In “Libraries and Enlightenment: Eighteenth-Century Norway and the Outer World,” Gina Dahl offers a marvelous insight into the intellectual life of Eighteenth-Century Norway by looking at library collections in Norway. This is a clever and engaging way to understand and analyze intellectual aspects of the Enlightenment.
Even if it is not as mathematical as a standard advanced textbook, it maintains the same rigor and complexity. The volume has a few introductory chapters, covering basic economic tools (production, costs and supply, consumption, industry structure and types of competition, and general equilibrium), and then it goes on developing all the traditional micro and macro theories (public economics, information and risk, capital, money and banking, labor, land and location, cities, natural resources, and growth).
It is not a book about ancient economies, meaning that if one hopes to learn about the economies of ancient civilizations, this is not the place to look. The abundant references though may be of help. The book is about economics. The theories are all modern theories explained in detail, even if those details are alien to ancient times. The justification for this is to see the difference between ancient and modern economies, but the focus of the theories is on the modern ones. I fear that this is a weakness in an otherwise impressive book. Using talents rather than dollars to explain the working of banks is fine, but one is left wishing for more direct and explicit use of the theories in ancient times, when, say, central banks’ policies are explained, as central banks, fiat money, and monetary policies are not institutions that resemble some past sort of equivalents.
Despite its only sporadic information about ancient economies, the book is a powerful, even if advanced tool, to develop an understanding of economic theories. A brand new novice to economics may find it daunting. But a non-economist with a solid background of economics may find the prose rigorous and informative. Not a book for everybody, but potentially a great manual for some.
The idea behind the book is to look for some common ground between Christianity and Islam to start to build a dialogue. The contributors identify both Jesus and the resurrection as possible bridges between Christians and Muslims. The idea of focusing on Jesus and the resurrection is that both religions see both Jesus and the resurrection as part of their doctrine. Jesus is a key figure for both Christians and Muslims. And some form of resurrection of all linked with the Final Judgment is also present in both religions.
The challenge is, though, that the meaning of both Jesus and of the resurrection is different for Christians and Muslims. Christians believe in the death and resurrection of Jesus the Christ. Muslims do not. For Muslims, Jesus is a prophet, a special prophet if you wish, but not the Son of God who died and was raised from the dead. It is not conceivable that God would have a son and that Allah would allow a prophet to be shamed and killed. So God ascended Jesus to heaven alive. He saved him from the death on the cross, by switching Jesus with someone else to die in his place a shameful death by the hands of the Jews.
I am not sure the volume achieves what it hopes for. With the exception of Haroon Laldin’s essay about the Church in Pakistan, all the essays leave this reader with some doubts regarding the possibility of a dialogue, or at least they are not clear about what the authors mean by dialogue. Most of the essays present Muslim beliefs as ‘stories’ and ‘legends’, while describing Christians beliefs more like facts. The Muslim interpretations of Jesus’s second coming to rectify Christians’ ‘errors’ is presented with ‘errors’ in quotation marks (e.g. but not only, p. 55) as to indicate that the error is not in the Christians, but in the Muslims who see Christians in ‘error’. In addition, it may be the case that Islam uses legends and stories, but it would have been clearer what such ‘stories’ and ‘legend’ mean, if the authors who use these words offered some explanation of the difference between a legend and a sacred text, between a story and something believed as a truth. Only Katherine Ann Kraft, in her essay “Why do I have to explain the doctrine of the resurrection to my friends?” makes an effort to see stories both in Islam and in Christianity. She describes the content of a parable as a story. But is the gospel, which narrates Jesus telling the parable, also a story? The same kind of story as the parable itself?
