International
Sigtryggur Johannsson

Class war comes to Iceland

Iceland's banks are recovering, but the middle class is angry and demanding change, with thousands on strike

REYKJAVIK, Iceland — On the morning of June 5, nearly 1,000 people gathered in front of Government House in downtown Reykjavik in silent protest against their government. In a country with only 320,000 people, a crowd of 1,000 counts as a mass political event.

This one was calm and polite — but very angry. “There’s no trust anymore,” said protester Bragi Skúlason, 57, a Lutheran chaplain at Landspítali, the largest of Iceland’s two major hospitals. “It’s gone. And politicians have to realize that.”

The organizers behind the protest were two of Iceland’s major public sector labor organizations, representing university professors and nurses, both of which have been on strike for weeks. Later this month, at least three other unions will join the strike as well. Just a week earlier, Iceland narrowly averted a strike that would have affected 40% of its labor force, when the government reached a tentative agreement with four other major unions.

This is the cost of Iceland’s belated sprint into the world of high global capitalism. The tiny state was once isolated and poor, reliant mainly on fishing, without the genteel prosperity of Norway or Sweden. But it was nearly as egalitarian as its Nordic neighbors and politically stable.

Within a single generation, that may have all changed. The government’s statistics bureau insists that Iceland still has one of the more equal income distributions in Europe, but independent economists say Iceland’s level of inequality is closer to that of a country like Poland. It’s not just the gap between rich and poor that alarms Thorvaldur Gylfason, an economist at Reykjavik’s University of Iceland; he sees a country in political turmoil, too. “In some ways, Iceland has more in common with Russia and Ukraine than Denmark and Sweden,” he said.

The dilemmas facing Iceland are, in many ways, similar to those rumbling beneath the surface of American politics. In both cases, a massive economic collapse has resulted in an uneven recovery, and persistent inequality and wage stagnation is leading to mass unrest. The difference is that, for Iceland, class struggle is relatively new. Up until the end of the Cold War, this small, sub-Arctic island was financially and culturally isolated, a “controlled, almost socialist society with strange, old-fashioned customs,” as journalist Roger Boyes puts it in his book about the Icelandic financial crisis, “Meltdown Iceland.”

That all changed in the mid-1990s, under the leadership of David Oddsson, of the center-right Independence Party, who was prime minister from 1991 to 2004. Inspired by Ronald Reagan and Margaret Thatcher, Oddsson slashed taxes and privatized Iceland’s biggest banks, freeing the country's financial sector and entrepreneurs to embark on a decade of unprecedented growth and asset accumulation. As prime minister and, later, as head of the Icelandic Central Bank, Oddsson helped turn the country into a global financial player. For a few years, Icelandic banks worth billions of dollars managed cash for internationally recognized brands and a new generation of Icelandic conquerors bought up corporate assets around the world.

Gudmundur Gunnarsson has watched the transformation of Iceland’s economy close up. In 1970, the early days of industrialization, he took a job at Iceland’s first aluminum smelting factory in Straumsvík. He became head of Iceland’s electricians union in 1987, just a few years before Oddsson took office, and stepped down in 2011, when Iceland was just emerging from a post-collapse depression.

In the early 1990s, Gunnarsson and other labor leaders reached an agreement with the government, the central bank, and various private sector businesses: lower wage increases in exchange for lower inflation. Workers were willing to accept modest raises, as long as they remained ahead of the cost of living. Between 1990 and 2000, Gunnarsson says electricians’ wages increased by only about 1.4 percent annually, but the real value of those wages was more than enough to stay ahead of rising prices.

Then, Gunnarsson said, “Everything went crazy in Iceland."

As the country’s 21st century economic boom hit its apex, foreign money deluged the Icelandic economy, while the country's citizens took advantage of the easy money to take on billions of dollars in household debt. Inflation started to rise, and the unions once again increased their wage demands in order to keep up. Union leaders from the other Nordic countries warned Gunnarsson that Iceland was headed for disaster. “I said, ‘It’s going well. Everybody’s happy. Everybody’s driving around in a new car and has a new house,'” said Gunnarsson. “And they said, ‘It can’t go on like that. There is something wrong.'"

