Iceland

Icelandic companies Marel and Liquid Ice are finding more efficient uses of precious seafood resources. deCode Genetics is isolating the genes for debilitating diseases. Oz.com is connecting the world with cutting-edge "killer apps" for wireless mobile-Internet. Ossur is revolutionizing prosthetics. And such efforts have spawned partnerships with successful multinationals like Ericsson, Roche and IBM.

Surprised? Some say the country's name was meant to mislead. While Greenland is mostly ice, Iceland is quite green. Eskimos and polar bears are absent in Iceland. Until recently, the misnomer may have kept outsiders away.

Now, the nation welcomes more visitors than it has inhabitants. That number reached a record level last year as foreign arrivals outnumbered the estimated 280,000 who call the island home.

The population is predominantly young and comes close to that of a typical suburb in the United States. Icelanders live peacefully and securely, knowing that their streets are virtually crime-free. Many locals never lock their doors.

Descended mainly from Norse Viking seafarers who found their way ashore during the 9th century, the population is among the most literate in the world, with 25 percent holding a university degree. Iceland also has the most published authors per capita and the largest number of book purchases per person.

Icelandic Prime Minister David Oddsson

Life expectancy is among the highest and infant mortality among the lowest in the world. The country ranks sixth in terms of average personal income (behind the U.S., Luxembourg, Norway, Switzerland and Japan) and enjoys one of the lowest unemployment rates.

The U.N. has ranked Iceland as the fifth-best country to live after Canada, Norway, the U.S. and Australia. That U.N. report also pointed out that Icelanders are among the most content in the world.

Forged by fire and honed by ice, Iceland has learned to harness these great forces for clean hydroelectric and geothermal energy, which power most homes. The island sees minimal industrial pollution and enjoys the largest wilderness in Europe.

Drinking water comes from glaciers. Fish, the staple food, is caught in pristine rivers and seas. Sheep and cattle graze in fields unfettered by fertilizer. Iceland is pushing to become the world?s first hydrogen economy, eliminating its use of fossil fuels. Aided by Daimler-Chrysler, Shell and Norsk-Hydro, the country hopes to launch a hydrogen-powered public bus service by 2002.

King of connectivity

At the start of the 20th century, Icelanders lived poorly in simple rustic homes in small villages isolated from one another. In the 21st century, the average home has grown to be the most spacious in northern Europe, and they are connected with each other and the world.

The highways may be coursed around dwellings of the fictitious elves but Icelanders crave the cutting edge. The nation boasts the highest Internet use and penetration on the planet, with 80 percent of all Icelanders online.

Iceland also has the top cell-phone use per capita, having surpassed Finland two years ago with 72.3 percent of the population toting mobiles. Virtually all banks are on the Net. Indeed, the country is set to become the world's first "online cashless society."

"We have an incredible appetite for the new," explained Prime Minister David Oddsson, who believes that Iceland is the ideal test market. "Launching a product here costs a fraction of what it would in the U.S., Europe or Japan, and results are fast and representative."

Local business agrees unanimously, contending that one advertisement grabs the attention of virtually the entire population, two-thirds of which is concentrated in Greater Reykjavik. The outcome of trial runs is said to be clear in less than a month.

The capital is currently testing 100-megabyte-per-second connections to every home to deliver such services as digital TV, video-on-demand and high-speed Internet access.

Oddsson, also a published playwright with a fondness for intercontinental online bridge, vowed several years ago to see Icelanders become cyber-savvy. In 1996, he pushed for legislation that earmarked a part of the $500 million generated by the nation's privatization program to buy computers for classrooms and help train future teachers.

Enrollment in computer science courses subsequently soared by 300 percent. Four years since then, Iceland has become the world's king of connectivity, with 200 new IT companies and 4,000 new jobs.

Prosperity came after World War II and was boosted by long-awaited independence on June 17, 1944. Since then, Iceland has moved from the medieval to the modern.

From 1397 to 1854, Denmark controlled the island, swapping supplies in exchange for fish and forbidding it from trading with anyone else.

For seven centuries, Iceland remained a poor, oppressed and grim land. This is an era that locals prefer to forget; instead proudly recalling the early days of their country which saw the creation of the world's first parliamentary assembly, the Althing, in 930.

Early settlers immortalized this era of independence in local sagas. Academics consider these generations-spanning epics among the great literary achievements, on par with Homer and Shakespeare. Those anonymous 13th century scribes, struggling to survive the desolation of civil war, were the first Europeans to write prose in a language other than Latin. The Icelandic language has stayed almost unchanged since.

"It would not be wrong to call Icelanders the most literary people on the planet. We have written some of the best works," claimed Halldur Asgrimson, minister for Foreign Affairs. "No other nation has given literature so much of its energy. You won't find any better evidence that this is the best way to ward off old age than our longevity. The intense interest of writers and readers has given our nation more energy and an incredible vitality."