The categorical and irreconcilable differences are emphasized much more than the potential similarities. So every time Jesus is mentioned the emphasis is on the fact that there would be no Christianity if Jesus did not die on the cross and did not resurrect three days after it, which is what is intensely denied by Muslims (in particular, but not only, in Brent Neely and Peer Riddell’s “Familiar Signs, Altered Concepts”). What kind of dialogue may one have if one of the “bridges”, Jesus, is so that “the Jesus of Christianity is in many way unrecognizable in Islam” (p. 64)? David Grafton”s “He Ascended into Heaven: Samuel Zwemer’S Critique of Ascension and Return of Jesus on the Day of Judgment in Islam” reports Zwemer’s words as: “It is the rock of Chirst’s Sonship which is the stone of stumbling and the rock of offence to the Moslem mind … in fact may we not expect that if there is a nation or race on earth more inaccessible than another, more averse to the gospel, more hardened against its teaching” (p. 97). Given these “barbaric” beliefs, is there anything more than “we share a God that has positive intentions for Humanity” (p. 98-99) as a point of commonality and a spring for dialogue? What kind of dialogue can emerge if one describes the other party in this way?
And what is the difference between a dialogue and an attempt to convert? Both Christians and Muslims believe in a form of Hell. But the Muslim hell is described in this book as much worse than the Christian hell. So Christians can (should?) use this point in common to bring Muslims over to Christianity, since Christian Hell is less frightening (Theodore Gabriel’s “Resurrection in Islam”).
The volume can be seen as a possibly clumsy attempt by some Christians to initiate a dialogue with Islam on the similarities and the differences in their doctrines. But it feels more like a book written by Christians for Christians on the differences and the similarities of their dogmas. I am not sure the approach is the most effective to establish a genuine dialogue. Probably because when I think of attempts at dialogues between different religions, I think more of the Dalai Lama’s approach of minimizing the discourse about theological positions in favor of concentrating on the meanings of the messages that the different religions offer to someone’s life.
The research question at the heart of this book is: can Muslims in the Arab world leave Islam? And if they can, is leaving the Arab world the only viable way of leaving Islam? The answer provided is, yes, it is possible for Muslims to leave Islam and stay in the Arab world, but it is extremely difficult.
The major difficulty, even if not presented explicitly as such, seems to be that, with the exception of Lebanon, apostasy is illegal in the Arab world. So one cannot legally abandon Islam to convert to another religion. A formal conversion may mean a death sentence. Yet a few do convert. They convert because they reject Islam and because of an intellectual and emotional pull to Christianity.
The question I was left with after reading the book, though, is: is it worth it? The troubles converts go through seem so large that that “pull” becomes unclear; at least it was so in my mind. The problems converts encounter seem to be both internal and external.
Kraft explains that “Islam is a religion defined by unity. Unity in the oneness, or tawhid, of God” (p. 36). It is this tawhid that generates a strong sense of Muslim identity, which many are unwilling or unable to shed when they adopt a different faith. The oneness of God is demonstrated by rituals associated with everyday life activities, such as, say, housecleaning or bathing. “Even Muslims who are largely secular in their beliefs and lifestyle may have a relatively high level of participation in Muslim rituals, both because of the strongly ingrained nature of Muslim values in their upbringing (e.g. not eating pork), and for the sake of family cohesiveness and communal continuity (e.g. fasting during Ramadan as a family event)” (p. 40). The ritualization of daily activities is what converts seem to miss the most and seem unable to give up. They look to their new religion for the same level of rituals present in Islam, and cannot find it. They are therefore at a loss and disoriented. In addition, daily activities are so strongly characterized by their previous identity that it makes it hard for them to separate the activities from their previous faith.
So, we are told, people adopt a different faith, without abandoning their Muslim identity. Somehow, one can convert without actually converting. Legally adopting a different religion is not the same as abandoning Islam and adopting a Christian faith, or better, believing in Christ. So rather than converts, the converts prefer being called Muslim-background believers, or followers of Christ, or something similar (while Kraft has no problem in referring to them as converts). Officially they are not converts, but in practice they feel they are. Kraft argues that for some, Muslimism, just like Christianity, in the Arab world, becomes an ethnicity separable from a religion: “among Arabs of a Muslim background who choose to follow a Christian faith, I argue that Islam becomes their ethnicity, while Christianity becomes their religion” (p.101).
