Democracy 2.0: Iceland crowdsources new constitution

by Jerome Roos on June 11, 2011

Post image for Democracy 2.0: Iceland crowdsources new constitution

In just three years, Iceland went from collapse to revolution and back to growth. What can Spain and Greece learn from the Icelandic experience and its embrace of direct democracy?

Just two or three years after its economy and government collapsed, Iceland is bouncing back with remarkable strength. This week, the small island nation earned praise from foreign investors despite allowing its banks to collapse and refusing to pay back some of its debt — belying the dominant idea among Europe’s ruling class that bank failures and defaults necessarily engender disastrous economic consequences.

Now, in an historically unprecedented move, the government has decided to draft a new constitution with the online input of its citizens — essentially crowdsourcing the creation of Iceland’s real democracy. Rather than just involving voters at the end of the process through a referendum, the Icelanders have an opportunity, through social media, to be directly involved in the writing process. It’s the ultimate affirmation of participatory democracy. It’s Democracy 2.0.

How did Iceland get from there to here? And what are the lessons for Europe’s troubled periphery?

Back in 2009, months after the greatest banking collapse in economic history, the people of Iceland took to the streets en masse to denounce the reckless bankers who had caused the crisis and the clueless politicians who had allowed it to develop. Quietly, as the world was busy watching the inauguration of President Obama, the people of Iceland overthrew their government and demanded a referendum on the country’s debt.

In the referendum, the Icelanders decided not to repay foreign creditors — Great Britain and the Netherlands — who had so foolishly deposited their savings in one of the world’s most over-leveraged banks, Icesave. In fact, the President had already vetoed the deal, so the referendum was largely symbolic, but still, the outcome of the vote (93 percent against repayment) was a watershed in the epic battle between people power and foreign financial interests.

Yet what’s really interesting about the Icelandic case is not just the referendum, but the fact that the consequences of the outcome were far from being as disastrous as Europe’s self-proclaimed economic ‘experts’ had predicted. In fact, within just two years of the collapse of its government, Iceland is bouncing back rapidly, and is actually being rewarded for it by foreign investors. As the Wall Street Journal reported yesterday:

Iceland’s first international bond offering since its spectacular economic and banking collapse late in 2008 has been snapped up by investors. The five-year $1 billion deal, yielding just under 5%, is a milestone in rebuilding confidence internationally and follows a turnaround in the economy, forecast to grow 2.25% this year.

So it’s no surprise that Iceland became a rallying point for the ‘indignados‘ in Spain during the mass protests that broke out there last month. Spanish demonstrators could be seen carrying placards reading “Iceland is my goal” and “I think of Iceland.” The Icelandic model has also come to inspire the indignant protest movement in Greece, which is rapidly picking up steam. So what are Iceland’s main lessons for Europe’s troubled periphery?

First of all, make sure to read this excellent piece by Robert Wade, my former Professor at the London School of Economics, to understand how Iceland’s mistakes in the lead-up to the crisis were just an extreme version of what we did on the continent: capital account liberalization combined with financial deregulation and unprecedented political disinterest in the face of an epic bubble blowing up right in front of our eyes.

Wade helps us understand what not to do. But perhaps at this stage, it’s more interesting to find out what we should do. In this respect, one overwhelming lesson jumps out: while letting banks collapse and refusing to pay back foreign lenders certainly has negative consequences in the short run, those consequences are born largely by the reckless bankers who instigated the crisis in the first place.

Instead of socializing the losses of the banks, making ordinary people pay for a crisis they never caused, the Icelandic model forced the bankers to pay for their own stupidity. During the Icelandic crisis, all three of the country’s largest banks collapsed. The government didn’t save them.

Secondly, Iceland actually went after those responsible — both to enact justice and to set a precedent that this type of reckless speculation on the livelihoods of real people will simply not be tolerated in the future. Key figures in the banking sector have been arrested and a former prime minister has been formally charged. Treating reckless speculation as a crime is a crucial first step towards real democracy.

