Life in Recession Struck Iceland

I'm being asked by both my friends abroad and the media, what life is like in Iceland. Vanity Fair gave their version of the story, a rather negative picture. Unfortunately, though there are some wrongs in the article, there are too many rights. But here's a little insider information on life in Iceland at the moment, the psychological state of a nation that went from being the richest in the world to economic ruins over night. And the for the public, it really did happen over night.

The Psychology of the Society
I think the emotional pattern we've been going through here in Iceland is similar to mourning. At first we were in disbelieve. Could this be for real? Were the banks, our pride and "idols" really turned into dust over night? Were our prodigies just fake from the beginning?

What would all this mean for the rest of us? This came as a tremendous shock to the general public and for weeks pretty much nothing happened here in Iceland. People were in a state of shock, paralyzed, afraid of what was going to happen. It didn't matter if people still had money or not, they didn't dare to spend anything or to make any decisions.

Reykjavik. The cranes have stopped. On the right is the national concert and conference center, designed by Olafur Eliasson, still uncertain if or when it will be finished.

When people got over the shock, it was replaced with anger by many, specially people who never enjoyed the affluence of other Icelanders, who could not drive expensive cars, live in big houses and live like kings, but were yet the ones who were left with the bill, inflation of 18%, outlook for unprecedented unemployment rates and foreign debt that is going to be a burden on the whole society for generations. It is still unclear how much the debt is, but it looks like it will be over $30.000 USD per each and every person in the country. I have 5 children so that equals over $200.000 for my family.

In the new year, we have those who are in depression (who have themselves lost their job) and others who are determined to work their way out of this. Universities, companies, investors and individuals are trying to create a fertile ground for creativity and innovation. Extra funding has been provided both for early startups as well as startups that are ready to go to market. What we are seeing is that the strongest companies in Iceland today are companies that are based on intelligence and creativity, companies like Lazy Town, CCP (the computer games company behind EVE online), Marel (food processing technology), other high tech and biotech companies and even artists such as Bjork, SigurRós, the author Arnaldur Indridason and more. All having a unique product that can be sold world wide and bring in very needed foreign currency. Creating a new company gives hope of something new that can be built up. And hope is something people really need to get through this. Recession is a time of new opportunities and new beginnings. The challenge is to see those opportunities and grab them.

The dirt is slowly being dug up. What we were made to believe were companies built on a new brilliant Icelandic business model driven by young, fast and clever people who were quick to make decisions, flexible and didn't let any old school protocols stop them, turns out to have been driven by greed and denial to the vulnerability of the business model and inexperience of the leaders. Foreign critics were accused of misinformation and envy.

My Reality
I bought it all, I participated in the craze, buying stocks in the banks and making good money from it, defending our system and criticizing those who "couldn't stand the success of this little nation". Today, that leaves me with shame. A shame for backing up the people who now leaves us in ruins and feeling like a fool for buying into this. And angry for the government and the central bank for allowing the bank system to grow to more than 10 times the size of our GDP risking that if the banks failed, they (we, the people) might have to pay it back. But that would never happen. I mean what was the chance of all three banks going bankrupt within one week? Unthinkable. But still, it happened.

Luckily, I did not borrow money to buy stocks, like many others did. I was not in heavy foreign debt like many others are. So I might survive this. But technically, a large percentage of Icelandic families and companies are bankrupt, with much higher debt than assets. The problem is, if the banks would confiscate it all, they wouldn't get any money at all. So the government is trying to create a system that helps families overcome their debt by changing their loans. It will take decades to pay it up. Many families are now stuck in debt for the rest of their lives.

I moved back to Iceland in 2005. Built a house that was valued for $1M when it was done. It looked as if it was a great move, to come to Iceland. Now, we're stuck here. Because of the crash of the currency and the falling real estate market, I might get $400.000 for my house now, wiping out most of my investment in the house. If it was at all possible to sell it. And just this morning, the remaining 0,2% of my stock vanished when the fourth bank was nationalized.