Some converts continue with their Muslim lifestyle, in part also to maintain peace at home and the respect of their umma, their community. Umma, Kraft tells us, requires that the community takes priority over the individual, which is to say that one individual should sacrifice his/her individuality to the wellbeing and preservation of the community. Social cohesion is essential and unity is preserved by setting limits on individual expression. Apostasy can be interpreted in this context of umma to promote unity and to suppress dissent, even with death. Kraft draws parallels with the “do not ask, do not tell” attitude. If the conversion is not out in the open, it is as if it was not there. Shame is avoided and honor preserved. Avoiding explicit mention of conversion, it is claimed, is a demonstration of love toward the deviant member of the family and of the deviant member of the family toward his/her family.
After converting, having not found tawhid, Muslims are looking for umma in their new community, but find mistrust instead. The mutual suspicion between believers of Muslim background and born Christians extends into the Arab churches: “Arab Christians suspect people of a Muslim background of having political or material motivations for converting, or worse, of infiltrating their churches as spies.” (p. 57).
Christian missionaries tend to be funded by Western money. So there is a strong association between Christianity, the West, and wealth. Kraft claims that the West, its freedom and its wealth, are not among the motivations for conversion, but often form part of the outcome and are often expected. Furthermore, religious deviants, we are told, must be careful about whom they associate with because they can cause serious problems for themselves and others. In addition, Christians are associated with Westerners and with the brutal violence of the Crusades and of the last two centuries of European colonialism. “The emotional distance that Christian born church members maintain from the Muslim-born co-religionists may never be completely surpassed, even by those converts who continue to actively interact with Christians.” (p. 84).
Loneliness becomes a major problem. They are alienated by their Muslim family (or prefer to be such); it is dangerous to associate with foreigners, and Arab Christians are reciprocally suspicious. “They have lost the sense of moral integration which Islam and tawhaid had provided them, and by which they had lived, or been expected to live, before converting. They also lost the structure and routine that members in the umma provided. They have a sense of being stuck between two worlds, wanting the best of both but finding themselves with best of neither” (P. 76). So the solution to the very high level of stress generated by these tensions may become two: returning to Islam or migrating to the West. This is especially the case when accompanied by the inner torture on how to raise their children.
The account that Kraft offers us opens the door to several questions that I hope will be answered in future research. All the interviews in the book, and therefore the story she tells, come from converts and their perspective. Would the narrative have been different if the interviews included friends and family members, who saw their loved ones abandon what they think is the true religion and live a life they think is a sin? How unique are these stories? How do they differ, if at all, from attempts to convert out of Orthodox Judaism? Or out of some very conservative Christian communities? How do Muslim converts in the non-Arab world compare to the ones in the Arab world? And how do they compare to converts into Islam both in the Arab world and in the non-Arab world?
A book that raises more questions than the ones it set out to answer is, in my opinion, a good book and is worth reading. This book may not be the best introduction to Islam in the Arab world, or to the tensions present in it, as it takes that context for granted. Yet the experiences that it describes raise interesting questions about religion and society in the Arab world and beyond.
The volume opens with a jewel introduction. It contextualizes Pareto historically and it offers the big pictures in which to fit all the pieces of Pareto’s intellectual production. Pareto was an engineer involved with the running the newly nationalized Italian railroad system, but his claim to fame is for his sociological work. He wrote hundreds of pamphlets calling for change, free trade, small government, and pacifism, all of which fell flat. And “his youthful idealism soon gave way to skepticism, even cynicism, about human potential” (p. 2) so that today he is best known for his theory of human rigidity and inflexibility which make the world fundamentally unchangeable. His mathematical training and skills made him a professor of economics at Lausanne University (1893-1900), but his discontent with the model of a rational homo economicus led to his interest in and research on human irrationalities. During a time in which disciplines fought to establish their boundaries, Pareto broke them and refused to be confined in any one. For him comprehension of the complexity of human behavior came from the complexity of a boundless knowledge.
