The Urban and the Rural

Much of the international attention Iceland received following its economic crash tended to conflate Iceland with its capital, Reykjavík, and assumed that because the country’s population of 322,000 is comparatively small and ethnically homogeneous, it is culturally homogeneous as well: “. . . a country so tiny and homogeneous that everyone in it knows pretty much everyone else. . . . Really, it’s less a nation than one big extended family” (Lewis 2011, cited in Cartier 2011, 170). Much of the mainstream literature by Icelandic writers, most of whom lived in Reykjavík, reinforced this impression, so that everything regarding the crash, including the bankers’ actions, houses lost, wealth made, and protests, all seemingly occurred in Reykjavík. This dominant voice defined the country’s experience related to the crash as an urban one.

For centuries, the majority of Iceland’s population, with the exception of merchants and large landowners, lived in poverty (Magnússon 2010). After World War II, the division between the urban and rural populations increased as more Icelanders flocked to the capital city. At the beginning of the twentieth century, 88.1 percent of Icelanders lived in the rural countryside. By the end of the century, 70 percent lived in the urban center, 9.3 percent lived in the countryside, and about 20 percent lived in small coastal communities (Hafstein 2000; Skaptadóttir 2000). This demographic shift turned Iceland’s rural communities into a minority population geographically isolated from the urban seat of power and with less access to government policy and politics.

The Pre-Crash Decade: Opportunities for Mobility and Debt

The kind of debt many Icelanders incurred before the crash is specific to the Icelandic context. Because of previous high inflation, Icelandic banking systems, unlike those of many other industrialized countries, offered “inflation-indexed loans.” These loans imposed a second fee that was subject to rises with inflation on top of the interest rate of the regular loan. This second fee means that a nominal amount of debt can continue to rise even though the borrower continues to make regular payments. To avoid paying the second fee, many Icelanders invested in foreign-currency-indexed loans. Although speculating on the foreign currency market is potentially risky, investors were encouraged to do so by the banks and a strong Icelandic currency.

For pre-crash Grundarfjörður, this kind of debt and the need for fish quotas went hand in hand. In 1991 changes in government fisheries policy cut the total allowable yearly catch size (TAC). This law was especially hard on small-scale quota holders. In order to maintain a constant level of catch-share, boat owners had to buy increasing amounts of quota (see Pálsson and Helgason 1996). To buy this additional quota, small-scale operators took out loans. In the early 2000s the price of quota increased dramatically, while at the same time, because of the high international value of the krona, the export price of Icelandic-caught fish was low. By 2006, the cost of quotas was higher than the value of the fish yield. On August 1, 2007, the government cut the TAC by one-third (Karlsdóttir 2008, 112). Icelandic banks made it easy for quota holders and farmers to borrow huge amounts of capital, most of which had little hope of ever being repaid.

At this point, the four or five comparatively small local quota holders who owned the major local fisheries companies in Grundarfjörður made different choices (larger outside firms own two additional companies in the town). Those who had been buying small amounts of quota gradually over the years stopped purchasing quota because their businesses were becoming too small to be viable. Others bought more quota while incurring increasing debt. One local quota-holding family, which had been given a ISK 100 million bank loan, was literally unable to buy quota because the price had risen by the time they could put in a bid. Despite the bank offering them another 100 million, they decided to sell their quota and leave fishing.

So in 2007, the fisheries in Grundarfjörður, which employed about 300 people—or about a third of the total local population—were struggling because of high debt, shifting regulations, and a system that put local companies in direct competition with the largest consolidated companies that controlled the bulk of the market share and government influence. Therefore, many in Grundarfjörður feel that 2007, not 2008, was the year of their rural crisis.

During this time banks were also soliciting local farmers in the area, who were struggling to survive under the new regulations, policies, and economics (Bændasamtök Íslands 2010). In the early 2000s, banks encouraged these struggling local farmers to take out increasingly larger loans. “[At the time],” said one local farmer, “. . . we trusted the banks.”

For example, in 2006 a bank encouraged one local farmer to take out a loan to build a larger cowshed, which he did not do. Then in 2007 a farm machinery company (of which the Icelandic bank Glitnir had recently acquired a major share) invited him and other farmers go on a trip to Europe to attend a big farm machinery exhibition. The farmers were pleased that the company was giving them personal service and attention. A representative from Glitnir, one of the three banks to collapse and be nationalized after the crash, accompanied the farmers on the trip and encouraged them to take out foreign currency–indexed loans. The banker said that he himself was paying on loans for everything and that this was “normal.” Just months before the crash, a representative of this company again approached one of the farmers, calling him frequently with increasingly large enticements to take out loans for large machinery. The repeated solicitation by large banks began to send a message to the local residents that taking out large loans was normal and desirable.