Icelanders are obsessed with their mother tongue and their genealogy. In a society where almost everyone is related until the 10th generation, most people can trace their ancestry back at least six or seven generations.

The people of Iceland speak Icelandic, a Scandinavian language very similar to Old Norse, one of the western world's most ancient tongues and the only one using old runic symbols. And Icelanders insist on saying things their way. Academic committees are set up to choose proper expressions for new products of foreign origin. The computer was christened "tolva" -- a fusion of "tala" (number) and "volva" (prophetess). Breast pocket pagers are dubbed "friodpjofur," a male name meaning "thief of the peace."

In the capital, people live with a mix of village innocence and cosmopolitan sophistication. In some respects, the atmosphere bespeaks of a simpler day. Everyone from the president to the postman are addressed by their first names.

Surnames use the ancient Scandinavian patronym and are derived from the father's first name with "-son" attached for a male and "-dottir" for a female. Pop star Bjork Gudmundsdottir would be the daughter of Gudmund. Her brother's surname would be Gudmundsson.

Icelanders, including the prime minister, can be found in the phone book alphabetized by first name. Fame does not encumber Icelanders. There is no exclusivity. Politicians and pop stars can be found sitting beside bakers and fishermen at the popular swimming baths that are as omnipresent as sentos (public baths) in Japan. The president and prime minister will grant an interview to any member of the public. Foreign investors report equally easy access to top officials and a lean bureaucracy.

Iceland's famous spa, the Blue Lagoon, is a byproduct of nearby geothermal

Oddsson says the high standard of education drives Iceland's ongoing advancement as a society. "While we were poor, but throughout our history we were never ignorant. We've always maintained our literacy and our libraries. Fifty years ago, we were absolutely isolated. Now we have the ability to utilize cutting-edge communications to get closer to the world. Now because of technology we?re in the center of everything. And as no one is afraid of Iceland, foreign companies are more inclined to work with us."

Throughout their history, most Icelanders could read and write. Today, almost everyone speaks English, most often fluently, as well as one or more other foreign languages. With wanderlust running deeply in the veins, Icelanders are at ease abroad and have been sealing important commercial ties more now than ever as local companies outgrow the limited home market.

The main factor behind the nation's ascendance may simply be hard work. The typical workday lasts more than 10 hours, the longest in Europe. Many Icelanders maintain two or more jobs. The island may seem remote, but the pace of life is fast. Icelanders admit they can be impatient and too hurried.

Equally evident, especially in the capital, is the creativity of the people. In addition to writing, Icelanders also paint, sculpt, and write music a lot. Local offices display abundant and active artistic talent. Music shops carry as much local music as foreign. And it is no wonder. The scenery throughout the island provokes thought and reflection. Moreover, despite its small size, the population supports a symphony and many acclaimed theaters.

When asked to define national character, locals will at some point mention their independence. In the infamous Cod Wars of the 1970s and 1980s, Iceland, a nation without an army, confronted and routed Britain, securing a 200-mile zone around its shores for local fishermen.

The government has opposed joining the EU and adopting the euro. Critics maintain that the mindset of those who remember World War II remains too Icelandic, which fears opening the fishing industry. Oddsson reminds critics that Icelanders reap more per person from cod than Saudis do from oil. Fish remains the source of nearly 70 percent of the nation's steadily diversifying exports.

As the legacy of foreign hegemony remains etched in the minds of senior politicians, the people have been among the world's most progressive and open-minded. Some will snicker and say beer was illegal until 1989, but Iceland is only the second country in the world, after Denmark, to allow adoption by same-sex couples.

The nation saw the world's first elected female head of state in 1980, Vigdis Finbogadottir, a single mother at the time. The women of Iceland have always kept the Old Norse tradition of retaining their natal surnames when marrying. They are veterans of ground-breaking feminist activity and were the first country to vote a women-only party to parliament in 1983.

Gaining the right to suffrage in 1908 ahead of almost all other nations, women have always played a forceful role in Icelandic society. The local sagas are filled with strong matriarchal figures. Ancient law books indicate that the medieval women had a great deal more freedom and power than the majority of their European counterparts, enjoying equal rights in marriage, property ownership and chieftainships. Today, over 70 percent of women work outside the home either full or part time.

Although Iceland has an impressive past and present, there are pressing current concerns, including inflation, a current account deficit of 7 percent of GDP and a strain on human resources, which has been eased somewhat by foreign workers. But Icelanders are nonplussed and optimism is widespread.

Oddsson has been reporting record budget surpluses. "The government is repaying the debt locally and internationally," commented Halldor J. Kristjansson, group managing director and CEO of Landsbanki, Iceland's largest bank.

"The current account deficit we have is of a very different nature than years ago when we saw hyperinflation. Today it is investment-driven and linked to improving productivity. There has also has been significant investment abroad, as local companies expand overseas."