The rest of the book reflects the introductory claims. The first chapter, “Pareto and the Elite”, by John Scott, describes the not always successful balance of an open definition of elite that Pareto offers us. This analysis smoothly continues in Chapter 2, “Talents and Obstacles: Pareto’s Morphological Schema and Contemporary Social Stratification” (Francois Nielsen). Pareto’s empiricism allows him to analyze data from across the world and across time and see patterns in the wealth elites. Wealth is not distributed normally, but more “like an arrow”. Regardless of time and place, income inequality seems to be a natural and inevitable pattern: 80 percent of income is distributed among 20 percent of the population. This 80-20 distribution seems to be a constant pattern in many natural phenomena, from elites to genes, not just income distribution. This raises a question, not raised by the author, but that any post-2011 reader may ask: does ‘Occupy Wall Street” know about Pareto? And assuming that by some miracle, Occupy Wall Street is successful in changing the distribution of wealth in rich societies, will it be a sustainable change? Or will we move back, inevitably, to the arrow-shaped income distribution that Pareto kept finding in his data? The inability of society to change, to be stuck with certain patterns or with certain equilibria becomes a major theme in Pareto’s thought. While some of his contemporary sociologists and political scientists would theorize beneficial changes in society, Pareto focuses on dysfunctional evolutions and sticky points where societies may be unable to get out of detrimental conditions. So Chapter 3 is the chapter where Charles Powers describes “The Role of Sticky Points in Pareto’s Theory of Social Systems”.
The empirical and pessimistic eye of Pareto is also present in his visions of political theory, as Joseph V. Femia describes in Chapter 4—“Pareto, Machiavelli, and the Critique of Ideal Political Theory”. A scientific understanding of human behavior requires that we look at human beings as real and not ideal creatures. This is why Pareto leans on the realism of Machiavelli, rather than the idealism of Kant, in his theories. And this realism, when combined with modern risk analysis, allows us to link Pareto to a variety of cultural and psychological patterns widely recognized and accepted today, as Alasdair Marshall and Marco Guidi demonstrate in Chapter 5—“The Idea of a Sociology of Risk and Uncertainty: Insight from Pareto”.
The relevance of Pareto in today’s debates and research agenda is pushed further by John Higley and Jan Pakulski in their chapter on “Pareto’s Theory of Elite Cycles: A Reconsideration and Application” (Chap. 6). They apply what may seem a vague theory of elite to the UK and the US governing elites of the twentieth century. It is unclear whether Pareto works or not when applied today. This question mark comes at a perfect time in the volume. So far one is exposed to the marvel of Pareto’s thinking, its correctness and applicability. One may be starting to question whether Pareto was this infallible intellect, underappreciated in his time and also in ours, who deserved a much larger role because of his continuous correctness. Higley and Pakulski remedy that sensation and bring back the fallibility, or at least imperfections, in a genius’ work. I see their chapter as sort of refreshing watershed, as it is followed by two other chapters more prone to see some of the deficiencies of Pareto. Alban Bouvier shows how Pareto may be more indebted to J.S. Mill than he is willing to admit—or than his readers are willing to admit (Chap. 7: “Pareto, Mill and the Cognitive Explanation of Collective Beliefs: Unnoticed ‘Middle-range Theories’ in the Trattato”). Similarly, Giorgio Baruchello shows how Pareto may be more indebted to Aristotle than to Plato in his understanding of the role of rhetoric. Interestingly enough, in these two chapters, as well as in some preceding ones, there is subtle emphasis on the importance of language in communicating effectively and how Pareto may not have been gifted with it: a possible reason for the fact that his popularity does not necessarily reflects his contributions.
The breadth of Pareto’s understanding, or his willingness to accept the complexity of human behavior, is returned to in the last chapter of the volume (“Pareto’s manuscript on Money and the real Economy”) where Micheal McLure describes how Pareto rejects the quantity theory of money and is willing to integrate money in the general equilibrium model of Leon Walras, despite the unwillingness of the discipline to bridge the monetary and the real analysis.
The volume is an impressive and yet balanced testament of the breadth and stature of Pareto. Pareto does come out as a rounded Renaissance man, who for all that is pessimistic about the possibility of human improvement. He does come out as a scholar willing to break all disciplinary barriers and one who, as a consequence, stands alone. And probably today and more so in the future, when we also realize that many of the existing disciplinary boundaries are artificial constraints that limit our creativity and intellectual development, we will come to appreciate Pareto more. This volume is a step in that direction.
The book has five parts, each building on the previous one and progressively going from general to particular. So, after the introduction, we find a section on globalization, value-driven management and business ethics. Then we find a section on business ethics and corporate social responsibility in different fields of business. Part 4 deals with legal and political developments and the challenges to global business ethics. The book culminates in part 5, describing and prescribing policy proposals for corporate strategy and the basic ethical principles for business ethics and corporate citizenship.
