Iceland in search of a path for competitiveness

IcelandIn Search of a Path for

Professor Runolfur Smari SteinthorssonIceland – In Search of a Path for Comptetitiveness

Presentation at the MOC Network Cluster Research Workshop,Harvard Business School, Hawes 102, Dec 12, 2010

In Search of a Path for Competitiveness:

A study (in process) of a progressive plan

Runólfur Smári Steinþórsson Center for Strategy and Competitiveness

This presentation is based on different sources and research done by the presenter.Among the sources is a Status Report on Iceland which was jointly produced byThe Social Science Institute and the Economic Institute at the University of Iceland (2009);Meltdown Iceland: Lessons on the World Financial Crisis from a small bankrupt island, byRoger Boyes (2009); information from the World Economic Forum; and information from arecent report from the European Commision on European Economic Forecast in Autumn 2010,as well as publically available material on the Program 20/20 in Iceland via www.island.isAlso, there is information that is based on a discussion in a seminar on Competitiveness andthe 20/20 program, held at the University of Iceland Dec. 8, 2010.

Overview:• The collapse of the financial system in 2008...• The situation in Iceland in 2009...• The idea of Strategy 20/20 is put forward...• The Strategy 20/20 Program is defined...• The scope of the Strategy 20/20 Program...



• The scope of the Strategy 20/20 Program...• The pillars of the Strategy 20/20 Program...• The intentions of the Strategy 20/20 Program...• The timeline of the Strategy 20/20 Program...• The activities of the Strategy 20/20 Program...• The process and outcomes of the Program...• Some learning points...

Iceland ´s Financial Collapse in 2008 (1)• After an economic upsving and enourmous expansion of

private banks, in Iceland and mainly abroad , sparked by internationalisation of several Icelandic companies –the banks collapsed in October 2008...

• This collapse must be considered in the context of the



• This collapse must be considered in the context of the Global Financial Crisis... ...in that sense the banks suffered from an international system failure ...

• But it has been revealed that the banks and some of the most aggressive companies had been run and expanded in a very irresponsible and unsustainable manner ...

• ...“God Bless Iceland”... The Prime Minister said on national television in October 2008...

• Assets of the banking sector had been 1xGDP in 2000, 8xGDP in 2006 and ended in 10xGDP in 2008 ...

• The Central Bank had mainly focused on fighting inflation, (interest rates from 5.3% in 2003 to 15.25% in 2007)...

• Warnings came ... Iceland was vulnerable and attacked...

Iceland ´s Financial Collapse in 2008 (2)



• Warnings came ... Iceland was vulnerable and attacked...• ICESAVE’s “We make a clear difference”... ...ended with

the British authorities activation of the Anti-Terrorism, Crime and Security Act of 2001 against the Icelandic Banks...

• Public demonstrations then led to the fall of the government and elections... ...but political unstability has remained...

• Iceland reluctantly adopted an IMF program to reestablish international credibility and to get loans...

• The Icelandic State (re)established small domestic banks (over a weekend) to prevent a nationwide caos...

• The currency (ISK) did over time decrease severly (50%)...• Inflation had increased sharply and remained high for a

considerable time... (18,6% at its peak, January 2009)

Iceland ´s Financial Collapse in 2008 (3)



considerable time... (18,6% at its peak, January 2009)• Economic activity and domestic demand dropped sharply

(...leading to a fall in real GDP of 6,8% in 2009)• An asset price bubble did burst and asset prices melted...• Many companies lost ground due to the fall of the banks,

now either bankrupt or in the process of being refinanced...• The accumulated assets in the Icelandic Pension system

are now more important than ever...

The situation in Iceland in 2009• More people were moving abroad than to the country...

...both of foreign and Icelandic origin... ...working abroad...• Unemployment had become a serious problem... ...in July

2009 the unemployment reached 10% at its peak (7,2%)



• Many families and many SME´s were due to the asset meltdown and the inflation and forex development in a huge debt-crisis... (2010: Relief package aims to help around 60.000 people and about 7000 SME’s)

• The economy had contracted severly, the financial sector was small, the building sector stood still, estate markets were frozen, investment was down (50%) and consumption was severly diminished (16%)...

The Strategy 20/20 idea put forward • Iceland and the Icelandic People had been hit badly...

...the financial collapse had led to recession and political turmoil... ...what could be done about it ...

• One of the ideas that was in the air in the Spring of 2009 was to establish a project or program that would focus on



was to establish a project or program that would focus on the Competitiveness of Iceland and ways to increase the prosperity of Iceland... ...this idea was plugged and promoted especially within the Socialdemocratic Party (S)... ...it was taken up in the agenda of the New (S-LG) Government along with many other ideas...

• The 20/20 idea was adopted but probably not in the way that the idea generators had worked for...

Why be concerned aboutIceland’s Competitiveness?

• As well known - a study of a nations competitiveness both reveals the particular situation of the country in question and that understanding can open up for possibilities to enable and enhance



can open up for possibilities to enable and enhance the value creation in that country - leading to increased prosperity in the country...