This is the grim reality of Iceland today. On the other hand, things are not as bad in general as people abroad imagine. We do have all necessities. We can get oil, medicine, bread, milk and fruits in the shops. We have plenty of electricity and heat as we produce it all from domestic renewable energy sources. We only use oil on transportation and we have enough oil for that too. Over 90% are still employed - and getting paid. We have good infrastructure, good health care, good education system. A few months ago we had the best living standard in the world. But we do rely heavily on imports and imported goods are very expensive now. And the variety we can choose from is much less than it was. The food basket is now 34% more expensive than it was 10 months ago.

As you know if you've been reading my blog, I wrote a book on recession marketing. I have also been speaking on the issue and running courses which are becoming increasingly popular. People are also realizing that the biggest opportunities in marketing are in Internet Marketing, which means that my service is in higher demand. This is all very good news for me. But foreign projects are still what I'm looking for, as getting paid in foreign currency is much better then our Krona. I've even had opportunities to speak abroad, but as much as I would love to travel the world and speak, I can't do it for free :)

Vanity Fair - Wall Street on the Tundra
Journalist Michael Lewis wrote an article for Vanity Fair about Iceland and the collapse. It's in general a negative image of Icelanders and my fellow country men are not happy about it, pointing out some misinformation and misunderstandings. Just like we usually do when someone criticizes us. The Icelandic attitude is that they're always wrong 'cause we're simply the best in the world (we constantly try to convince us of that). Just look at all the "per capita" world records we hold. We have Nobel Prize winners, Olympic medalist, Grammy winners, Oscar nominees, have the most cars, drink the most Coca Cola, have the most over prized Big Mac, the world's strongest men and the world's most beautiful women etc. Yes, we do have things we can still be proud off, but despite all that, we are not above criticism. There's a lot that can be better in Iceland and for many parts, the critic in the Vanity Fair article is correct. That's maybe the problem. It hit's a soft spot. What I don't like though in the article is the notion that Iceland is a sexist country, where men run the show. It's not. Surely, some professions are dominated by one sex over the other and the investment banking was one of them. But in general, gender equality is very good, though it can always be better. The now minister of education even managed to get me to play with Barbie once, the only time I did so (but please, don't tell anyone ;).

The head of the National bank is said to be a poet and the minister of finance a vet. True. Now we have a new government where the Prime Minister is a stewardess and the minister of finance is a geologist. So we're no better off regarding academic training of our leaders. There will be an election on April 25th and people were hoping for some new, fresh and qualified people. Unfortunately, politics is not the most appealing carrier at the moment and not many brave enough to take on the enormous task waiting the new government.

Returning to old values is becoming a trend. Fish has become significantly cheaper. Fishing has become significantly more important, like it always used to be. Aluminum seems to be the hope of many still, though the aluminum prices have dropped and aluminum has already become too big of a portion of Icelandic economy, not to mention pollution. We are going whaling again. But that's survival, not restoration.

 
Hvalur 8, a whaling ship being prepared to go back on sea after 20 years tied to dock.

Innovation
We do have talented people and as I mentioned earlier, our talents and mind power are now our biggest asset. The government has been starting some initiatives to spark more innovation and help prosperous companies to market. Reykjavik University together with the Icelandic Academy for the Arts is also creating a venue leading together creatives and business minded people. Part of that project is a local physical location, a meeting place where people can seek advice and shelter for their start-ups and innovation projects in Iceland. The other part of the project is an International online social network for innovators where they can seek advice and support for their ideas and innovations, find partners and even capital. I'm leading the online project and will let you know when it goes live.

The grass root has been active too, and every Saturday, the "ministry of ideas" meets to discuss different aspects of the innovation and start-up process. Those meetings have been very popular and very fruitful for those participating.

Innovation is good and definitely the right way to go. But let's not forget that it usually takes years before start-ups start generating some real income. So getting present start-up companies to market should also be a priority.

The Land of Opportunities
Don't sign off Iceland. We've had setbacks before. We have a lot of talent, intelligence and experience that will be directed in new directions now and I believe we will work our way out of this fast. While we are in this economic situation, there are some great opportunities for foreigners.

Since all infrastructure is functioning and your safety not jeopardized in any way, Iceland has become a very hot spot for tourists in the recession. You can get better deals than ever before because of the fall of the Krona and many are grabbing that opportunity.