Thirdly, Iceland did what no one is supposed to be doing according to neoliberal dogma: just like Malaysia did — to the dismay of the IMF — during the East-Asian crisis of 1997-’98, the Icelandic government instituted capital controls to stem the outflow of hot money from the country in the wake of its banking collapse. The EU should have done the same (and can still do the same) to stem the outflow of capital from the periphery.

Fourthly, and this is obviously the most crucial lesson of all, the people of Iceland managed to sever the neoliberal straitjacket that had kept their politicians enthralled to the interests of the financial sector for so long. Through mass mobilization, the people toppled the government and instituted a radically new form of political participation. The crowdsourcing of the constitution is the most powerful symbol this new, real democracy.

As a result, the Icelandic people are now slowly but surely beginning to recover from the worst ever economic collapse of any country during peacetime. By contrast, countries like Greece, Spain, Ireland and Portugal are still struggling — and likely to remain mired in deep recession, if not outright depression, for years to come.

Untold suffering and hardship will fall on millions of people as the ECB, IMF and Germany continue to expect full repayment while imposing draconian (and ultimately counterproductive) austerity measures. A lost generation will flee these countries in a desperate search for opportunity. Countless lives, businesses, families and dreams will be destroyed. And for what? A handful of bankers who refuse to take a haircut?

What Iceland teaches us is that it need not be that way. The Atlantic currents and Arab winds have already reached the European periphery. It’s just a matter of time before the first government on the continent will be toppled by its people. Democracy 2.0 is on its way. No one can stop it now.

{ 14 comments… read them below or add one }

Rodrigo June 11, 2011 at 16:42

I’m just starting to get familiarized with the term, so correct if I’m wrong!

As far as I understand, the concept of “Crowdsourcing” is very insteresting and practicable, and we have the case study of Iceland as proof.

But at the same time, it’s very different from what we know as “Democracy”.
Maybe our concepts are biased and with think immediately on participatory and representative democracy, where both concepts has some vulnerabilities.

Is “Crowdsourcing” democratic? Yes. But it’s not Democracy.

On Democracy as everyone is considered equal, we discard people’s expertise.
That may be very harmful considering that part of population will always be ignorant on some specific subjects.

For example:
About 500 years ago, if population democratically voted on the explorations, we would never have discovered the Americas, for the majority of population used to believe Earth was flat.
A 150 years ago, if we democratically voted: “Should we fund Wright Brothers flight projects?” Airplanes would never be invented, for the majority of population believe it was impossible, and didn’t understand nothing of aerodynamics.

Another vulnerability of Democracy is the weight of influences and credibility.
If some public images declares that an idea is “Good”, people under that umbrella will subscribe for that idea.

For example:
If you study this case, you’ll realize that the most efficient and environment friendly energy sources we have, are Wind, Sun, and Geothermal. But if you put someone on fancy scientific clothes on BBC saying “This is not good. Nuclear is better.” People won’t even search for answers, they’ll go with that.

Democracy will NOT work if you have a population mainted ignorant, as well as powerful media agencies, backed up by colossal corporations. Democracy doesn’t work on the World of propaganda.

My point is:
Crowdsourcing seems to be an hybrid model, mixing up the democratic model with the scienfic method of decision making.

I don’t think we should just forget the past, but using ancient expressions that are overloaded with thousand years of different interpretations will only cause more confusion.

So, I’m all for new expressions, and Crowdsourcing describes it well!
Let’s update everything, people! Including our language! :)

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antony June 12, 2011 at 19:59

THE WRIGHT BROTHERS WERE NOT GOVERNMENT FUNDED. AND MANY OF OUR GREATEST DISCOVERIES WERE NOT GOVERNMENT FUNDED.

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Jérôme E. Roos June 12, 2011 at 20:27

No, but without government intervention their invention would (quite literally) never have taken off. Check out why here.