Rendtorff has a dialectic style, presenting an argument and its counterargument basically for all topics covered. This makes the 500-page-book dynamic and a pleasant reading.
The theories of business ethics are multiple, some more sophisticated than others. They range from a theory of profit maximization — where the firm or corporation is not an autonomous entity but the result of contractual obligations among individuals, — to a theory of corporate citizenship — where the firm/corporation is a non-human person with moral capacity and therefore responsibility toward others, including the environment and the community in which it operates, which can extend globally.
The adherence to ethical principles or ethical codes can be instrumental as well as a goal in itself. By engaging in ethical behaviors or socially responsible activities, firms may be more profitable. Employees will be happier and more productive in a morally supportive environment and customers with strong moral/social preferences will prefer dealing with firms that share the same goals and commitments. On the other hand, the meaning of a successful ethical code or responsible citizenship depends on actually believing in it, believing that is a goal in and of itself, rather than a mare marketing ploy.
I believe the questions Rendtorff asks, implicitly and explicitly, are immensely important and difficult, if not impossible, to answer. In my eyes this is the value of his contribution, in addition to extensively cover the current literature.
Rendtorff explicitly presents some potential tensions between profit motives and ethics motives, between stockholders and shareholders and between different stakeholders. Especially toward the end of the volume, when he describes the global corporation and its responsibilities, he hints at potential tensions, if not even clashes, between different ethical standards across different cultures.
Some of the questions that emerge from this book could be, for example: How does a theory of business ethics and corporate responsibility relate to economic theories spring off experimental results where subjects seems to indicate that income maximization may not be the sole motivational force in their behavior? What if a formal commitment to ethics and/or citizenship crowds out the more natural sense of fairness, as it is shown happening in many economic experiments? How can we distinguish a firm that adopts an ethical code for moral reasons from one that adopts it for instrumental reasons? Under what conditions can a firm be ethical even if it is driven by profit maximization? What if profit maximization generates, unintentionally, more ethical results than an ethical motive? What if, as it is sometimes said, ‘hell is paved with good intentions’ and an ethical motive generates unethical consequences? What happens when the goals of autonomy, dignity, integrity, and vulnerability that a firm should have generate (unintended) consequences that destroy or undermine the autonomy, dignity, and integrity of some individuals? What if, to protect the natural environment from a disrupting pesticide such as the DDT, we let the mosquitoes carrying malaria live, and spread and cause the death of millions of people? What if, to protect the beautiful elephants, we are forbidden from killing them when they roam on the fields of African farmers, leaving them without crops, that is condemning them to starvation and death for malnutrition? What if, to protect the dignity and the jobs of some manufacturing workers in the West, we close down sweatshops in southeast Asia, preventing children from working in a factory and sending them to the next best source of income—prostitution? What if, to stay within the West, a firm with strong ethical beliefs, grounded in religious beliefs, fires or refuses to hire a gay individual?
The questions Rendtorff asks, explicitly or implicitly, are relevant questions for both the development of this young discipline which has already made so much progress, and for the development of a better understanding of how we can live peacefully and prosper in a world where individuals and businesses can do what they are meant to do and do it in the best possible way.
Without ever have been, I never cared much for Iceland. Too much nature and too little density for my tastes. Then, work brought me to Iceland in August 2008. I fell in love—while the Icelandic economy fell apart.
I wanted to learn about Iceland and the Icelandic culture. All the Icelanders I met told me I should read Independent People. So I read about Bjartur’s Winterhouse transformed into Summerhouse as simultaneously I read about the land of ice and fire transformed into the land of bankruptcy and failures.
I was struck by the similarities of the two stories: the basic framework of the plot of Independent People and today’s situation are almost the same. They both start from a status quo. There is an economic boom. There is a delusion that the boom will last forever. The boom includes a real estate boom. There are people buying things that they cannot afford. There is a bad mix of local politicians and local businessmen. There are a lot of bad loans. There is the bust after the boom. There are loans that cannot be repaid. Houses are abandoned, empty, some unfinished. Bjartur’s framework strikes me as the same basic framework as today’s.