In 2008 — when Iceland's biggest banks finally fell apart, the United Kingdom seized some of their foreign assets, and the krona plunged in value — Gunnarsson says electricians lost five years’ worth of wage gains.

"We went down," he said. "Very fast, we went down."

Iceland is a tightly knit society. Families are so deeply intertwined that accidentally dating your cousin is a real risk, which three Icelandic engineering students helped address in 2013 with an app intended to warn potential romantic partners if they’re related. To Icelanders, it would seem unremarkable that Gudmundur Gunnarsson’s eldest daughter is Björk Gudmundsdottir, better known to international audiences as the singer Björk.

Economically, too, Iceland’s strongest networks were once families. “The Octopus,” a cluster of 14 powerful Icelandic families, collectively owned businesses throughout many of the country's key industries, including energy, transportation, banking, and insurance. But when Oddsson privatized Iceland’s banking sector, he enabled a new generation of entrepreneurs to make their fortune, disrupting the power of the old Octopus clans for good.

A strike in Reykjavik on May 26, 2015.
Sigtryggur Johannsson

Similarly, rapid shifts in Iceland's economy have strained alliances in the labor movement. That became apparent in 2013, when the country's main labor federation tried to revert to the labor strategy of the 1990s, trading very gradual wage increases for low inflation and a stable currency.

That frustrated many union members, who were still hurting from the meltdown and subsequent devaluation of their wages. When negotiators reached an agreement to raise pay for most workers by a mere 2.8 percent, several unions were incensed. Why should their members continue to sacrifice, they said, when bankers and business owners are only getting richer? Vilhjálmur Birgisson, chairperson of a fishermen’s union, told reporters at the time, according to English-language publication The Reykjavik Grapevine. “To my mind, it is shameful that the salaries of working people hasn't been corrected more than we've seen.”

But things didn’t truly fall apart until 2014, when higher-skilled public sector industries went on strike. First, some teachers, and then the doctors union rejected the government’s offer of a roughly 3 percent pay increase and initiated a work slowdown in late 2014. Doctors argued that their specialized education should be reflected through higher wages.

Once wages for some of the skilled, middle-class public sector workers started to go up, other unions began to demand more. Soon unions in both the public and private sectors were readying for a general strike calling for a nearly 50 percent increase in the effective minimum wage. A Gallup poll from late April showed that more than 90 percent of Icelanders supported the union’s demand.

Despite dire warnings that employers would be forced to raise prices and lay off workers, the management coalition eventually acceded to union demands. The Icelandic Central Bank responded by revising its inflation projections upwards, citing the wage increases as justification. While many of the workers on the lower end of the income spectrum have gotten an increase, educated, middle-class professionals — including electricians, nurses, professors, architects, psychologists, and others — are still on strike. All they want, they say, is a pay increase commensurate with the time, effort, and money they put into earning their degrees. “Nurses feel like they’re not getting valued for the responsibility for life and health, and for their education,” said Sigurlaug Palmadottir, 27, one of the nurses on strike. “We have this big responsibility.”

Officials have hinted to the local press that the government may pass legislation outlawing the strike and compelling the nurses to return to work.

Government ministers will reportedly propose legislation intended to disband the BHM and nursing strikes and block them from engaging in any additional work stoppages until at least July 1. Many nurses had previously predicted mass resignations if the government tried to ban their strike.

Neither the prime minister’s office nor the finance ministry responded to Al Jazeera’s requests for comment, but in public statements the government has been upbeat. This month, the country began removing the capital controls it put in place following the financial collapse, a major step toward recovery. In a March address to the central bank, Finance Minister Bjarni Benediktsson hailed the country’s economic progress as “nothing short of a metamorphosis.”

Gunnarsson is less sanguine about the future of his country. He says he is now considering joining some of his children and grandchildren abroad, perhaps in Denmark. “Everybody’s saying this isn’t working, and the government has to realize that,” said Gunnarsson. “We are not going to live in a country or a society like the right-wing politicians are building. We don’t like this.”

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