Democracy In Iceland: How To Make the Best Of an Economic Crisis

I translated the text below from Russian for two reasons. One, it would be really great if more countries followed in the footsteps of Iceland. Nevermind loans and debts, this is the great example of democratic government, by people and for the people, and this is something that must be known, discussed and – hopefully – studied and used. 

Secondly, as I was reading the story I kept going back to Alexis de Tocqueville’s Democracy in America. Writing his book so that the French could figure out how to create a democracy in their country, this royalist descendant who foresaw the inevitable arrival of democracy also mentioned one curious thing: that for a country to successfully implement a democratic regime, it must either be very small or very young. In his time, the first half of 19th c., only two countries satisfied the criteria: Switzerland in Europe, and the United States, the former being small, the latter young. In case with Iceland, the size and language are likely to cement the achievement. Reading the comments Russian people make in social media, I wonder if anything like this may ever be possible here because the common memory seems to run very deep, and these undercurrents are unlikely to be abandoned any time soon. Even before one considers the size of Russia one has to admit that the country would quite likely take all historical and emotional baggage into the new era and to continue “harking back” to the times immemorial because all of them constitute an important part of the national “fabric”. This is not to say that Russia cannot be democratic, but it will be a new, Russian kind of democracy.

And at the same time the example of Iceland can be used for personal study, how to use the critical situation to adhere to and to advance your own interests. As it often happens, life gets in the way, and we try to get on with life, abandoning or indefinitely postponing the realisation of our goals. Iceland teaches us how we can take matters in our hands and to carry on with our course, no matter what life events get in the way. 

Translated by Julia Shuvalova. Original Russian text. An article in Komsomolskaya Pravda about the events.

Have you heard of what happened in Iceland on October 20, 2012? Probably not. You know, why? Because on October 20 Iceland has survived a revolution – absolutely peaceful but a revolution nonetheless. It showed at once how “dangerous” it is when “democratic procedures”, of which the liberals talk so much, are controlled by the majority and not by the minority, as usual. This is precisely the reason why the world media keep mum about the demonstrative example of Iceland, all but concealing it. For it is the last thing that the powers that be of this world would want to happen – that Iceland could really lead other countries. However, let’s take it steady.

On October 20, 2012 a referendum took place in Iceland approving of the new Constitution. This referendum struck the final note in the battle the Icelandic people have fought since 2008 when they suddenly found out that, due to the financial crisis, their country (which is not a member of the EU, as a matter of fact) literally became bankrupt.

The news was sudden because it came after the five years of flourishing, sustained by the “most effective” neoliberal economy based on privatisation of all banks in the country (in 2003). To attract foreign investments, the banks extensively used online banking system that provides fairly high profits against the minimal spend.

Indeed, the Icelandic banks attracted funds from many small British and Dutch investors, everything was grand, and, as far as neoliberals were concerned, the economy was in a great state. All was good, except for one thing: the more investments were attracted, the quicker grew the external debt of the banks. Whereas in 2003 this debt made 200% of GNP, by 2007 it was 900%. The global financial crisis of 2008 dealt the death blow to Iceland’s economy. Three leading banks – Landbanki, Kapthing, and Glitnir – went bankrupt and were nationalised, while the krona lost 85% of its value against the euro. At the end of the year Iceland announced bankruptcy.

Now it is time to remember that Iceland is a democratic country. At first the citizens decided to rely on the “usual” representative democracy. Several months after the banks’ collapse the Icelanders took to the streets, protesting against the bankers, responsible for the crisis, and the ignorant politicians who allowed the crisis to develop. The protests and public unrest eventually forced the Government to resign.

The new elections took place in April 2009, and the coalition of left forces came to power. On the one hand, it instantly denounced the neoliberal economy, but, on the other hand, the new government quickly gave in to the demands of the World Bank and the members of the EU to pay the banks’ debts – altogether, 3,5bln euro. This meant that every citizen in Iceland would have to pay 100 euro monthly for the next 15 years, in order to repay the debts of private persons (the bank owners) to other private persons.

