Monday, October 13, 2008


Amen to this.

Lesley Riddoch: Mock Nordics if you like, but they are survivors

The Scotsman - Published Date: 13 October 2008

LITTLE countries have come under suspicion since Iceland's banks went belly-up. Geir Haarde, the prime minister, enraged Britain by suggesting foreign investments would not be protected. And though the war of words has abated with Haarde's assurance that "we will honour our obligations", the damage to Iceland's reputation has been done.

No-one came to bail out the Icelanders – quite the opposite. Clearly no-one in Britain ever believed that a country of 316,000 souls could possibly produce firms like Baugur whose rampant expansion bought over half the British high street. At least not without paying a terrible price. Iceland will pay for it.

But is Iceland also being made to pay for its inclusion in Alex Salmond's arc of prosperity – the ring of small, northern seafaring states whose prosperity, according to the First Minister, arises directly from their independent status?

Opposition politicians and commentators have used the economic woes of Reykjavik to fire a salvo across SNP bows – whaur's your arc of prosperity noo?

Without Big Brother Britain to bail out Scottish banks, they argue, an independent Scotland would now be in economic meltdown just like lonely, little Iceland.

Indeed, British shoppers are boycotting Iceland grocery stores in protest at the threatened loss of charity, council and individual savings – in a sad echo of the confused attack on a paediatrician's office during an anti-paedophile campaign.

Ironically, Icelanders would be unlikely to make such mistakes. Blessed with the highest rates of literacy in the world, and the freedom to opt for plain Icelandic rather than archaic Latin in their public world, this part of the so-called arc of prosperity has not only enjoyed financial success. In May of this year the Economist Intelligence Unit named Iceland the world's most peaceful place based on the absence of an army and the lowest ratio of citizens in jail. The UN Human Development Index, makes Iceland the world's most developed country (male life expectancy at 81 is the highest in the world) and one of the most egalitarian (they read more books per capita).

Iceland's long been described as the "bumble-bee" economy – no-one knows how it flies – and yet its population is young and rising.

So Iceland is a success story on many levels – not just the financial one over which so many crocodile tears are currently being shed.

And anyway, one country's failed banking system doth not a failed arc make. How have the other small countries in the arc of prosperity been doing? Actually, not too bad.

In fact, the British government appears to have used the Nordic bank nationalisations of the 1990s as a model for its own present banking bail-out. The Nordic crisis, in the early Nineties, was sparked by a property boom, deregulation of financial services and the economic crisis in neighbouring Russia. Norway took full control of two of the country's top four banks – wiping out shareholders, and purging senior management. In Sweden, the government also took control of failed banks and created a "bad bank" for toxic assets.

Nordic banks have since been nursed back to health and assets sold when valuations improved. According to Steinar Juel, chief economist at Nordea, Scandinavia's biggest bank: "It was very, very painful, (but] taxpayers, in general, did well. All the money governments spent, they got back again."

How are the countries at the heart of the arc of prosperity faring today?

Compared to the arc of materialism, they are facing no major banking crisis. Meanwhile, in the world's others envious arcs, scapegoating, denial and displacement

So should the financial problems of Iceland change public perceptions of independence?

Quick thinking and opportunism are part of the Icelandic psyche. That's why they took advantage of Danish occupation by the Nazis in 1944 to declare independence.

That outlook has upsides and downsides. But does anyone think the Icelanders this week wish they had not parted company with Denmark? Do their current woes make them wish there was a large wing they could crawl under and quit the dodgy business of self determination? Iceland may have made some colossal mistakes – but I'm sure the decision to stop living in the distant shadow of Denmark is not considered one of them.

Iceland's people have long experience of adjusting to bad news. Seismologists expect a vent or chasm to open up near the massive glaciers of east Iceland anytime with viscous lava creating a cloud of dust that could reflect sunlight and cause darkness and crop failure across northern Europe. Some experts speculate the last such eruption in the 1780s caused such widespread hunger and unrest that the French revolution was the result.

Who knows when nature will deliver its own credit crunch? The Icelanders have been living more or less happily with its certainty for centuries.

If we valued a healthy outlook as highly as financial liquidity, we'd realise the Nordics are the only people getting it right in the developed world today. And applaud the Nobel Prize Committee who awarded this year's Peace Prize to the Finnish president Martti Ahtisaari. Despite that country's recent traumatic college shootings, despite nervousness over the resurgence of the tiny nation's giant neighbour Russia, Finland is still a model of prosperity and peace.

Small Nordic countries have generally outperformed Scotland in every way. But that simply proves the Scots current preference for the Union is not the product of calculation or international comparison.

