Purpose — Analyze and assess the actions taken by the government of Iceland prior to a banking crisis that resulted in the collapse of Iceland’s largest banks in October…
Purpose — Analyze and assess the actions taken by the government of Iceland prior to a banking crisis that resulted in the collapse of Iceland’s largest banks in October 2008. Was the government’s behavior prior to the crisis dishonest in the sense that it deliberately tried to fake reality or was the government honest but incompetent in the sense that it did not see the problem coming, and was therefore not trustworthy?Design/methodology/approach — Review of the existing literature, analysis, and assessment of this literature. Case study of Iceland.Findings — The government showed negligence and made mistakes by not taking credible actions to manage risks following a rapid cross-border expansion of Iceland’s largest banks. This had severe consequences and resulted in the collapse of the largest banks in October 2008. Instead of addressing the problems in the economy the government launched a PR campaign and the analysis of various scholars may have helped to justify inaction. According to the Special Investigation Commission (SIC),1 the government did not address an obvious problem and could perhaps on that basis be charged with dishonesty, including faking reality with PR campaigns. As some scholars put it, the authorities gambled for resurrection, and failed. The analysis carried out by a number of other scholars who downplayed the problem may have confused the government and it may have been honest in its inaction. In that situation one can argue that the government was honest but incompetent and not trustworthy, as according to the SIC and several international scholars the problem was obvious.Research limitations/implications — This is a case study. The study does not present results that can be evaluated on the basis of statistical significance and generalized. Some of the lessons, however, can have a wider relevance than for Iceland only. This is especially true for small countries with a large banking sector, using its own currency, and with limited fiscal space to support the banks during a crisis.Practical implications — The combination of a risk seeking behavior of businesses, in this case in the banking sector, and inactive or negligent governments can result in the collapse of a country’s economy. The Icelandic government should encourage and enforce more risk mitigation via regulations, monitoring, and supervision of the private sector’s cross-border activities. This does not only apply to the banking sector but also to other sectors such as the energy sector.Social implications — Less risk seeking behavior and more risk mitigating actions can stabilize Iceland´s economic growth in the medium and long term, and reduce the risk of an economic collapse that typically has severe social consequences.Originality/value — The so-called Viking spirit of Icelandic business people accompanied with aggressive risk taking and bold business behavior can be very detrimental for a small economy especially when global economic and financial crisis hit.
Isaac O. Amoako is a researcher at the Centre for Enterprise and Economic Development Research (CEEDR) and lecturer in enterprise and small business at the Department of International Management and Innovation, all at Middlesex University Business School, UK. He completed his Ph.D. in 2012 in the same university and his paper on “alternative institutions” used by exporting SMEs in Ghana has been accepted and forthcoming in International Small Business Journal (ISBJ). His research interests include enterprise and small business start-up and management, interorganizational trust, culture and organizations, and international business management. Prior to his academic career he was an entrepreneur starting and managing his own businesses for over 20 years.
The economic life is often hindered by problems that can be successfully solved by tapping into concepts of social sciences. Herein, basic assumptions uniform people’s behavior but these may also create problems and thus, nowadays the economy meets the consequences of the so-called “soft issues” for various reasons. In this light, the aim of the volume is to show what kind of influences may turn out from honesty and dishonesty to management and the economy, in general. These effects generate an ensemble where factors could affect and be affected by each other in several ways.