Iceland was for a short while in 2008 the poster-child of the global financial crisis, when it emerged that its highly leveraged financial sector could not be bailed out by the Central Bank of Iceland (Sedlabanki Islands). Deep scrutiny, both domestically and internationally, of how this had come to pass followed. The erection of capital controls, the ejection of government, public refusal to settle the Icesave issue and the progressive settlement of the costs of (partial) rebalancing of the economy brought further attention. In roughly a hundred years, Iceland had gone from being a poor Danish colony to one of the most affluent countries in the world. The excesses permitted by the finance-dominated growth model (cf. Stockhammer 2008) in the run-up to the crisis aside, this 'rags to riches' story is commonly attributed to Iceland's gaining control of its economy after Independence in 1944. Nationalist discourse was also highly influential in the development of the finance-dominated growth model in the 1990s and early 2000s. It persisted, albeit as a defence of the same model, as the latter came under scrutiny before its collapse in October 2008. It is, against this background ironic--or perhaps in a sense logical--to find dominant accounts of the Icelandic political economy and the crisis arising from the neo-mercantilist or neo-developmentalist tradition (from here on, 'neo-mercantilist') (e.g. Wade 2009; Wade and Sigurgeirsdottir 2010). (1) It reproduces the nationalism on which the 'Icelandic tragedy' is founded. Drawing on Marxist critiques of this tradition, particularly with reference to the capitalist state, alienation, technology and methodological nationalism, we critique these interventions. We employ two sets of literature. First, we employ the Marxist critique of the methodological nationalism inherent in the neo-mercantilist tradition (esp. Pradella 2014). Second, we briefly return to the so-called 'Innis debate' raging between leftist Canadian political economists in the 1980s, in which Marxists were pitted against neo-mercantilists in discussing the utility of the contribution of Harold Innis s staple theory for understanding the position of Canada in the imperialist chain. Marxist critiques highlighted the lack of understanding of the state, alienation, technology and the nationalist discourse that neo-mercantilist 'Innisians' promoted (e.g. McNally 1981; 1986; Panitch 1981). We illustrate how these critiques are valid with reference to the neo-mercantilist treatment of key developments in the history of Icelandic capitalism, which are either glossed over or misrepresented in this literature. Fundamental to these is the essentialisation of the micro-scale of the Icelandic political economy. Iceland's geographical smallness is a running theme in neo-mercantilist analysis, which drives clientelist corruption, renders alienation and technological developments a national blessing, and yet turns the nation-state into an ultimately useful agent in steering capitalist development. The country's small size thus indirectly excuses the alienation and exploitation of labour. We therefore seek to redress the neglect of the social struggle at the core of capitalist development in Iceland.
This said, we do not suggest that nationalism, national identity and the size of the economy are irrelevant in the analysis of Icelandic political economy. On the contrary, the analysis of nationalist discourse, national identity and scale should be fundamental to any understanding of hegemonic projects and accumulation strategies. Independence from Denmark, its geostrategic location and the structural limitations of capitalist development have rendered the fanning of nationalist fervour an attractive political strategy (see Bergmann 2014a). Nevertheless, this must be understood in relation to social struggle, and in relation to how it may detract from tensions in the wage-relation.
The paper is organised as follows. First, key aspects of the neo-mercantilist analysis of the Icelandic crisis against the backdrop of its political economy are summarised. This is followed by a critique of the neo-mercantilist approach in general, and an analysis of Iceland in particular. This critique draws on primarily three sources: Pradella's critique of methodological nationalism (2014), Jessop's 'strategic relational' theory (esp. 1990, 2002) and McNally's critique of technodeterminism (1981, 1986). It focuses on a few foundational accounts in the neo-mercantilist analysis: the turn to capitalism in Iceland, the role of technological development in Icelandic capitalist development, the representation of the cod wars with the United Kingdom from the 1950s to the 1970s, and the neoliberal restructuring of the fisheries sector. The paper, in third place, revisits these developments to retell the story by drawing on this critical political economy literature, and providing a substantial historical background. This, we assert, is essential for explaining the premises underpinning the neoliberal accumulation strategy implemented to move away from dependence on fisheries products and towards financial markets, and thus supposedly stabilise capitalist accumulation. We also relate this to the construction of Icelandic neo-corporatism and the embedding of the labour movement in the finance-dominated growth model (Macheda 2012), neglected by the neo-mercantilist analysis. Without a historical materialist critique of the influential neo-mercantilist analysis of the Icelandic crisis, labour in Iceland may be encouraged to approach strategy-building from a nationalist perspective that obscures the historically specific problems it faces in the Icelandic political economy (cf. McNally 1991).