In the early 2000s Grundarfjörður, along with adjoining municipalities, invested in a local upper-secondary school (for students ages 16–20). For small rural towns, having an upper-secondary school close to home is advantageous for the community because it limits the outmigration of young people. When rural communities don’t have access to these schools, students often leave the area to continue their studies in Reykjavík or other distant locations, thereby draining the local population of young people (Bjarnason and Thorlindsson 2006). The school project and two large housing projects financed by nonlocal investment firms was a sign to local residents that the building trade was doing well in their town. Local restaurants benefitted from workers who came in for lunch. “They would line up just as [the students] do in the school lunch line, waiting for their meal,” said one restaurant owner. The two local banks employed four or five people each and were also doing well. Tourism was not a major industry of the town, and a couple who had bought the local hotel in 1998 sold it to a local fisherman who used money from selling his fishing quota. In April 2004 unemployment in Grundarfjörður stood at seven people, rising slightly to eight in April 2007 (Vinnumálastofnun 2012).

Increasingly through the late 1990s and early 2000s, Icelandic residents of Grundarfjörður, like those in other coastal communities (Karlsdóttir 2009; Skaptadóttir 2007), found new economic opportunities beyond fishing (mostly done by men) and minimum-wage fish factory work (mostly done by women). At the local fish factories, again following a national pattern of economic migration (Skaptadóttir and Wojtyńska 2008b), foreign migrant labor filled the resulting labor shortage, and by 2007, according to local fish factory owners, about 60 percent of the fish factory workers in Grundarfjörður were foreign, most of them Polish. Local residents began to look beyond Grundarfjörður for their business and social life, driving the two hours to Reykjavík in one evening for shopping and a movie. Young people no longer considered the fisheries prime career options. Many, once they finished school, moved to Reykjavík in search of new opportunities.

Residents began to think of themselves as participating in the bustling big-city life. Some, like their city counterparts, began taking overseas trips. They also began to demand that their village offer them the same benefits that the city did. The local bookstore owner said there was a strong sense of urgency during these years, that if one of his customers wanted something, he or she wanted it now! So he often ordered single items to be delivered the next day from Reykjavík. He felt pressured to provide this kind of service if he was going to be able to satisfy, and keep, his local customers.

The infrastructure of a rural community is central to its ability to survive, and over the previous several decades, while the state government improved access to the town through roads and bridges, the Grundarfjörður town council paved local roads, built a swimming pool (1976) and gymnasium (1980), fenced areas of town to keep out sheep, planted trees as windbreaks, established a small kindergarten, installed drainage pipelines, and established regular garbage pickup (Njálsdóttir 2012, 51). Improvements decreased in subsequent decades but picked up again in the early 2000s. In 2001 the town built a library; in 2004, in cooperation with three adjacent municipalities, the upper-secondary school was completed; and then beginning in 2006 residents approved more construction. As one town official noted: “Everyone was optimistic. In 2006 the kindergarten was renovated and for the primary school we bought the land it is on from the government. . . . It was a good price. It was good; it all had to be done. We fixed up the harbor, a million here or there.”

Bank loans from Reykjavík seemed almost limitless and were easy to obtain. In 2006 townspeople began planning a large sports center, spending a few million kronur on the planning alone, and began talking about holding a large track and field competition. The Grundarfjörður town council paid for nearly all of the projects with foreign currency–indexed loans.

In pre-crash Grundarfjörður, the fisheries, the main source of community stability, were struggling to balance quota and debt. Construction workers had jobs while local businesspeople struggled to provide services on par with the urban center. Greater opportunities seemed possible to residents as they turned increasingly outward. But the new access to capital, for quota holders, individuals, and town council members alike, was rooted not in growing local wealth but in unstable loans that the banks made easily accessible and described as the way things were done. This pre-crash rural experience, distinct from that of urban Reykjavík, was reflected throughout Iceland:

A National Crisis on a Rural Local Level

For residents of Grundarfjörður, the immediate reaction to and effects of the crash varied. Many immediately noticed the difference between Reykjavík and their community:

Local non-fisheries-related businesses were hit immediately and hard by the crash. The few bankers in the small Grundarfjörður branches had no idea the crash was coming:

Building construction stopped almost immediately. Local unemployment instantly doubled to sixteen people; in the West Iceland region the percentages went from 0.5 percent unemployment for men and 1.5 percent for women in 2007 to 5.2 percent for men and 5.1 percent for women in 2009 (Directorate of Labour 2012), numbers that were still less dire than the 8.8 percent and even 12.8 percent unemployment in the Reykjavík area (Benediktsson and Karlsdóttir 2011). The restaurant owner said she had fifty people a day for lunch before the crash, then “. . . in one day lots of people, the next day, nothing. No one came. It was that quick.” The bookstore owner stated: “The companies had to go on the same, but the people just waited to see what was happening before they bought anything. It was also difficult . . . because we couldn’t get things from overseas for a time.”

