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Throughout the 1990’s, Iceland, like so many other countries at that time, transformed their economy through a variety of policy reforms. With the aim of “modernising” and growing the economy, the government implemented a series of market liberalisation, deregulation and privatisation initiatives. There was a massive overhaul of tax policies, with the abolishment of the net wealth tax and a reduction in the capital tax (from 40% to 10%) and corporate tax rates (from 48% to 18%). Subsidies for unprofitable firms were terminated and state-owned enterprises, from fishing to commercial banking, were sold off. Regulations on business and finance were reduced and the currency was liberalised. All of these reforms culminated in the total privatisation of Iceland’s banking sector in 2002 and transformed Iceland from a fishing driven to a finance driven economy. The banking and finance sector grew at incredible speed, with stock market prices increasing by 900% between 2002-2003 and the banking sector coming to account for 96% of GDP. The plan worked, Iceland’s economy “modernised”, and it became one of the richest countries in the world.

When the 2008 financial crisis hit, in a matter of days, Iceland’s banking sector collapsed and nearly every business in the country fell into bankruptcy. In a situation where many other countries deemed their banks “too big to fail”, Iceland decided their banks were “too big to save”. The banks were nationalised and split into domestic and foreign operations, with the government guaranteeing domestic deposits whilst abandoning the foreign operations side. A program of widespread debt forgiveness was implemented for citizens and the currency was allowed to devalue by almost 60 per cent to increase demand for local products on the international market. Furthermore, Iceland was the only country who prosecuted bankers as criminals for the damage they had caused to the economy and society.

Viewed from a standard economic policy perspective, Iceland’s response seems strange. But from the perspective of a country whose objectives were to stabilize the economy and protect citizens’ wellbeing, these policies make a lot of sense. “What makes the story behind Iceland’s recovery important is not simply that it recovered. Iceland’s recovery is important because of its priorities – the decisions made about who to protect, and who to shoulder the cost of recovery.” Coming out of the crisis, the country recognized the need for a new approach to politics and the economic governance.

As the country worked to rebuild, the parliament undertook a process of re-writing their constitution through a participatory, “crowd-sourcing” process. Nine hundred and fifty people were chosen by a lottery to discuss the core values, rights and responsibilities of the Icelandic government. The new draft emphasized the importance of government transparency, equality, welfare and the national ownership of natural resources. While this new constitution did not end up ultimately passing through the parliament in 2011, its core value and priorities have come to inform many of Iceland’s policy reforms and initiatives since the crisis.

In working to build a more just and sustainable economy, one of Iceland’s primary goals was gender equality. Icelandic prime minister, Katrin Jakobsdottir wrote: “As governments are slowly turning their focus from raw GDP-driven measurements toward well-being criteria when judging economic success, the demand for progressive social justice policies is increasing…The campaign for women’s equality in Iceland has demanded government action to liberate women from social structures that have kept them down for centuries.”

In order to achieve this wellbeing goal, Iceland recognised that they needed to have a better understanding of their policies’ impact on gender. This required going beyond traditional cost-benefit analysis of policies, so the government instigated a gender mainstreaming and budgeting initiative to “to make the impact on genders visible, so it’s possible to re-evaluate policies, expenditures, and sources of income in accordance with objectives for equality”

The Prime Minster went on to say that this re-assessment of existing and proposed policies led to legislative changes for women’s sexual and reproductive freedoms as well as robust equality laws and gender quotas for corporate boards. But it has also required policies that are, in conventional economic terms, considered extremely expensive (such as) universal childcare and shared parental leave. Fifty years have elapsed since Robert Kennedy rightly said that GDP measures everything except that which makes life worthwhile. Economics is nonetheless still centred on the measurable, dividing government outlays into two categories: expenses and investment. This dualism classifies money spent on physical infrastructure as an investment and, therefore, worthy of public monies. On the other hand, social infrastructure (e.g. childcare, healthcare, education) is branded as expenses or operating costs, preferably the first in line to be cut. Yet these are the structures that sustain us from (before) birth to death and create the conditions that make life worthwhile.”

Iceland’s first-hand experience of the dangers of conforming to the standard economic orthodoxy encouraged them to not only explore new, more holistic methods for assessing and selecting policies but also led them to join the Wellbeing Economy Government’s (WEGO) partnership in 2018. Like other WEGO states (see Phase 1), Iceland has now developed 39 wellbeing indicators based on the SDG’s to “service as the basis for an assessment of real prosperity and quality of life in Iceland”. Following on from their experience with gender budgeting, the government is now in the process of developing a wellbeing budgeting initiative to inform their five-year fiscal strategies and annual budgets by analyzing the wellbeing impact of different policy options in order to reform and develop a coherent mix of policies that can deliver on their wellbeing goals.

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