Is Iceland a Totalitarian State?

It seems absurd to even ask whether Iceland is a totalitarian state.

I have always imagined that a totalitarian state would resemble Hitler's Germany or Stalin's Soviet Union, but it has dawned on me lately that the most effective totalitarian regime would be one that no one (on the inside anyway) would recognize as such. Like the frog in the proverbial heating pot of water, we would fail to notice the gradual smothering of individual rights by a paternalistic ruling class until it was too late. All of the intermediate steps would be taken "for your own good," but our freedom would be slowly eroded.

On its surface, Iceland seems to be a place with a Wild West feel. We pride ourselves as "independent people" who believe, as Halldór Laxness put it, that "The love of freedom and independence has always been a characteristic of the Icelandic people. Iceland was originally colonized by freeborn chieftains who would rather live and die in isolation than serve a foreign king."

Unfortunately, that characteristic is in danger of extinction today. Not, as many here believe, because of our pending application for admission into the European Union. No, this surrender of individual freedom has been a long time coming, and we've done it to ourselves.

Totalitarianism is a political system in which the state recognizes no limits to its authority and strives to regulate every aspect of public and private life. J.L. Talmon used the term "totalitarian democracy" to refer to a system of government in which lawfully elected representatives maintain the integrity of a nation state whose citizens, while granted the right to vote, have little or no participation in the decision-making process of the government.

Iceland did not achieve its independence from Denmark until 1944, and then primarily because the Americans needed a stop-over on their way to fight the Second World War. The system of government was controlled from the start by a small group of individuals -- called the "Octopus" -- who made all decisions of any importance. Although this particular group has waned in influence, the banks, business, and political institutions continue to serve a self-selected elite.

In the past twenty years, we have watched the government hand over our natural resources (notably the fishing quotas) and government banks to the favored families and friends. We have watched the government dictate to the nation that we would use our vast geothermal and hydro-electrical resources to power aluminum smelters, without ever giving an accounting (it is widely believed that we are selling the electricity to Alcoa, Alcan and the rest at a loss). The geothermal resources in the area surrounding Reykjavik were recently sold to a mysterious Canadian corporation (suspected of having Icelandic owners) for a ridiculously low price. This year's parliament had to once again deal with a bill that would hand over publicly-held water rights to wealthy individual landowners.

Of course, all of this may make Iceland a kleptocracy, but it doesn't make it a totalitarian state. It may, in fact, appear that we have more individual rights than we've ever had before. Gays were recently granted the right to marry (which our openly-gay Prime Minister did recently), despite opposition from the state church. Legislation is in the works to make Iceland a safe-zone for Wikileaks and other expressions of journalistic freedom. We are welcome to freely come and go. There is no state surveillance of private communications, no persecution of minorities.

There is, however, no participation by citizens in the government's decision-making process. Although the Icelandic people bailed out the banks after their collapse in October 2008, we have no say in their governance. Although the banks promptly wrote-off loans worth billions of krónas, we are not -- nor are our members of Parliament -- allowed to know the identities of the beneficiaries of this largesse.

The businessmen and bankers who led us to ruin continue to sit on the boards of our largest institutions. The politicians and bureaucrats who oversaw the corruption and incompetence that bankrupted us still hold positions of authority and influence. The media that served primarily to cheer on the plutocrats remain firmly in place.

Meanwhile, the rest of us -- who were foolish enough to believe their stories of Icelandic superiority -- are under their thumbs more than ever. When our economy was expanding exponentially, many Icelanders took out the largest loans the banks would give them. As the banks were in a very generous mood in those days, these loans often exceeded the borrowers' ability to pay. To maximize the loan amounts, and to get around the requirement that loans issued by Icelandic banks be tied to the rate of inflation, which was quite high during the mid-2000s, borrowers were encouraged to take out loans indexed to foreign currencies.

When the Icelandic króna -- along with our economy -- collapsed in 2008, the principal amount owed on these loans quickly doubled, putting an enormous strain on households at a time when mass layoffs and rapidly increasing commodity prices were decimating their budgets.