But there is a difference, a big difference. After the bust, Bjartur went, on foot, to a destroyed house with no heat, no privacy, with his uneducated young daughter who is killed by a common disease. After today’s bust, people drive to their large high-tech homes and send their healthy kids to college.
This is not a small difference. In a few decades, the country went from having Bjartur’s lifestyles to being able to allow twenty-three year-old men to stay in school without working. To me this is an incredible and marvelous difference!
On Icelandic blogs in English, I read comments about the great figure of Bjartur and the great mistakes of Iceland today. Glory to Bjartur and disgrace to today’s public figures. And I think: hold on! You cannot be serious! The difference between Bjartur’s time and ours is a wonderful achievement and an almost miraculous lesson. Looking back on Bjartur’s time with nostalgia is made possible only because of the wealth that today’s Iceland enjoys. Today, nobody wants to live in a turf house with no electricity, no bathroom, and one bedroom shared by a mother-in-law and three kids, little food, one book, and many diseases.
True, there were mistakes during the recent crisis. Icelanders are human, like everybody else. And mistakes are an unavoidable part of the human condition. But there were also many successes. Iceland did something right, after all. The increase in standards of living from the First World War to the Second seems to me to have been minimal (my knowledge is based again on a novel by Laxness—The Atom Station). By contrast, the growth in the last couple of decades is immense and real.
There was an economic boom and a bust in Bjartur’s time. There was an economic boom and a bust in our time. It is normal to have booms and busts, not just in Iceland but everywhere else in the world. Economies cycle. All of them. There have been cycles in the past, and there will be cycles in the future. They are inevitable. Booms and busts are not the issue. What matters is how well one ends up after the bust. I hope that Iceland keeps doing what it has done recently, rather than trying to go back to what generated misery for centuries.
I believe this economic crisis is an opportunity for Iceland to look at its recent success and to learn what made it possible. This is an opportunity to look back at Bjartur, rejoice at the permanent departure from his lifestyle, and understand what made it possible for very similar events to occur today without Iceland ending up in such a terrible situation.
So let’s go back to Bjartur’s story. Let’s look at the economic boom and bust described there. Booms and busts, with all their differences, are nevertheless similar enough that we can draw parallels. Bjartur’s story and today’s story are similar enough that we can look at one to get a better sense of the other.
In Independent People there was an economic boom. But was there a boom-maker? Was there someone responsible for the boom in that story? Was there a Mr. X at whom we can point our finger and say: “Him—he is the person who made the boom”? No. The beginning of the boom is described roughly as: “and then there was an economic boom.” The boom just happened. It came from abroad, from the presence of the Great War. Bjartur’s Iceland reacted to international economic forces. There was no single politician or political party that was responsible for that boom. Iceland let itself be carried by those external economic forces. Bjartur did not understand what was going on. He just saw that he was making more money by selling wool. He saw the opportunity to improve his lifestyle and build a different house. He got a loan, which was now available. He did build a new house. He was happy and felt fulfilled. The local politicians and “bankers” also did not plan the boom, did not make the boom happen. They, like Bjartur, just saw an opportunity to improve their lifestyle. And they did.
Today’s boom was, in many ways, no different. Icelanders saw their wealth increase, and the opportunity to improve their lifestyle. And so they did. And just like the politicians and bankers in Bjartur’s time, as much as some politicians or bankers of our time may have wished to claim responsibility for the Icelandic boom of the early 2000, they were not responsible for it. Nobody was. The boom was a world-wide phenomenon. Again, there was nobody at whom one could have pointed a finger and said: “Him! He is the cause of our (global) expansion!” Politicians and bankers saw an opportunity to better their conditions and they did—as it was done in the United States and in the rest of the world. One person, no matter how competent, is not able to expand the entire economy of a country and to drag the world economy along in that expansion.