Because the value of the Icelandic currency almost immediately halved, everyone who held a foreign-currency-indexed loan saw it double. While in Reykjavík large numbers of people were unable to pay their house loans, in Grundarfjörður a combination of lower house values and bank policies that made 100 percent loans on rural houses harder to get meant that only a couple of people lost their homes. Farmers who had taken on big debt lost their farms to the banks and began working the land as tenants. The large foreign-currency-indexed loans the town council had so blithely taken out were now massive.

The one business that immediately benefitted from the crash was the fisheries, since the drop in the krona meant that exported fish prices now suddenly doubled. But so did the debts for those who had recently bought quota or invested in new ships. While in Reykjavík large numbers of migrant workers lost their jobs (Skaptadóttir, this volume), migrant workers in Grundarfjörður were still employed, but the international value of their wages halved. These workers said that Icelanders quickly became more reserved and that they felt immigrants were being blamed for the crash. A short time after the crash, a website called “Fucking Poles” appeared. Although relieved to see a general outcry in reaction to the website, Polish migrants said that they felt increasingly isolated and, being from a country with a history of sometimes brutal repression, were concerned about their position and even safety in Iceland.

Economically speaking, the rural residents of Grundarfjörður never benefitted from much of the money that urban people were making before the crash, so they didn’t feel the loss as keenly. As one resident stated, “We never really had a boom so the crash didn’t affect us so much.” The residents of Grundarfjörður considered the sudden high debt a major setback, but viewed in the context of a history of poverty, struggle, and survival, they were confident the crisis would not seriously threaten their community stability. It certainly wasn’t as bad as losing their area-based quota, a situation that had destroyed the economies of many other rural communities over the past twenty years (Einarsson 2011; Pálsson and Helgason 1996). They also saw the crash as a wake-up call. The attraction of money and city life had lured them away from the good life they had in their town. They suddenly realized once again that they were a community whose members relied upon each other and were united. Even the town council found sympathetic ears when it revealed the large collective debt. Still infused with the optimism of the past few years, the community felt, after a short period of fear and instability, that ultimately the crash was not about them but something they would watch unfold in Reykjavík.

Four Years Later: Increased Vulnerability and Eroding Resilience

Grundarfjörður in 2013 still has the six fisheries companies it had before the crash, but some ownership has changed. One family ran into post-crash debt and sold to a non-local company in 2011; this company is still located in Grundarfjörður, although staff has changed. Another company that had invested heavily in stocks before the crash now saw its future as unclear. A third small company, which hired three to five people before the crash, now employs only one. One small family company, which sold its quota in 2006, has recently been able to buy some of it back and is now also running a small factory that processes lumpfish roe. The owners of the larger family companies, which hire about ninety people each, see their position as tenuous, mostly because of government regulations and taxes they believe favor the huge fisheries companies, banks, and the Reykjavík-led federal government.

In 2012, according to the local harbormaster, the herring catch from the waters of Grundarfjörður brought in a total of more than ISK 25.5 billion. Such healthy herring stocks have previously made rural communities rich, but current post-crash regulations, taxes, and a quota system that allows non-local boats open access to the fish (during the season, the bay was carpeted with non-local boats) now means that little of this fish revenue stays in Grundarfjörður. In a trend that began for Grundarfjörður in the early 2000s, the boats now unload elsewhere or process their fish onboard, taking the attendant dock and transport jobs away to mostly Reykjavík-based fish auction houses to which the fishing vessels are legally required to sell their fresh fish. Governmental and environmental influences, including the quota system, restrict the time allowed for fishing to short scattered periods, resulting in an overabundance of available stock, followed by periods of no fish stock. This in itself creates price fluctuations when everyone tries to sell their fish on a glutted market. To avoid this situation, quota holders often hold their fish, distributing it over a longer period as needed.

