The Shadow Elite

Shadow Elite: The "Inside Job" That Toppled Iceland’s Economy

Robert Wade and Silla Sigurgeirsdóttir

Posted: October 14, 2010 07:12 AM

Iceland’s flex net operated on the edge of and partly in opposition to a traditional elite, a bloc of some 14 families known popularly as the Octopus, which dominated Icelandic capitalism from the start. In the early 70’s, some university students took over a journal called The Locomotive  to promote free-market ideas–and, not least, to open up career opportunities for themselves, rather than wait for Octopus patronage. The two future PM’s, Oddsson and Haarde, were members.

They were devoted to neoliberal policies, and privatized publicly-owned enterprises, to the benefit of their Locomotive cronies. In 1991 Oddsson began his reign–not too strong a word–as PM, explicitly invoking Reagan and Thatcher as models and drawing on the same ideas of “New Public Management,” which sanctioned large-scale outsourcing of government work to private actors. Then he set in motion the dramatic growth of Iceland’s financial sector, before installing himself as Central Bank Governor in 2005. Finance Minister Haarde took over as PM shortly after.

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With near-exclusive access to information, power brokers can also brand it for the media and public to suit their own purposes, with only a few able to counter them. The Oddsson and later Haarde government proved masterful at this. They relied primarily on the banks’ research departments for economic analysis. Iceland’s National Economic Institute had built a reputation for independent thinking and, at times, published unwelcome reports, warning that the economy’s management was going haywire. Oddsson abolished it in 2002. Statistics Iceland, the public data agency, was notably cowed into suppressing unfavourable information. And the University of Iceland bowed to pressures to make its Economic and Social Research centres self-funding–that is, to rely on finding buyers for commissioned research–with the convenient result that they no longer published big-picture reports with a critical edge.

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Even Parliament’s recommendation last week to indict Geir Haarde is a letdown for those demanding real accountability: the parliament voted to charge Haarde, but not three others facing similar charges. The former ministers who prescribed the policies of the bubble economy, i.e. David Oddsson and his then partner in a coalition government, face no charges whatsoever because of a 3 year statute of limitations. Meanwhile the current leadership is unable to avoid one thing: popular outrage – misleadingly directed at it rather than at the previous leaders responsible. The Guardian reported that politicians had to flee 2,000 angry protestors at the recent Parliament opening. Polls show that “trust in parliament” is running at about 10%. One can hope that those responsible for Iceland’s implosion will face more consequences than hurled eggs, but Geir Haarde, for one, is undaunted at the prospect of being the first world leader indicted for economic mismanagement. He told Bloomberg News two weeks ago that he will be “completely vindicated”, and called the charges “absurd.”