Thinking that there is a boom-maker is a mistake based on human pride and hubris. It is a common claim. But that does not make it true. The economy of a country, even of a small country, is too complex a phenomenon to be controlled by one person or by a small group of people. And when the economy is subject to global forces, that claim becomes even more nonsensical. Politicians like to think of themselves as directing the economy: “See? Look how good I am. I did this!” But claiming to do something is not the same as actually having the power to do it. An economy is not a machine that can be controlled at will. An economy is not a car. An economy is an order that, in a sense, has a life of its own. It lives off the interactions of many, many people—off their decisions, their knowledge. Even the most consciously-designed of human economies did not follow the intended plans and took on lives of their own. An economy is an order, to repeat an old expression, that emerges from human actions but not from human design. We know it exists. We know it works. But at a deep level, we do not know how.
And the bust? Well, again look at the story in Independent People. The bust, like the boom, happened. No politician was able to stop it. It came from abroad. It came with the end of the war. It came with some warnings, which were not taken seriously. And it was no politician or banker’s fault. No individual politician or banker was directly responsible for it.
Similarly, today, the economy experienced a bust. A big one, but still a bust, like others before it. And as with other busts, the local politicians, whether competent or incompetent, honest or corrupt, are not the direct cause of it, no matter what some are willing to claim. One single politician, or even one political party, does not have that kind of power.
The economy in Bjartur’s time cycled. The economy in our time cycles. All economies cycle. They always have. An economy is not stable. No economy is. They expand and they contract. It is a normal part of economic life. The cycles of economies are like heartbeats in humans. A heart that does not beat is a dead heart. Similarly, an economy that does not cycle is not a functioning economy. The difference is that a heartbeat usually comes at a regular rhythm, while economic “beats” are irregular and unpredictable.
Why do economies cycle? Because they are built upon human beings. Human beings make economic decisions. Some decisions turn out to be correct and some decisions turn out to be incorrect. Why do people make decisions that turn out to be incorrect? Ignorance, incompetence, overconfidence, or, often, just bad luck. Circumstances change. So decisions made under different circumstances are no longer applicable. Cycles are important because often they are ways to make ourselves aware of decisions that are not appropriate under present circumstances and to try to change our behavior accordingly. Busts can therefore be valuable in the life of an economy. Busts allow us to adjust to different circumstances.
Nevertheless, we hear all the time that we should avoid busts, that we should smooth the cycle. The idea of smoothing the cycle is appealing. We do not like changes, especially changes that may hurt us in the present or immediate future. Additionally, the idea of smoothing the cycle implies that someone can control the economy and knows how to do it. This is a very appealing idea indeed. Who does not want to play rain-maker? But no one really possesses the power or knowledge necessary to control the economy. Economists know a lot. But they also know a lot about what they do not know. They know that an economy is not a car to be driven at pleasure. And even if the economy were a car, they know they would not necessarily know how to fix it or drive it. The attempts of the past ended the same way—as wrecks. Some economists become policy advisers and their salaries come from leaders who want to be, and publicly claim to be, the drivers of the economic machine. What can we expect such economists to say? “Listen, there is not much we can do…just make sure people play by the rules”? Or instead: “Yeah, we can fix this!”
Saying that the economy is an order that has a sort of life of its own and that it cannot be driven like a car does not imply that there is absolutely nothing that politicians can do. What politicians can do is set up institutions and incentives that either let the economy live or strangle it.
In a sense, if one really wants to think about the economy as a car to be driven by some politicians, then I think that the best car to fit this image would be Herbie, the Volkswagen Bug of many Disney movies. Herbie, to the shock of all its drivers, is alive. It moves independently of the will of its drivers. It moves by itself to attract attention when it needs care. It stubbornly refuses to cooperate when something wrong is done to it. It behaves differently with different drivers: with the “good” drivers it goes fast, but with the “evil” drivers it goes very slowly, if it goes at all. “Good” drivers, of an economy, are good institutions. “Evil” drivers are bad institutions.
Today economists know that institutions matters. The institutions that usually matter for allowing an economy to flourish are freedom and open markets, definition and protection of property rights, political stability, immigration, and development of human capital. As I mentioned at the beginning of this essay, I was struck by the similarity between Bjartur’s time and today. But I was also struck by their differences. What happened between Bjartur’s time and today that made Bjartur’s miserable conditions disappear? Iceland developed many good institutions in the past few decades. Ones it lacked in Bjartur’s time.