In 2012, due to the economic crisis in Europe, the price and demand for imported Icelandic fish began to fall. The local Grundarfjörður quota holders, however, were less alarmed by what they saw as “normal” price fluctuations than by a new post-crash government regulation that no longer allows them to “hold” stock. All small quota holders must sell at the same time. The result, according to these quota holders, is uncontrolled and even steeper price fluctuations. In addition, government-imposed currency regulations continue to favor the banks and the largest fish companies by giving them preferred exchange rates when transferring foreign currency back to Iceland after fish export sales in Europe. All these influences ensure that most of the highly profitable fish catch revenue goes directly to the largest fish companies and to Reykjavík instead of staying in the rural countryside where it was generated.

In 2012, because some of the foreign-currency-indexed loans were declared illegal, the Grundarfjörður town council received some repayment on its loan debt, a payment repeated in 2013. Their uncertainty reflects a general lack of transparency regarding a host of banking and legal policies, including which bank debts are being forgiven and which ones are not. Despite regular payments and a 13 percent rise in the municipality’s income (mostly from fisheries), Grundarfjörður in 2012 owed 250 percent of its income to loan debt. In 2012, instead of restructuring these loans (which earn huge profits for Icelandic banks), the government passed new regulations on municipalities, requiring them to reduce their overall debt to 150 percent of local income over the next ten years.

Municipalities in Iceland are also not allowed by law to declare bankruptcy. The council is evaluating its options: raising local taxes further will make the area less attractive for new residents or businesses. It has cut road maintenance, but cutting services further will, in the words of the state auditor who came to advise them, make the town “uncompetitive.”

Unemployment in Grundarfjörður has grown worse over the past few years, rising to twenty-six people in 2010 and twenty-one in 2011, mostly men from the building trade. The two large housing projects remain uninhabited despite a local housing shortage. Deckhand jobs pay well right now and are prized, making it hard for young inexperienced people to get jobs unless they are related to the skipper. One of the two banks closed in 2012. The post office has been incorporated into part of the grocery store and is open only four hours a day. Unable to find work, a few families have moved, some to Norway, as it offered them better opportunities than Reykjavík. The state government has proposed reducing health care services to the town. In part because of the cycle of age, but also because so many young people left in the years around the crash, the number of elementary school children has almost halved. Upper-secondary schools have seen cuts in their budgets, especially since October 2008. If the upper-secondary school in Grundarfjörður fails to increase its student numbers, the school will likely be merged with larger regional schools an hour or more away. The town’s population has fallen from 952 in 2000 to 903 in 2012. The townspeople are very aware that if this trend continues, their town will no longer be viable.

Despite restrictions, fishing still brings income to the town, and unlike Reykjavík, nearly all the local migrant fish factory workers are still employed. As one Polish fish factory worker who has worked in the area since before the crash said, “It is not a tragedy [for us]. We are still here.” And, in the words of another longtime local Polish factory worker, “Poles are everywhere around the planet. People in Poland have always emigrated. . . . We have had several wars, and we know this is not the fault of the people but of governments and those in power. So we have thick skins for this kind of shit.”

Tourism has also increased. The fishing family that bought the hotel in 2006 has seen its profits double every year since 2008. They bought one whale-watching boat and then a second one in 2013. The local youth hostel caters to an increasing number of people, as does a new guesthouse, which opened in 2010. Cruise ships stop at the harbor, paying fees that go directly into the council’s coffers. The restaurant is expanding its services, offering sports telecasts and catering to seamen who want burgers and a beer. “Sometimes they call me from sea to ask if I’m open,” said the proprietor. “I don’t care if I’m in bed when they call. By the time they reach shore, I’m open.” The restaurant also supplies lunches to the upper-secondary school and tries to appeal to the tourists.

After a severe post-crash drop, the bookshop stabilized except for a decrease in all-important school supplies. But buying habits have changed, and customers are no longer in a hurry to receive ordered items. Because of increased transportation costs, the bookshop owner now bundles requests before he orders and often drives to Reykjavík himself to buy goods wholesale. Sales of Icelandic wool are booming. Since 2008 the local grocery store has been doing better, selling food and souvenirs, and with increased cooperation from local fishing vessels, the store now sells food and supplies to fishing boats.

According to the local police and upper-secondary students, violence, robbery, alcohol use, and drug abuse have actually decreased in the last few years. There are strong indications that an increasing number of young people, particularly women who had moved to Reykjavík and had children, are finding it too hard to live there and are moving back. Although the number of elementary school children is still low, the number of kindergarteners is rising. In 2012 fourteen children were born in Grundarfjörður.

