Iceland: Evolution of a small resource-based economy

Abstract

Iceland is a small, isolated, resource-dependent country — just like Australia. It has a quite remarkable economic history, and in the last century, has fought its way from a position of relative poverty to being one of the richest countries in the world. For the most part it has pursued a Nordic approach to economic development, and has thereby circumvented some of the small government stances of market-based economies. In the context of its famed financial bubble, and its experience of boom, bust and revival in the last two decades, Iceland’s recent history might indeed be said to have generated a new Icelandic saga, as its brief dalliance with Austrian School economics first spawned an unprecedented boom, only then to see self-congratulation metamorphose into the jailing of some ‘bankster’ executives.Today, Iceland is affluent, and its people report themselves to be amongst the happiest in the world. Australia aspires to similar goals, and incidental comparisons to the Australian economy are made throughout, to highlight differences between a Nordic perspective on socio-economic policy, and the more orthodox Australian perspective. Significant differences are apparent in resource extraction policy, and large differences are also apparent in the GFC context, although both countries have navigated some troubled waters in its wake. Environmental issues have also loomed large in both countries, with Iceland anxious to protect its local waters and fishing industry, and Australia split over decisions regarding new coal mines and possible damage to its Great Barrier Reef.