Iceland’s Financial Woes – Economy, Sustainability, and Safe Growth

iceland-flag Iceland’s financial history – and its current (disastrous) state of affairs – is proof that faster and bigger isn’t always better – faster economic growth, bigger banks, or quicker wealth accumulation. According to a Vanity Fair report, Iceland is massively bankrupt, its currency valueless, its debt 850 percent of its G.D.P., and its people desperate for food and funds. Iceland went bankrupt due largely to its uncontrolled growth earlier in the decade. While the story itself is both sad and intriguing, could it also have implications for the dynamics of sustainable business growth?

Iceland’s economic problems began, ironically, when its three biggest banks’ sought substantial and unparalleled growth. Although the country is about the size of Kentucky, and these banks had assets of just a few billion dollars (about 100 percent of Iceland’s G.D.P.), the banks succeeded (at first). Over the next three and a half years, the banks’ assets grew to over $140 billion in the most rapid expansion of a banking system in history. Meanwhile, stock values increased nine-fold and real estate values and the average Icelandic family’s wealth threefold. The economic growth all stemmed, in one way or another, from the investment-banking industry. The country adopted global financial ambitions, which seemed to prosper – until fall of 2008.

Last October, Iceland’s biggest banks collapsed, resulting in some $100 billion in banking losses. Iceland’s citizens bore those losses – an approximate $330,000 burden for every man, woman, and child – in addition to the tens of billions of dollars in personal losses and the 85 percent drop in stock market value. Even now, the exact dollar amount of Iceland’s financial hole is essentially indeterminable.

The story is relevant to queries into sustainable business growth for several reasons. Although the comparison involves apples and oranges, in a sense – an entire nation’s economic strategy versus that of a developing business ideology – I believe it is at least a starting point for a good discussion. One, Iceland’s story could serve as a warning against no-holds-barred economic and business model evolution, including the placing of all one’s eggs in the same basket. Two, since Iceland’s biggest problem was essentially that its banks grew so large that the government itself couldn’t bail them out in a pinch, this speaks volumes to the danger of a handful of powerful organizations running the show (something most sustainability proponents likely seek to prevent). And finally, what effect would furthering sustainable business models have on the possibility that economic stability is not, well, all that stable?

What do you think?

Sarah Harper is a professional writer based in San Francisco, California. Her interests include sustainability, government policy, and international politics. In her free time, Sarah enjoys toying with the idea of holistic health, overanalysis, and plotting world exploration.

4 responses

  1. Great article! Since 2008 anyone that owned anything lost money worldwide. I have read $50 trillion dollars were lost in 2008 alone. This absurd number makes me think back to my macro econ professor at UW-Madison who explained that the human brain cannot understand numbers such as a billion. A million OK but 100’s of millions…probably not. That is one reason why a small isolated country such as Iceland could get burned this bad by unfettered capitalism. Whos fault? All of us, that is why we are entering a new paradigm in our economy. Sustainability (Green) is slowly becoming the normal way of looking at business. I am very optimistic for the 21st century, we are going to create a much better World for all. Including Iceland.

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