Grundarfjörður residents, newly galvanized and politicized, are eager to sustain their community. They blame the post-crash, Reykjavík-based government, replete with corrupt banking and Quota King favoritism, for using their local resource-based wealth to prop up “an otherwise ailing economy” (Benediktsson and Karlsdóttir 2011).

Resilience, Politics, and Power

In discussions of economic crises, such as the 2008 Icelandic crash, the blame is often placed on a number of rogue individuals. Seldom is a financial crisis “conceptualized as a structural feature of capitalism or a consequence of neo-liberal programs of reform” (Raco and Street 2012). Likewise, while residents of the Reykjavík region made a sharp distinction between themselves and the bankers who perpetrated the crash, residents of Grundarfjörður conflate “Reykjavík” as a single systemic force that continues to favor itself and the bankers who feed it.

Grundarfjörður residents’ disconnection from the crash as it was experienced in Reykjavík relates also to a feeling that their very existence as an embodiment of rural Iceland, including its fisheries and agricultural products, is undervalued. The inequality of population, representation, power, and the ability to determine resource distribution disenfranchises them from the concerns of an urban-directed nation. It is this attitude, they say, that fosters the consolidation and quota policies that undermine their local economy and resilience.

Hudson (2010, 12) recognized that a central weakness of the conceptualization of regional resilience in times of crisis is its lack of “recognition and treatment of power.” Minsky (2008) also made the point that it is erroneous to consider booms and busts as outside forces when they are intrinsic to the capitalist system. The ability of a region or community to be resilient is either bolstered or undermined through government planning policies and spending priorities. As long as the larger system remains unchanged, regional resilience planning and policy is not viable. Ultimately it is national policy that controls a subregion’s ability to adapt in the face of change (see Pike, Dawley, and Tomaney 2010). Under neoliberal forms of governance, areas deemed most “efficient” are supported and favored as a means of making the national economy more resilient. As a result, peripheral areas become less significant (Raco and Street 2012, 4). In this way, Reykjavík’s road to recovery is coming at the expense of community stability.

Within this relationship, local residents are expected to “adapt,” with adaptation being defined as “the capacity of actors in the system to influence resilience” (Hudson 2010, 12). Residents of Grundarfjörður are trying to compete in the global market by investing in their fisheries, tourism, innovative education, and strong community cohesion. Before the crash, increased mobility over several decades combined with the pre-crash national excitement about abundance encouraged many residents to look beyond their own community for well-being. When the crash hit, they reassessed this relationship and now look to the local community for their well-being. But their lack of autonomy in determining their economic future has made this adjustment difficult. They are being expected to be resilient and adaptive without representation or power.

Aside from the potential loss of their quota, Grundarfjörður residents see the loss of fundamental state-funded social services as their greatest post-crash threat. Several local residents remarked that since nearly all decision-making power emanates from Reykjavík, when Parliament makes cuts, “It is easier to cut what is farther away,” and “If you are going to think about votes, the countryside is not efficient.” Icelandic national policy makers are indeed questioning the need for small communities because, under neoliberalism, they are deemed inefficient. Grundarfjörður residents see such weakening of federal structural support as placing money before the interests of society, a continuation of the same thinking that brought about the crash.

Grundarfjörður residents say this is nothing new. They saw little of the pre-crash prosperity enjoyed by the city, while post-crash Reykjavík-directed government cuts and regulations, fisheries policy, and bank decisions jeopardize their community survival. Grundarfjörður is now competing with the Reykjavík region for services and investment, and as a minority, it will lose. As one local resident, who had also lived for a few years in Reykjavík, said,

Hudson (2010, 16) advocates “more place-based, localized, and regional ways of living” to increase resilience. But expectations of recovery of small communities come directly in conflict with the success of a capitalist economy, which routinely creates “vulnerability and crisis in regional economics precisely because processes of combined and uneven development lie at the heart of capitalist social relations” (ibid., 11). If rural communities are to have any chance at becoming resilient, the government must lead the way. Only the government can give local regions the power of self-determination and self-dependence.

We would like to thank the many people of Grundarfjörður and the surrounding areas who contributed to this article, particularly the Fjölbrautaskóli Snæfellinga (upper-secondary school) who treated us with great generosity, and local librarian Sunna Njálsdóttir for her considerable assistance. Margaret Willson would further like to thank the participants and organizers of the “Icelandic Meltdown” workshop, who inspired this research, and Ágústa Flosadóttir for her hospitality. Numerous people offered much-appreciated comments on earlier drafts, making this a much better chapter. Responsibility for the contents of this article is, of course, solely our own.