Enthusiasm for constitutional change will be home-grown or still-born. And nothing in Iceland will change that.


Anonymous said...

Lest you forget Canada and Australia. Two colonies that have clearly outwitted their former master. They have survived far better than even the scando nations.

Jeff said...

Great stuff, brilliantly written and a welcome change from some wayward ultra-unionist chat on Sunday.

But, Richard, what are your thoughts on the SNP's chances of holding (let alone winning) a 2010 independence referendum while the UK Government controls RBS and HBOS?

Will it make a difference? Should it?

I'm still getting my head around it but I suspect the SNP may have to 'go long'.

BSH said...

Who knows Jeff, there is a history of Scotland fighting harder when solutions are imposed upon us. The question is, will the Scottish public view this as the man-handling of the Scottish banks and economy or the saving of said institutions?

Richard Thomson said...

Being rational, Jeff, I don't see why it should make any difference.

In terms of process, if RBS and HBOS are part owned by the UK taxpayer, then those shareholdings become assets of the state, and would be subject to a division at the time of independence.

That is the only additional complication in practical terms. Really, the individuals and institutions holding the shares don't matter in terms of how you get to independence.

There may be a psychological impact, though, which is what we're seeing some people try to whip up the 'Britain to the rescue!' line. However, now that the government owns large shares of these companies, they'll have to be careful not to be seen to try and manipulate the management of those companies for narrow political advantage.

UK regulation didn't prevent the crisis; it didn't help anyone forsee the extent to which it would bite; it doesn't have an impact on the activities of the central bank (BoE or ECB in time) in relation to Scottish banks as lender of last resort; in fact, the only lesson you can draw safely from recent events re size is that every country, even the US, can be buffeted by the outcomes of market forces.

If anything, for me it shows up how little difference the union can make for Scotland. I'd rather have the freedom of action and fleetness of foot offered by Independence, which we could now be using to position ourselves for the next upturn.

David Lindsay said...
This comment has been removed by a blog administrator.
Anonymous said...
This comment has been removed by a blog administrator.
Richard Thomson said...

David Lindsay - this is not a forum for you to republish verbatim the offerings from your own blog. I've therefore deleted your comment.

I've told you before, use a link if you want to highlight one of your posts. If you want to engage in a debate either with myself or any of the visitors to this blog, have the courtesy to do so in reference to what has been posted, or the comments left by others.


Richard Thomson said...

Sorry, Anon 8:09pm - I deleted your post by mistake. Here's what appeared in my email:

I have to admit to some degree of confusion. The "Scotsman" is not so usually liberal in its views. I am surprised that they printed such an article given their recent trends. It is a very valuable commentary however, especially given your previous post about Norwegian uses of oil revenue. As you have reiterated many times, there will soon come a situation where the West has to rely on the East for revenue. The market here(I amin China) expands exponentionally, whereas the UK/USA market slips. I wonder if this will have any effect on the USA predidential elections? I must say, my preferred candidate is not running.

Richard Thomson said...

Honestly don't know how this might play in the US elections, Anon.

China has a growing financial hold over the US. However, given the scale of the debt and the fact it's denominated in dollars, while this gives China great influence, I think it's unlikely to precipitate any action which leads to a drastic decline in the value of the dollar.

Left field thought - the US car industry is in decline and in desperate need of capital. Its models can't compete with the Japanese when it comes to cost or fuel economy. Could we be about to see Chinese corporations taking over US car makers like Ford or GM, with promises of investment in the US in exchange for technology transfer and access to the Chinese market?

Scott @ loveandgarbage said...

Richard, here via your comment on SNP tactical voting. I read Riddoch's article yesterday and take the point. My own position (I'm a lawyer, working in insolvency law and conveyancing) is that we always have much to learn from elsewhere - and look for comparators elsewhere constantly to try to improve our own system. My starting point is federal unionist but am prepared to engage with the intellectual and economic arguments in favour of independence - but I have been concerned at the way there has been back-tracking on the Iceland issue by some of the ministerial team and MPs (eg ANgus McNeill this morning in a radio interview). Surely better to address what was done well, and what the country would hope to learn from what was done badly - and to be overt about that.

I am also replying to you on Jeff's site.

Best wishes


Richard Thomson said...

Hi Scott,

Thanks for taking the time to stop by. I've replied to you on Jeff's website, since that's where the debate is taking place.



Anonymous said...

Don't you see the irony of your rebuke to David Lindsay, given that you've reproduced the entire Scotsman article?

Without its copyright notice, of course.

Richard Thomson said...

Not really, SU. Bored, are you?