Wednesday, January 28, 2009

Johanna Sigurdardottir: Iceland's Leadership Changes

Iceland to appoint gay woman minister to PM post

REYKJAVIK, Iceland (Associated Press) – The woman expected to become Iceland's interim prime minister is an openly gay former flight attendant who rose through the political ranks to lead a new leftist government.

Johanna Sigurdardottir, the island nation's 66-year-old social affairs minister, began as an union organizer for flight attendants and is now among the country's longest-serving lawmakers.

Both political parties forming Iceland's new coalition government support her appointment — and a decision could be announced as early as Thursday.

"She is a senior parliamentarian, she is respected and loved by all of Iceland," said Environment Minister Thorunn Sveinbjarnardottir.

In the wake of its severe economic crisis, Iceland has selected a liberal, openly-lesbian woman to lead them through the coming days. Johanna Sigurdardottir’s position is precarious, as the government coalition that backs her could collapse, and she could be voted out of office in the upcoming May elections. Yet for history’s sake, for however long or brief her stay in office, she will be hereafter remembered as the first openly lesbian Prime Minister of the modern world.

Iceland is certainly not out of options in terms of other candidates for leadership. Yet her style seems to be what the day is calling for. Johanna (Icelandic custom prefers to use people’s first names) is viewed as someone more interested in the common benefit, a position now seen as vital given rising widespread unemployment. In the wake of public disappointment at how conservatives have led the nation in the run-up to the collapse and thereafter, she is regarded as trustworthy by the Icelandic citizenry.

The fact that she is a woman is not news, considering Iceland elected their first woman President, Vigdís Finnbogadóttir, in 1980. The issue of her sexual orientation is not news either, since Johanna Sigurdardottir had her civil union in 2002. What is news is that her approval rating, recently measured at 73%, has not been affected by the withering shock of disappointment other politicians have suffered. She remains untainted by the upheaval. So far.

Trial of the Island of Fire and Ice

Trials await her, and such opinions may shift rapidly. Iceland’s economy is predicted to shrink up to 9.6% in 2009, and similarly again in 2010, according to a report in Forbes. On top of recessionary effects, inflation will kick in, at a rate up to 13.1%.

An IMF loan for $2.1 billion, and total loans of $10 billion including pledges from other nations, make a heavy price tag Iceland’s for economic crisis management. This is compared to a national GDP of $12.144 billion in 2007. Added to Iceland’s existing public debt of $10.94 billion (as of 2007), their total debt will likely soar to $22 billion or more, depending on tax revenue shortfalls for 2008-2009.

This $22 billion sounds like a managable figure, until you put that burden on the population of Iceland, which, as of 1 December 2008, stood at 319,756. That equates to an estimated per capita debt of $68,800.

Iceland - GDP - per capita (PPP) (US$)
Iceland GDP per capita 2000-2008: It was a good run while it lasted.

While Iceland made a remarkable run since 2000 on their GDP per capita growth, that trend has been suddenly brought up short. If their GDP shrinks at nearly 10% per year for the next two years, bringing their national economy back to around $10 billion per year, GDP per capita will likely resettle at somewhere around $33,000, or about 2005-2006 rates.

Iceland’s debt exceeding their annual GDP is not the first time such a situation has occurred, but considering it went far beyond that economic red line, and is going to nearly double the GDP — which is shrinking rapidly — it is a troubling trend. This small island nation, with a population smaller than that of Cincinnati, Ohio, stands as a telling bellweather for other nations saddled by massive public debt which are also shocked by national economic downturn.

Comparison to the U.S.

The United States, by comparison, has seen GDP rise from $9.8 trillion in 2000, to $13.8 trillion in 2007; a rough increase of 40%. In 2008, the U.S. saw one of the worst economic growth rates in the world, 177th out of 181, estimated by the IMF at 0.52%. Only the stagnant Iceland and Italy, the slipping sultanate of Brunei, and the utterly imploding Zimbabwe underperformed the U.S. economy.

U.S. public debt over this century rose from $5.6 trillion in September 2000 to $10 trillion in September 2008; an increase of 79%. Note that these raw figures are not indexed against inflation.

Given U.S. government debt is guaranteed to rise to at least $12 billion given the loss of revenues in the economic downturn, on top of the cost of the TARP plus other bailouts and stimulus packages in 2008-2009 amounting to well over $1 trillion, the U.S. may see its own debt-to-GDP ratio rise to over 1:1 at some point in the Obama administration. If so, it will not be due to the current President, but the momentum of macroeconomics.

It is not likely the U.S. would see its economy implode in 2009-2010 as swiftly or as precipitously as Iceland’s. Yet if it did, the sort of economic bailout needed would be somewhere in the rough size of U.S. GDP, on an order of magnitude somewhere larger than $10 trillion. That would be roughly one sixth of the entire world economy of $65 trillion. An unmanageable and unrealistic expectation by any accounts. It just would not happen.

What would be likely instead would be a shakeout and resettling of the U.S. economy back towards a lower basis. Possibly down to a GDP of less than $10 trillion, as it had been before 2001: a shrinking of roughly 30% or more.

That economic basis would be spread amonst the 2009 U.S. population of 305.7 million (estimated as of today by the U.S. Census Bureau), compared to the 2000 U.S. population of 281.4 million. In other words, we’d have to share the same amount of money amongst 8.64% more of us. Take one dollar in twelve, and pass it on to pool support for the new children born since then, and the new immigrants arrived here in recent years. In comparison, Iceland’s population grew about 6.6% since 2000; a 1:15 growth.

Decoupling National Economy from What’s-in-it-for-Me?

One of the requirements for recovery from any national economic shock is decoupling the desire for a stable collective economic basis from the desire for personal profit. Profits are not as necessary during an economic downturn as simply meeting survival income. Immediate needs of food, water, energy, shelter, and health become far more important than long-term savings and investing. One trend under such conditions becomes the insular conservative approach, harboring resources. Yet that can lead to even more severe shortages and setbacks for the overall economy. Instead, most societies require a focus on the collective good during such crisis to enable the vast majority to weather their tribulations as a whole, rather than individuals.

This decoupling and refocus on collective commonwealth, rather than individual wealth, seems to be the choice Iceland has made in Johanna Sigurdardottir. In a way, it also seems to reflect the “Yes We Can” attitude expressed in the Obama Presidential campaign.

Fate awaits to see how both nations weather the coming year, with most eyes on the United States of America. Yet keep your eye on Iceland. It may present a few lessons, both socially ideal and bitterly painful, for larger economies to learn from.

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