"The Nordic Tiger, largely unseen and unnoticed, stalks the worlds companies," writes the ASI's Dr Eamonn Butler in an article about Iceland which appears today in The Business newspaper. Many people have not woken up to the fact that there is a major entrepreneurial player on the EUs doorstep. What was thought of as an icy home for fishermen has become an economic powerhouse with surging growth rates and booming industries. What happened?
It started when the reformist David Oddsson became prime minister in 1991. Taxes and inflation were high, and two of the three banks were state-owned and sluggish. He pulled the government out of commercial banking, with the result that Iceland now has 3 of the top 15 Nordic banks. He also went for flexible labour markets and lower taxes.
Big falls in company taxation were another key step. Capital gains tax is now 10%. Corporate taxes went from 30% to 18%, and asset taxes were filleted. Suddenly, businesses looked profitable again. Income tax is still high, but the 4% supertax looks to be on the way out, as does inheritance tax. The rate cut in corporate taxes actually resulted in larger revenues.
The privatization and deregulation of Telecoms has seen competition rise and prices fall, but other industries are surging ahead, and even fishing has been transformed by the introduction of tradable quotas to combat stock depletion.
Iceland has such abundant cheap energy in the form of geothermal and hydro-electric power that Alcoa ships ore there to be processed into Aluminium. There are plans to export that cheap power via an undersea pipeline to Europe. The country is a testament to what a determined people can do once governments step aside and give them the space to do it in.
Iceland is booming. This little economic powerhouse boasts a per-capita income higher than the UK, France, Germany, Austria higher than nearly all European Union (EU) countries.
There are cranes everywhere, with new factories and apartments going up. One has the sense of a country on the move, an old country, but with a young and dynamic population determined to take it into the big league.