It is but eighteen months since I sat in Manchester’s Radisson Hotel, once the great Free Trade Hall, discussing Iceland’s economic miracle with some Icelandic businessmen. They explained to me that their success was due to their speed and decisiveness. “We don’t spend hours in meetings discussing things,” one of them told me, “we just get on and do it.” They also said that their organisations were nowhere near as hierarchical and status conscious as those in the UK, which, they argued, also made for quicker decision making.
This quote from an Icelandic banker in the Wall Street Journal has a similar theme:
Icelanders are risk-takers. All this energy was released when the banks were privatized. We like to do things fast.
Well they certainly did things fast over the last seven years or so. They went on a spending spree, acquiring foreign companies and lending money throughout the world. My friends in the Manchester hotel told me that good business in previous decades had provided the capital for this investment. I was sceptical even then. How, I wondered, could a country the size of Iceland generate enough wealth to start buying up so many British businesses?
The answer, we now know, was that it didn’t. The Icelandic banks were doing what everyone else was doing; raising cash in the money markets then re-investing it. Around £1 billion of it even came from our local authorities. Iceland’s GDP is only $14 billion but its banks now have foreign liabilities of $100 billion. The country is almost bankrupt.
Attribution theory says that we tend to attribute our success to our personal qualities and our failure to external factors. I wonder those Icelandic businessmen would blame the near-total collapse of their economy on their speed and decisiveness, the factors they identified as the source of their success only a year and a half ago.
Whatever their story, the party is well and truly over now.