– Iceland’s rank on the World Economic Forum list (more than130 nations)

• 2006-2007 14. place• 2007-2008 23. place• 2008-2009 20. place• 2009-2010 26. place• 2010-2011 31. place

Iceland’s Competitiveness hasdeteriorated considerably

in the last years...

The Strategy 20/20 Program defined• In the S-LG Government agenda a progressive plan

should be developed – taking the following into account:– First, the PM ministry will mobilize and lead a

collaborative effort that will develop regional progressive plans for all parts of Iceland in order to strenghten the basis for employment and industrial activity as well as



basis for employment and industrial activity as well as quality of life in the future, especially obtain and put forward a joint vision.The goal is also to integrate the public plans for development of infrastructure (roads, harbours, airports; communication), tourism and remote areas, as well as plans for enlargement of the activitites of the local municipalities. Also as part of this effort for integration of plans all other public plans should be included, including plans for developing certain areas or clusters.

The Strategy 20/20 Program defined• In the S-LG Government agenda a progressive plan

should be developed – taking the following into account:– Second, within this project was also an effort to

develop a new holistic employment and industrial policy, based on equality and ethics with a focus on



policy, based on equality and ethics with a focus on sustainability and green industrial development.

– Third, it should be considered how competitive the Icelandic industries were in international comparison

• At this point ((2009) and maybe still) many and among them leading politicians in Iceland were very sceptical to concepts like competitiveness and internationalization –the orientation was inbound rather than outbound...

The Strategy 20/20 Program defined• A steering group was appointed under leadership of Dagur

Eggertsson, vice chairman of the Social Democratic Party active in the municipal government of Reykjavik...

• Also in the group were four ministers of the Government of Iceland, two representatives from local and regional municipal authorities in Iceland and in the beginning of the



municipal authorities in Iceland and in the beginning of the project the rector of the University of Reykjavik...

• Working with the steering commitee were staff from the office of the Prime Minister of Iceland. The group appointed a project coordinator, a consultant from the company Expectus...

• Now in the end of the program, I am told that close to 200 people have as volunteers been involved in the work and around 800 people have taken part in the many activities held in the name of the project...

The scope of the 20/20 Program• The Strategy 20/20 Program became already from the start

somewhat of an all-inclusive program based on volunteers...• The choice of the people in the steering group clearly

indicated both a wide scope and high ambitions...• The program was devided into three pillars:



• The program was devided into three pillars:– Progressive plan 2010... ...including central integration of public plans

and reorganization of public service, reporting on demarkated regions, arranging open meeting in regions and a closing conference...

– A vision and employment/industrial strategy... ...including status reporting, scenario planning, grassroot national assembly, conferences and collective work towards a joint agreement on a strategy proposal...

– Competitiveness... ...including studies and information gathering on what determines national competitiveness, reporting on Iceland’s WEF ranking, expert group studies and recommendations...

The Pillars of the 20/20 ProgramSteering Commitee

Adv. Council

Project Groups Project GroupsProject Groups

Iceland 2009Status Report

What determinesnat. competitiveness

Get an overviewof different plans



Scenarios

NationalAssembly

Employment/Industrial Policy

A conferenceon WEF ranking

Expert groupsstudies

RecommendationsProposals

The countrydevided in regions

Reorganizationof public service

Progressive plansfor regions

This picture is taken from the Proposal to the Parlament, document 476. Translation of headings to english is done by RSS.

The intentions of the 20/20 Program• To have the Icelandic Parlament agree on that the

Government of Iceland would develop a Progressive Plan...• The main aim would be industrial development and

prosperity in the society... ...for a leading position...• A special focus would be on Iceland’s Competitiveness in



• A special focus would be on Iceland’s Competitiveness in the long term... ...investment in HC, Infr, Ed, Inno, Env, Soc.

• Special employment/industrial policy... ...diversity, equality, business ethics, green industries and sustainability...

• Integration of public investment plans and reorganization of central public service and develpment of regional service... ...for efficiency and increased cooperation across sectors...

• Focus on the country and regions...

Some of the Providers to the Program• The Social Science Institute at the University of Iceland and

The Economic Institute at the University of Iceland provided a 2009 Status Report...

• The Innovation Center Iceland was involved and assisted in the development and conduct of the Program...



the development and conduct of the Program...• The Center of Strategy and Competitiveness, at the

Universty of Iceland was assigned a temporary role in helping the expert groups to find relevant information and material on competitiveness. The Center also provided some secreterial assistance to the Program.

• The Government, via different ministries, was intended to be in the lead in many activities...

The timeline of the 20/20 Program......until May 2010...

