausibly, politicians, judges, and bankers in particular, need to clean up their act to win the people’s trust (Gylfason 2015). 
  • Inequality. The share of the top 1% of Icelandic households in pre-tax national income rose from 5% in 1995 to 21% in 2007 just before the crash and was 9% in 2017, nearly twice the 1995 level. 
  • Life expectancy. This remained unchanged in 2018 in Iceland – at 82.5 years in 2012, 81 years for males and 84 years for females – despite reduced child mortality. It is rare for life expectancy to stay put six years in a row. Life expectancy fell in Iceland 1969-1971 following a collapse in herring catches and again 1984-1988 following a clampdown on double-digit inflation. The financial collapse of 2008, following which some 10,000 families lost their homes, appears to constitute a plausible explanation for the stagnation of life expectancy during 2012-2018. The dispersion of life expectancy across income groups in Iceland is not known, however; nor is much known about the distribution of even the unhidden part of private wealth. More is known about the dispersion of longevity by education. Recent data suggest that the longevity gap between men with college degrees and those who finished only primary school rose from four years in 2011 to five years in 2018. The corresponding gap for females rose in the same period from two years to more than three years. 
  • Corruption. Transparency International (2019) has lowered Iceland’s score for perceived corruption from 93 (rank 5) in 1998 to 78 (rank 11) in 2019. In 2012, 67% of Gallup (2013) respondents in Iceland considered corruption “widespread in government” compared with 15% in Denmark and 14% in Sweden. Local pollsters report similar findings. 
  • Democracy under stress. Unlike the EIU, Freedom House no longer regards Iceland as a full-fledged democracy. Iceland’s democracy score was 100 during 2004-2009, and again in 2013, 2014 and 2016 – full house! Since then, Freedom House has lowered Iceland’s score to 94 in 2019, citing the influence of business interests over politics, corruption, and a lack of transparency and media independence. Foreign observers have overlooked these pervasive problems in the past. When OECD countries have failed to be awarded a top score of 100 by Freedom House (e.g. Australia, Canada, Denmark, the Netherlands, and New Zealand), the reason given almost invariably has to do with some form of discrimination against immigrants or indigenous peoples. The grounds for lowering Iceland’s score from 100 to 94, by contrast, are quite different and mirror the reasons Freedom House has given for the decrease of the US democracy score. 

Democracy must endure

Nevertheless, Iceland’s long-term prospects seem bright to me. My optimism presumes that parliament will respect the will of the people by ratifying the new constitution, which is designed to reverse the retreat of Iceland’s age-old democracy, rein in corruption, and restore social trust. Although ratification is overdue, it is never too late to do the right thing. Should parliament fail to ratify the new constitution, Iceland may become further enmeshed in the emerging cluster of countries where democracy is now under the greatest stress. The people of Iceland must reverse this trend. 

References

Diamond, L (2019), Ill Winds: Saving Democracy from Russian Rage, Chinese Ambition, and American Complacency, Penguin Press.

Dustmann, C, B Eichengreen, S Otten, A Sapir, G Tabellini and G Zoega (2017), Europe's Trust Deficit: Causes and Remedies, Monitoring International Integration 1, CEPR Press. 

Gylfason, T (2015), “Social Capital, Inequality, and Economic Crisis.” Challenge, July.  

Gylfason, T (2019), “Ten Years After: Iceland´s Unfinished Business”, in R Z Aliber and G Zoega (eds), The 2008 Global Financial Crisis in Retrospect, Palgrave. 

Levitsky, S, and D Ziblatt (2018), How Democracies Die, Crown. 

Mounk, Y (2018), The People V. Democracy: Why Our Freedom Is in Danger & How to Save It, Harvard University Press. 

Page, B I and M Gilens (2017), Democracy in America? What Has Gone Wrong and What We Can Do About It, University of Chicago Press.

Putnam, R D (2000), Bowling Alone, Simon and Schuster.

Snyder, T (2018), The Road to Unfreedom: Russia, Europe, America, Tim Duggan Books, Crown, Penguin Random House.

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Topics:  Europe's nations and regions Politics and economics

Tags:  Iceland, democracy, trust, social capital

Professor of Economics, University of Iceland; Research Fellow, CESifo and CEPR Research Fellow

CEPR Policy Research