This was too much even for the phlegmatic Icelanders and has led to a rather extraordinary course of events. The idea to pay for the mistakes of private financiers, that the entire country must be subjected to a toll to repay the private debts, was so unacceptable that a new wave of mass protests ensued. These practically forced the government to side with the majority of people. As a result, the President Olafur Ragnar Grimsson refused to ratify the law, already passed through the Parliament, that would make the citizens responsible for the bankers’ debts, and called a referendum.

Next followed the reaction of the “international community”, rather characteristic of the “free world”: Iceland was put under the unprecedented pressure. Great Britain and Holland threatened to impose severe economic sanctions, up to a complete isolation of Iceland, if the debts are not repaid. The World Monetary Fund threatened to withdraw any help. The British government threatened to freeze the savings and current accounts of Icelandic citizens. But Iceland stood firm, while the President Grimsson remarked: “We were told that, if we did not accept the conditions of the global community, we would become the Northern Cuba. Yet if we did accept them, we’d become the Northern Haiti”.

The referendum took place in March 2010. 93% of Icelanders decided not to repay the debts to the foreign creditors – Britain and Holland. The World Monetary Fund immediately freeze all credits. But nothing could any longer stop the Icelanders. With popular support the government initiated civil and criminal investigations against the individuals responsible for the financial crisis. Interpol gave an arrest order against the ex-President of Kaupthing Bank, Sigurd Einarsson, while other bankers, involved in bringing the country to bankruptcy, fled Iceland.

Yet even this was not the end. The Icelanders decided to create a new Constitution that would liberate the country from the power of global finance and virtual money. At the same time, the Icelanders wanted to write the Constitution themselves, as one nation. And they succeeded! The project of the Constitution was written by 950 ordinary citizens, randomly selected (as in a lottery) by the members of the National Assemble in 2010.

To complete the Constitution, the people of Iceland elected a Constitutional Council consisting of 25 people. Fishermen, farmers, doctors, and even housewives were elected from 522 adult citizens who did not belong to any political party and who was each recommended by at least 30 people.

As a Russian journalist wrote in his article (the name of the article referring to the famous quote from Lenin, that “every cooker can sit in the government”), “let us underline specifically that nobody in Iceland resented the fact that they could not read through all 522 bios and political platforms, let alone to find their way in the bulletin that contained the names of so many people”.

Next, the citizens began to polish the text of the Constitution. Let us cite the same Russian journalist: “After this the Council used the system of crowd-sourcing and provided access to its work for everybody. The citizens’ feedback was collected on Facebook, Twitter, and even YouTube. Altogether 3600 comments and 370 amendments were made. Every week the Council published online the new articles, to be discussed by people. Two or three weeks later, having considered all suggestions from the citizens and experts, the Council published a final draft of the articles that could then be discussed for one last time. Apart from this, the members of the Council recorded weekly bulletins about their work and uploaded them to YouTube, and the Council meetings could be watched online in real time. In the end, all 25 members voted to end the work on the Constitution. “We, the people of Iceland, want to create a fair society where each of us will have an equal place at the common table”, – such is the opening paragraph of the Constitution”.

In their comments the members of the Constitutional Council admit that in other languages this phrase sounds rough, but, in their opinion, the idea is clear to all Icelanders and better than any other reflects the aspiration to create equal opportunities for everyone. According to the Constitution, the natural resources of the island are declared the public property. Of a particular interest is the article “Open information and fairness” that obliges the government to provide a public access to all of its documents, unless they constitute the state secret. The Constitution also calls the government to work for the benefit of the Earth and biosphere, and not people alone. A separate article supports the animal rights. This innovative document incorporates a rather archaic article, omitted from the majority of European constitutions: according to it, the Evangelical-Lutheran church of Iceland retains its national status.

