Class war comes to Iceland

REYKJAVIK, Iceland — On the morning of June 5, nearly 1,000 people gathered in front of Government House in downtown Reykjavik in silent protest against their government. In a country with only 320,000 people, a crowd of 1,000 counts as a mass political event.

This one was calm and polite — but very angry. “There’s no trust anymore,” said protester Bragi Skúlason, 57, a Lutheran chaplain at Landspítali, the largest of Iceland’s two major hospitals. “It’s gone. And politicians have to realize that.”

The organizers behind the protest were two of Iceland’s major public sector labor organizations, representing university professors and nurses, both of which have been on strike for weeks. Later this month, at least three other unions will join the strike as well. Just a week earlier, Iceland narrowly averted a strike that would have affected 40% of its labor force, when the government reached a tentative agreement with four other major unions.

This is the cost of Iceland’s belated sprint into the world of high global capitalism. The tiny state was once isolated and poor, reliant mainly on fishing, without the genteel prosperity of Norway or Sweden. But it was nearly as egalitarian as its Nordic neighbors and politically stable.

Within a single generation, that may have all changed. The government’s statistics bureau insists that Iceland still has one of the more equal income distributions in Europe, but independent economists say Iceland’s level of inequality is closer to that of a country like Poland. It’s not just the gap between rich and poor that alarms Thorvaldur Gylfason, an economist at Reykjavik’s University of Iceland; he sees a country in political turmoil, too. “In some ways, Iceland has more in common with Russia and Ukraine than Denmark and Sweden,” he said.

The dilemmas facing Iceland are, in many ways, similar to those rumbling beneath the surface of American politics. In both cases, a massive economic collapse has resulted in an uneven recovery, and persistent inequality and wage stagnation is leading to mass unrest. The difference is that, for Iceland, class struggle is relatively new. Up until the end of the Cold War, this small, sub-Arctic island was financially and culturally isolated, a “controlled, almost socialist society with strange, old-fashioned customs,” as journalist Roger Boyes puts it in his book about the Icelandic financial crisis, “Meltdown Iceland.”

That all changed in the mid-1990s, under the leadership of David Oddsson, of the center-right Independence Party, who was prime minister from 1991 to 2004. Inspired by Ronald Reagan and Margaret Thatcher, Oddsson slashed taxes and privatized Iceland’s biggest banks, freeing the country's financial sector and entrepreneurs to embark on a decade of unprecedented growth and asset accumulation. As prime minister and, later, as head of the Icelandic Central Bank, Oddsson helped turn the country into a global financial player. For a few years, Icelandic banks worth billions of dollars managed cash for internationally recognized brands and a new generation of Icelandic conquerors bought up corporate assets around the world.

Gudmundur Gunnarsson has watched the transformation of Iceland’s economy close up. In 1970, the early days of industrialization, he took a job at Iceland’s first aluminum smelting factory in Straumsvík. He became head of Iceland’s electricians union in 1987, just a few years before Oddsson took office, and stepped down in 2011, when Iceland was just emerging from a post-collapse depression.

In the early 1990s, Gunnarsson and other labor leaders reached an agreement with the government, the central bank, and various private sector businesses: lower wage increases in exchange for lower inflation. Workers were willing to accept modest raises, as long as they remained ahead of the cost of living. Between 1990 and 2000, Gunnarsson says electricians’ wages increased by only about 1.4 percent annually, but the real value of those wages was more than enough to stay ahead of rising prices.

Then, Gunnarsson said, “Everything went crazy in Iceland."

As the country’s 21st century economic boom hit its apex, foreign money deluged the Icelandic economy, while the country's citizens took advantage of the easy money to take on billions of dollars in household debt. Inflation started to rise, and the unions once again increased their wage demands in order to keep up. Union leaders from the other Nordic countries warned Gunnarsson that Iceland was headed for disaster. “I said, ‘It’s going well. Everybody’s happy. Everybody’s driving around in a new car and has a new house,'” said Gunnarsson. “And they said, ‘It can’t go on like that. There is something wrong.'"

In 2008 — when Iceland's biggest banks finally fell apart, the United Kingdom seized some of their foreign assets, and the krona plunged in value — Gunnarsson says electricians lost five years’ worth of wage gains.

"We went down," he said. "Very fast, we went down."

Iceland is a tightly knit society. Families are so deeply intertwined that accidentally dating your cousin is a real risk, which three Icelandic engineering students helped address in 2013 with an app intended to warn potential romantic partners if they’re related. To Icelanders, it would seem unremarkable that Gudmundur Gunnarsson’s eldest daughter is Björk Gudmundsdottir, better known to international audiences as the singer Björk.

Economically, too, Iceland’s strongest networks were once families. “The Octopus,” a cluster of 14 powerful Icelandic families, collectively owned businesses throughout many of the country's key industries, including energy, transportation, banking, and insurance. But when Oddsson privatized Iceland’s banking sector, he enabled a new generation of entrepreneurs to make their fortune, disrupting the power of the old Octopus clans for good.