What matters, then, is not to avoid every fall, which is not possible, but to fall in the least painful way. The fall of Bjartur was painful. The fall of today is painful too, but it takes place on a much softer and warmer surface than Bjartur’s hard and frozen ground. Bjartur, in his quest for self-sufficiency, basically killed everybody around him (with the exception of his mother-in-law!). Bjartur’s is a life of misery and death. And Bjartur’s Iceland was a miserable economy, poor and isolated from the rest of the world. As Independent People shows us, self-sufficiency is a recipe for misery. Iceland started its way to wealth when it allowed itself to be “dependent,” when it opened itself to the rest of the world. I used the word “dependent” in quotation marks because “dependent” seems to be the most obvious opposite of independent. But it is not. The correct word is actually interdependent. Iceland was able to abandon its poverty when it embraced the rest of the world. The more open a country is, the larger the markets in which it trades, the more interdependent it becomes, the more prosperity that country will have.
Good institutions matter. Having well-defined and enforced property rights matters. Having light regulations and taxation matters. Having an open policy for immigration matters. Having good incentives for the development of human capital matters. But for Iceland, this does not necessarily imply joining the EU. Iceland can benefit from the open markets of the union even without joining it, as it has done in the past. By contrast, actually joining the EU can be used as a blame-shifter. In the future if something goes wrong, one can blame the EU, lending undeserved cover to local politicians. Joining the EU can also be used to add economic disruptions to political games. The more regulations and the more bureaucracy, the more power politicians have. Corruption will have an added layer, rather than being eliminated. The more regulations, the more opportunities to bribe or curry favor though offering to close one eye, or both eyes, or to make an exception. Iceland did well in the past few decades by building the right institutions, without joining the EU. It should keep going in that direction even now.
The current crop of politicians seem to worry about how Iceland can meet the standards necessary to join the EU. But they should be worrying about the cost that that would impose on Iceland. On top of the additional laws, regulations, and taxations that will burden the economy as a whole, fishing (the most valuable industry in Iceland) would be particularly hard hit. The replacement of the Krona with the Euro would also be another major cost. Having the choice between more than currency is by all standards better than not being able to choose. If the prospect of joining the EU would indeed bring hope for Iceland, why are so many Icelanders leaving? Why is even McDonald’s leaving—and saying that there are no plans to come back in the near future? Herbie is coughing and spitting; the threat of the return of some bad institutions seems strong. What if Bjartur’s times come back?
If Iceland did so many good things in the recent past, if Iceland was lucky enough to develop good institutions when the global timing was right, why did Iceland tumble? To ask why Iceland? is like asking why Lehman Brothers? We can point to a direct, immediate cause, but in many ways we have to simply say the answer is “bad luck.” It could have happened to someone else. Iceland, like Lehman, was the first to go. Ignorance and uncertainty about what was going on seem to have mattered. Remedies taken later by others were possible in part because both Iceland and Lehman provided examples for the world of how bad things could get.
How bad is it if a developed country asks for emergency loans and those loans, for some unknown reason, are not granted? Now we know. It is very bad. It is a financial meltdown. Other countries, which asked for emergency loans after Iceland collapsed, got their loans. Their fall was not as bad as Iceland’s. How bad is it if a foreign country causes a bank run (as the UK did in the case of Iceland) and simultaneously freezes the assets of that bank (and of the country to which that bank belongs)? Now we know. It is very, very bad. It is a collapse of the banking system. This, actually, we knew even before. Banks work on a fractional reserve principle. This means that a bank assumes that all the people who have deposits in it will not ask for their money back at the same time. So the bank can use part of those deposits to finance loans. But if all the depositors do ask for their money back at the same time, the bank goes belly up since it will not have enough reserve to pay back all the customers. Maybe the UK forgot? Now, surely, it is reminded, as is the whole world.
So this is what I learned from Bjartur. I hope not to be alone when I look at Bjartur and appreciate how Iceland grew in the past few decades, how much more better off people are today than in Bjartur’s time. I hope that Icelanders will be able to appreciate the miracle they experienced thanks to their successful attempts to build good institutions, and that they will continue on the road to openness and growth.
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