The lenders had conveniently overlooked a 2001 law that explicitly banned such loans. Now that the Icelandic Supreme Court has declared these loans to be illegal, the banks are once again in danger of collapse, apparently because they no longer satisfy the ESA capital requirements.

Although it is doubtful that the borrowers will be relieved of their obligation to repay the original principal, it would seem only fair that they not be required to pay any interest above the rate recited in their loan agreements. Unfortunately, the powers-that-be do not believe that's going to be enough, so they have decided that the (unelected) regulators who failed to halt these loans in the first place are somehow empowered to decide the appropriate rate of interest in these private contracts.

If the state can re-write these contracts (for the greater good, of course), what's to stop it from re-writing other contracts? If a grocery store is in financial trouble because it miscalculated what it needed to charge to make a profit, will the government force its customers to retroactively pay the price some bureaucrat decides it should have charged? If a manufacturer faces bankruptcy because of the costs required to repair a defective product or to clean up toxic waste, will the government decide that the initial price of its product was too low, and impose a surcharge on buyers?

One of the heroes of the neo-liberal movement, F.A. Hayek stated in The Road to Serfdom that central economic planning by the state would inevitably lead towards totalitarianism because timely and decisive action would be needed to achieve the specific ends the state decides are of utmost importance. Democracies move too slowly to attain these ends, so the arbitrary powers of government would grow. Although the state's primary role should be limited to ensuring the rule of law -- and I'm aware of no law that guarantees banks a specific profit on loans (our government apparently believes that the banks, unlike other free market private enterprises, which have an opportunity to profit from their activities, should have an absolute, guaranteed at any cost right, to never lose money) or permits the state to re-write private contracts -- that limited role is at odds with the state's concern that the banks' default would irreparably damage the country's financial system.

It's not as if there are no other solutions to this particular problem. In the normal course of affairs, a lawyer who negligently approves an illegal contract may be sued for any resultant damages (and should be carrying malpractice insurance for precisely this reason). If borrowers can be forced to retroactively pay a higher rate of interest, why can't the individual bank officials be forced to disgorge any fees and bonuses they received for creating and pushing these loans?

The Icelandic financial authorities have adopted a mind-set that the failure of these (private) banks would result in the end of the world. In the normal course of events, the creative destruction of capitalism should have led to the establishment of new banks by more competent, less corrupt bankers, but the state's unflagging support -- regardless of the pervasive incompetence and/or moral failings of the bankers, their attorneys, and other accomplices -- for the failed establishments has effectively stifled any competition or innovation.

This is precisely the danger in a totalitarian democracy. The government officials, who believe that they alone possess the absolute and perfect political truth to which all reasonable humans should be driven, see it as their duty to take any action necessary to achieve their goals. Although I suspect most Icelanders would agree with an IMF official's recent statement that Iceland's banks are still too large, the Icelandic financial regulators remain focused exclusively on ensuring their domination of our society.

In Laxness's Independent People, Bjartur of Summerhouse states that "a man is always independent if the hut he lives in is his own. Whether he lives or dies is his concern, and his only. Otherwise, I maintain, one cannot be independent." For most of us, the banks hold mortgages on our residences, and use their clout to ensure that their prices remain high, thereby depriving us of any realistic possibility of owning them outright. We work like dogs to make our ridiculously high inflation-indexed mortgage payments, we spend our leisure time watching media owned by the bank cartel, we vote for politicians who are in thrall to the banks.

Sure, we have free elections, but as Herbert Marcuse observed, "Free election of masters does not abolish the masters or the slaves." Sure, we have freedom of expression, but it's tempered by whispered threats that "you'd better watch what you say, or you won't get a loan, you won't get a job, you'll be excluded from any position of authority." Sure, we have freedoms, so long as they don't stand in the way of the goals imposed from the top.

It is possible that the Pots-and-Pans revolution and the recent municipal elections are pointing to a new way, but the continued popularity of the political parties responsible for Iceland's demise--like the continued popularity of Stalin in Russia--shows that the abdication of individual responsibility (and liberty) in exchange for the perceived security of a benevolent overlord seems like a fair trade to many.■