One important point should be noted, as it influenced the course of events. The Constitutional Council turned to be, as it were, “Eurosocialist” – not so much because the majority of Icelanders adhere to the leftist program, but because of the short-sighted and downright silly attitude of the Icelandic right forces. Previously in power, The Progressive Party and The Party of Independence appealed to their members to boycott the elections to the Council and subsequent work on the Constitution, which appeal the members followed. As a result, the right forces and the conservatives were in the minority.

Thus, due to the joint influence of both objective and subjective factors, the majority suddenly held all the trumps in their hands. They were the majority in the Constitutional Council, in the committee that developed the Constitution, and then at the referendum. The result “exceeded all expectations” to such extent that for a long time now the world media keep eloquent silence about the results of the referendum on October 23, when the Constitution was approved by 80% of Icelanders, with 66% turnout.

So, you got it? As soon as the majority was allowed to develop and vote for the Constitution, then privatisation as a panacea to all economic maladies was “swapped” for nationalisation, the state secret became the common knowledge, and instead of the strictly representative democracy the elements of true democracy have emerged.

God forbid, think the neoliberal governments throughout the world, the example of Iceland is followed elsewhere. Today the same solutions are offered to other countries. Greece is told that privatisation of the public sector is the only solution. The same is told to Spain, Italy, and Portugal. But what if they followed the example of Iceland? What a horrible thought to entertain…

Yet this can happen. Many Russian tourists who constantly suffer through the endlessly striking “European PIGS” (Portugal, Italy, Greece, Spain) note that many manifestation banners mention Iceland. But none of this is mentioned in the news. The main focus is on what conditions these “pigs” consent to a gracious offer of a loan to repay the debts of bankrupt private banks.

This is why you never knew about the Icelandic referendum. The world media pretend that nothing happened. For the media, just like governments and parliaments, also represent the interests of the ruling classes who do not want the majority of citizens to have a say in the government matters.

But for all those who support the majority and who are not indifferent to the true democracy, the story of Iceland is a lesson. It is a lesson in an organised majority, in direct democracy, in the real exercise of the rights of the majority, in popular legislation and self-government. It is the lesson in all the things that make any democracy possible in the first place.

Important update:

I have just found an article submitted to Reddit and published on March 30, 2013 by Torvaldur Gylfason. It reads:

In sum, it was clear that in a secret ballot the constitutional bill would never have had a chance of being adopted by parliament, not even after the national referendum on the bill on 20 October 2012 where 67% of the electorate expressed their support for the bill as well as for its main individual provisions, including national ownership of natural resources (83% said Yes), direct democracy (73% said Yes), and ‘one person, one vote’ (67% said Yes). But the parliament does not vote in secret. In fact, 32 out of 63 members of parliament were induced by an e-mail campaign organized by ordinary citizens to declare that they supported the bill and wanted to adopt it now. Despite these public declarations, however, the bill was not brought to a vote in the parliament, a heinous betrayal – and probably also an illegal act committed with impunity by the president of the parliament. Rather, the parliament decided to disrespect its own publicly declared will as well as the popular will as expressed in the national referendum by putting the bill on ice and, to add insult to injury, hastily requiring 2/3 of parliament plus 40% of the popular vote to approve any change in the constitution in the next parliament, meaning that at least 80% voter turnout would be required for a constitutional reform to be accepted in the next session of parliament. The politicians apparently paid no heed to the fact that under these rules Iceland’s separation from Denmark would not have been accepted in the referendum of 1918. In practice, this means that we are back to square one as intended by the enemies of the new constitution. There is faint hope that the new parliament will respect the will of the people if the outgoing one failed to do so despite its promises. In her farewell address, the outgoing Prime Minister, Jóhanna Sigurðardóttir, declared this to be the saddest day of her 35 years in parliament.

One can see that the future of Iceland is yet far from certain, but the hope remains.