JuneThe steeringcommittee

JuneThe program is informed about the the plans for a grassroot (ant) inittiated

national assembly

SeptemberProject and expert groups

on competitiveness

October - JanuaryProject & expert groups

on competitiveness

October - NovemberThe project group on

Developing Employment and Industrial Policy

appointed

January - MarchRegional “national

assemblies” held in 8different regions of

Iceland (70-150 participants in each)

JanuaryConference on str. future issues for

February - AprilRegional statusreports provided

by Expectus MayExpert group

conference on key issues forIceland’s



June2009

May2010

committeeappointed

JuneThe steeringcommittee´sfirst meeting

JuneIceland 2009status reportis asked for

July - AugustScenarioPlanningsessions

SeptemberConference on

competitivenessand WEF ranking

on competitivenessappointed

OctoberIceland 2009status reportis presented

on competitiveness(ir)regular meetings

NovemberThe ants

National Assembly(1200 participants)

DecemberThe Strategy20/20 projectpresented in the Parlament

AprilConference on

the results of theregional assemblies

JanuaryStrategy assembly

with ministersand key players

(world café approach)

FebruaryConference onreorganisation

of public service

future issues forInd. and Society

Iceland’s Competitiveness

FebruaryStudent‘s

clusters projectsintroduced

The activities of the 20/20 Program• There was a big emphasis on mobilizing very many

people on a voluntary basis in a steering group, advisory council, project groups, expert groups, conference-workshops, regional workshops, national meeting...

• The program was connected to and apparantly made as



• The program was connected to and apparantly made as some kind of an umbrella for reconsidering the national investment plans as well as reorganizing the public service – with public administrators working on that ...

• Project coordination was in the hands of a consulta nt , the consulting company did also prepare regional status reports and did some international comparisons...

The process and outcomes of the Program...• In the beginning of the Program there were both interest

and support. Many people joined in on a voluntary basis and took on roles but when it came to the actual work manydid not attend meetings or deliver...

• Some formally abandoned the Program, others more or less dissappeared, others staid on and did their piece...



dissappeared, others staid on and did their piece...• The work of the Program went on as can be seen in the

timeline, intensified by the work of Expectus and the staff...• The outcomes of the Program, apart from the more or less

successful mobilization of people, the wide scope and themany steps completed in the process are two finaldocuments: a) Report with the results of the Program, and b) Proposal based on the results...

The timeline of the 20/20 Program

JuneThe steeringcommittee

JuneThe program is informed about the the plans for a grassroot (ant) inittiated

national assembly

SeptemberProject and expert groups

on competitiveness

October - JanuaryProject & expert groups

on competitiveness

October - NovemberThe project group on

Developing Employment and Industrial Policy

appointed

January - MarchRegional “national

assemblies” held in 8different regions of

Iceland (70-150 participants in each)

JanuaryConference on str. future issues for

February - AprilRegional statusreports provided

by Expectus MayExpert group

conference on key issues forIceland’s



June2009

Des2010

committeeappointed

JuneThe steeringcommittee´sfirst meeting

JuneIceland 2009status reportis asked for

July - AugustScenarioPlanningsessions

SeptemberConference on

competitivenessand WEF ranking

on competitivenessappointed

OctoberIceland 2009status reportis presented

on competitiveness(ir)regular meetings

NovemberThe ants

National Assembly(1200 participants)

DecemberThe Strategy20/20 projectpresented in the Parlament

AprilConference on

the results of theregional assemblies

JanuaryStrategy assembly

with ministersand key players

(world café approach)

FebruaryConference onreorganisation

of public service

future issues forInd. and Society

Iceland’s Competitiveness

November - DecemberFinal report from TheSteering Commitee

and a strategyproposal to theGovernment

Learning points – so far...• The 20/20 Program was both for

good and for bad pushed as a voluntary relations driven activity...

• The Program was expanded duringthe process, despite obvious lack of resources and often very mixed

B:

Companies Government

The Public SectorThe Private Sector

Income and activity drivenintermediate organisations

A:



resources and often very mixedcommitment by participants...

• The Program suffered due to lackof resources and it seems that it was not ranked high in order of priority by many stakeholders...

• Some of the activities do not seemrelations driven, but rather morepublic or even politically driven...

C:


NGO’s/nonprofitorganisations

The Third Sector

**

Relations drivenintermediate organisations

Policy drivenintermediate organisations

Stake drivenintermediate organisations

Analytical model based on work from© Runólfur Smári Steinþórsson,1995.

Learning points – so far...• The 20/20 Program was put

forward as a proposal in Parlament but has not been taken to votes...

• There are many things that indicate that the Program’s development has somewhat been of an

B:


The Public SectorThe Private Sector

Income and activity drivenintermediate organisations

A:



has somewhat been of an emergent nature...

• The Program’s leader actually said in September 2009 that a Program like this was doomed to be a failure...

• A question arises – was the Program intended more as a process than producer of results... ...or...

C:


NGO’s/nonprofitorganisations

The Third Sector

**

Relations drivenintermediate organisations

Policy drivenintermediate organisations

Stake drivenintermediate organisations

Analytical model based on work from© Runólfur Smári Steinþórsson,1995.

Concluding remarks• The Strategy 20/20 Program is one of many activities and

projects that the Government of Iceland has initiated in theaftermath of the collapse of the banks and the crisis...

• It is fair to say that the Government of Iceland has been in the last two years more or less in the role of fighting fires and



dealing with one crisis after another...• This study of the Strategy 20/20 Program has just been

started, it is a part of a wider research project that aims touncover the initiatives and activities that together reveal thepath that Iceland is and has been on towards enhancingit ´s competitiveness ...

• The Ultimate Goal is to be able to contribute more to thatdevelopment...

Education

Iceland in search of a path for competitiveness