Venture capitalists also see opportunities in the blooming innovation culture here in Iceland, where highly educated people can now work for half the wages they could a year ago (calculated in Dollars). That means development cost just got significantly reduced and the competitiveness of Icelandic companies on the International market drastically improved.

Icelandic export products, Icelandic art and design and the Icelandic horse are all selling well now, since they too are only half price compared to a year ago. This means many export branches are growing fast now. We still have a bright future, though the days are dark at the moment.

So if you need any help in finding opportunities in Iceland during the recession, just let me know.

Cheers
Hjörtur

Comments

[Anne Good]

Fascinating post Hjortur. My greatest fear is that an environment similar to what you've experienced is going to hit us in the U.S. However, meltdowns like this are creating amazing opportunities and those with the moxie to take advantage will be handsomely rewarded within a few years.

[Gissur Simonarson]

Very well written post Hjortur! I sent the link to some of my Icelandic friends in the states. Keep up the good work, and thanks for dropping by my blog as well =)

[Dominique]

Fascinating reading...especially when I'm wondering what our future is here in Detroit. Lots of food for thought.

Thanks for a thoughtful post

[Hjörtur Smárason]

@Anne, @Gissur, @Dominique Thanks. Hopefully it will not be this bad in the States, though it already is in some aspects.

If you have any questions about the Icelandic economy or life in Iceland, feel free to ask.

[fantomaster]

Good to read your take from the inside, as it were, Hjörtur. While I've never had the pleasure of visiting your country to date, it's the only one I've still had on my roster. (I actually hate traveling - Iceland would be the sole exception.)
As for the Vanity Fair article, it actually didn't strike me as being that negative at all: ironic, to be sure, and critical in many respects, as well - but not abrasive or denigrating in any way.
Of course, being on the receiving end of just about any article is quite a different situation, esp. when it addresses painful topics.

Anyway, I wish you all the best in your endeavors and I'm quite confident that you Vikings will make it work out again in the end any which way - you've always been the surviving kind, after all.

[purposeinc]

Thank you so much for writing this. I would love for every American to read this.

There is a good chance America will end up in exactly the same boat.

It is a good reminder to any country to maintain its ability to be self sufficient.

It also takes away a lot of the fear when you realize that even when everything hits bottom, you still have your core resources, fish, fuel, people, and a bit of produce, and you can survive.

Money is never as real as a fish, and never will be.

I have known a few Icelanders over the years, and they are the last ones I would worry about.

If hell froze over, they would be there, cutting a hole in the ice to get to the fish, maybe with a little to drink and singing a song.

dk

[Hjörtur Smárason]

@fantomaster Thanks, we've survived a storm or two before. What's important is that we don't loose our confident in foreign trade. It is crucial to keep us running and having the possibility of a fast comeback (not as bankers though).

@purposeinc Thanks for the encouragement to write this post. It seems that people are really interested in what is happening here in Iceland and I hope it helps people realizing how they can prepare for what might come.

@all If you want people to read this post, please share it on Digg, SU, Reddit, Facebook, Twitter or where ever you hang out online :)

[Mario Santoyo]

Hjörtur, this post as any other is a window into your soul. I dearly hope you family know and feel proud that they can count with such a brave, eloquent and determined member.

Hope more people did what you continually do: speak directly, frankly and sincerely.

warm regards from the other land "deep down south" :)

Mario

[Greg Nelson]

I'm also from America and also have the same concern as Anne, Dominque, and purposeinc -- that the US will wind up in the same place soon. I'd like to know a few specific things:

- Since you say people still have jobs, have their wages changed at all or are they being paid the same number of Krona and thus not able to buy as much with it?

- How are the companies making the money to pay the wages? Is it because of government subsidies (and debt) or foreign trade, or other reasons?

- I read that many mortgages in Iceland are "inflation indexed" so that the amount owed increases if there is inflation. Is this true, and if so, how do people find the money to keep paying and stay in their homes?

- How would Iceland be affected if there were currency crashes or further economic problems in the countries that are your major foreign trade partners? For example, if the US and Europe both turned inward because of their own financial problems, how would this change the economic situation there?

[Jordan Hydro]

You are collaborating with some Huge name. This stuff is very impressive.

[Retro Jordans]

It is the ability to do the job that matters not where you come from or what you are. do you think so??