What may be most important about Iceland transcends words. Bogi Palsson, the head of the Toyota and Lexus distributor P. Samuelsson, explained: "People will put more and more value on things like quietness. This will be one of our greatest values to the world in the future. Not far from Reykjavik you can hear and see nothing except nature for miles and are absolutely alone with yourself in the midst of incredible natural beauty."

"The whole concept of Iceland cannot be copied. You may find similar landscape, maybe even such freedom of movement, but not where there is our high standard of living, respect for nature and opportunities for independence."

That's what brings them back.

Expensive Iceland - a look at the economy

Visitors to Iceland will instantly notice the high prices, which are often criticized as unnaturally expensive compared to other Nordic nations, especially for food and alcohol. And local merchants, too, have come under fire.

However, Jon Asgeir Johannesson, CEO of local retailing giant Baugur, explained that the critics of food prices should look at the government's agricultural policy which sustains high food prices.

In Iceland, so-called super-tariffs are levied on cheese, fruit and vegetables to protect domestic producers. The situation is similar for other products like lamb, although the prices of other meats have fallen in recent years due to deregulation.

"Milk and cheese are available only from a single supplier. Retailers do not enjoy discounts on bulk purchasing nor obtain other preferential terms. Transportation to and from Iceland is expensive, and limited competition prevails in insurance and other fields, not only for food but other necessities, serving to maintain high prices," Johannesson explained.

While most western countries allow the sale of beer and wine in supermarkets, Iceland does not. Johannesson believes that a change in this policy would allow companies such as Baugur to expand their retail base, boost competition and bring down prices.

Another hurdle that retailers face is the local currency. The Icelandic krona has been slipping against the dollar. Trading at around 75 to the greenback at the start of the 2000, the krona fell to about 85 by the end of the year. To shore up the krona, the government has regularly intervened and raised interest rates.

Central Bank Governor Birgir Gunnarsson has predicted that monetary policy will remain tight to keep inflationary pressures in check. "We have learned our lesson from the hyperinflation in our history," he said.

Local business leaders have expressed strong confidence that such monetary measures are effective. "The interest rates are fairly high here. This will ensure a stable currency," said Halldor J. Kristjansson, group managing director and CEO of Landsbanki.

He added, "We have seen signs that consumer spending and domestic lending are leveling off and that the overheating of our economy is easing. I am confident we will see more years of good economic growth. Fishing stocks are stable and the industry is consolidating, strengthening and has access to quotas abroad."

Ingimundur Sigurpalsson, managing director of the local shipping giant Eimskip, said that due to lower volume, food importers are not in the same bargaining position as their counterparts in other countries. But he noted changes in the overall situation. "I don't feel price levels here are so much higher than in London or Oslo. Ten or twenty years ago, it was worth buying clothes there. It doesn't pay any more."

Johannesson pointed out that Baugur's prices are lower today than a decade ago, although the group's 10 largest suppliers raised prices by around 5 to 10 percent in 1999. "Many suppliers can do this because they stock goods no retailer can do without. This alone added 200 million krona to Baugur's input prices."

"The most effective step would be if the government could be persuaded to review its agricultural policy, reduce protectionist tariffs and import restrictions, particularly on vegetables, fruits and other agricultural products. Competition generated by the abolition of protectionism is the most realistic way to bring down food prices. They would plummet."

Meanwhile, Icelanders remain satisfied about the cost of energy, which is among the lowest in the world. Geothermal and hydroelectric energy are the country's main sources.

"Iceland's abundant energy is gradually being harnessed and utilized for aluminum smelting, where it gives us not only a competitive advantage, but affords the world a greater environmentally sound means of production of this important metal." explained Landsbanki's Kristjansson.

On another front, tourism made history last year as the number of foreign arrivals surpassed the size of Iceland's population for the first time. The industry now ranks second after fishing in terms of foreign-exchange earnings for this import-dependent nation.

But Johannesson feels that the government can do more. "The government needs to reduce the current value-added tax, which is 24.5 percent for consumer goods and clothes and 14 percent for food. However, now that the economy is strong, politicians contend lowering taxes would lead to greater inflation. When the economy cools, officials say they cannot afford to lose the revenue."

He added, "They're not seeing the whole picture. There's a great opportunity for Iceland to attract more upscale tourists that spend more."

Sigurpalsson believes a broad perspective is best for understanding Iceland. "It's a small community of less than 300,000 people, and we maintain a high standard of living, one of the highest in the world with one of the best infrastructures. Of course, we cannot do this at the same price as countries with larger populations, considering economies of scale."

"Building up the public services here has been, and is, very expensive. Look at our airline. We offer five flights to America every day. From Norway, there's only one. Our economy is a microcosm of larger advanced nations. In many cases, we'll have to live with higher cost. Clean air and water have their price."

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