The dominant account of the Icelandic crisis
This section outlines key aspects of the dominant analysis of the Icelandic crisis, examining the neo-mercantilist critique of neoliberalism, the latter's fascination with financial markets, and the cronyism that often goes with privatisation. This analysis attributes particular characteristics and significance to Icelandic nationalism in telling this story. Historicising the crisis, it seeks to set out the premises for the neoliberal accumulation strategy implemented in the early 1980s to move away from dependence on fisheries products, and towards financial markets. The analysis highlights clientelist corruption, made out to be the key factor in the development of the finance-dominated growth model in the Icelandic case. The small size of Icelandic society is deemed to be a central reason for why clientelist corruption has become so widespread in Iceland, a phenomenon particularly evident in the creation of this growth model. Drawing on an analogy with the fate of Icarus in Greek mythology, Robert Wade (2009) tells a story of Icelanders in hubris attempting to create the means to escape the island economy's structural limitations of size and isolation by ambitiously pursuing a finance-oriented growth model. However, ignoring warnings of its unsustainability, they kept going until they, along with their growth model, crashed.
The neo-mercantilist analysis tells a story of pre-neoliberal 20th-century Icelandic capitalism as one of romantic liberation. In an ironic twist, while intended as a critique of neoliberalism, this story resonates strongly with the same dominant nationalist discourses in Iceland that have, post-crisis, obscured the social struggle at the heart of the current situation--the same struggle which neoliberal social forces so successfully marginalised with nationalist rhetoric and the consumerist lures of financialisation. The story of liberation (Wade 2009: 8-11; see also Wade and Sigurgeirsdottir 2010: 9-12) is a 'rags to riches' tale, highlighting Icelandic capitalisms origins in the emancipation from feudalist social relations of quasi-peonage under the Danish King in the early 20th century. Feudal landlords, reluctant to allow farmers to find fishing-related jobs in towns, limited fishing to a seasonal activity and held technological development back to confine fishing to open rowing boats. At the turn of the 20th century, Icelanders were amongst the poorest in the region, isolated from world markets. As 'big, engine-powered boats' were introduced, new occupations, primarily fishing-related, in coastal villages and towns were 'opened up'. Feudal landlords and the administrative class were unable to prevent workers from flooding 'out of the countryside'. This gave Icelanders the impetus to gain sovereignty in 1918, and eventually independence in 1944. The independence gained 'from landlords and from other countries' became a powerful source of identity in Iceland, filling a rich literature that was enabled by high levels of literacy. A sense of uniqueness came into being, giving Icelanders a strong sense of national pride that has been evoked in political discourse ever since (see Bergmann 2014b). It has also been a driving force in making Iceland a highly affluent economy on a par with its Nordic brethren. In other words, the pace of technology and the birth of nationhood has driven Iceland's catch-up. Ultimately, Wade and Sigurgeirsdottir (2010: 10) link this to the creation and temporary success of the finance-dominated growth model: becoming one of the richest countries in the world allowed Icelanders 'to see themselves as "independent people" at last'. They also confidently, perhaps even arrogantly, portrayed themselves as such in the international arena. This sense of confident independence, buttressed by credit-enabled consumerism and low unemployment, blinded Icelanders to the dangers of allowing the financial sector to outgrow GDP at a rate of 10 to 1, and of the cronyism that enabled it with only a small currency and tax base, yet liberalised capital controls (Wade 2009: 14-15). Ultimately, however, this affluence, sense of independence and international...