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brandon council June 29, 2011 at 04:55

your whole statement & way of thinking is beyond ignorance. all i need to say is that America was already discovered and as a matter of fact inhabited by Native Americans! so what we raped & devalued these people in the name of democracy, to prove a non-flat world, to practice what religon we wish in the name of killing others! not the kind of place i want to represent but because of people like you it will always be black&white, poor&poorer! get your facts rite, and leave being a bigit to our politics.

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mel October 28, 2011 at 00:33

I agree. Update everything! :)

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Liburni June 12, 2011 at 02:23

Interesting article, but the conclusions about the present and the future economic and societal conditions in Iceland seem to greatly differ from the article mentioned, Lessons from Iceland by Robert Wade.

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antiguajohn June 16, 2011 at 04:33

I have been studying economics as a hobby for several years now and I am not bragging but I feel I have a grip on the subject.

If a consumer overextends them self and ends up in bankruptcy, they and their lenders are responsible for resolving the issue of what is repaid and what is written off.

What I find puzzling is why the looses of the three major banks in Iceland, due to their or other major international banks possibly illegal actions, should be paid by the citizens of Iceland?

After all if a homeowner is caught burning down their house to cash in on the insurance policy and is caught in the act, they cannot ask their community to pay them the money they would have made if they got away with their crime.

I would appreciate if anyone can explain this paradox of economics and equality.

Scientia Non Domus,
(Knowledge has No Home)

antiguajohn

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Paul K June 28, 2011 at 17:33

By reading this article as well as other ones one thing becomes clear, never trust the banks (and other financial institutions). However they are the core of the economy in all countries.
The way i see it that banks themselves are not the problem, the problem is the people that run it and their friends who take advantage of them.

So, to start with, which banks can be trusted?
If we find one (or some), let’s put our faith (and money) there, and forget about the rest.

Although i am afraid that once more the rich and greedy will take over in the long run……

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Clay Shentrup July 30, 2011 at 12:19

If Iceland really wants to be revolutionarily democratic, they should implement Score Voting – to double the utility benefit of democracy (in single-winner elections).

http://ScoreVoting.net/BayRegsFig.html

Also they should consider trading in their multi-winner proportional system for Asset Voting or Reweighted Range Voting.

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ed May 11, 2012 at 16:53

America had it’s peaceful revolution. It was called the Tea Party and it won the House but not the Senate. If it had… NO bailouts for banks OR the unions or entitlements.

Iceland’s revolution is more Tea Party than Occupy. Occupy is funded by the same unions that got the bail outs. The Tea Party was against union bailouts AND bank bailouts and having the taxpayer fund the failures of others bad decisions.

Most of these protests or “revolutions” are all about what the govt can GIVE them… whereas the Iceland revolution was all about what they are NOT going to GIVE to their govt. That flies in the face of occupy and most European movements. So I’m not sure liberals want to use the Icelandic revolution as something to rally behind.

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Jerome Roos May 11, 2012 at 17:20

Liberals? What liberals?

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Christine Murphy May 28, 2012 at 07:52

This is awesome!!! Don’t let those that commit criminal acts in their white
shirts, ties and suits destroy the lives of those that work hard and try to help make the world a better place. Those who are criminals should be handled as such and the rest work hard to make the world a better place.

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Kjartan M September 10, 2012 at 15:37

Not entirely true. A constitutional board was put up for election where anyone over the age of 18 could run. Only 36% of the nation voted in that election. After the election, the supreme court judged the election as illegal. Then the government changed the name from “constitutional board” to “constitutional committee”.

This is not democracy 2.0. This new constitution will never get through the Icelandic legislatory system. It works like this:

A government puts forward a bill in the parliament to change the constitution. If passed, it goes to election like now and then a board is formed from the election.
When the constitution is ready, the President immediately dissolves the parliament and parliamentary elections are given a date.
When a new parliamentary has been summoned, the constitution is put up for vote.
The government now in place has, according to latest polls, 34% support which is roughly 20% less than when it was elected. This constitution will never go through. The same government has done more bad than evil to the Icelandic economy. The debt of the treasury is higher than right after the economic crisis that ensued in 2008.

Oh, and also, the so called “revolution” was encouraged by the left media and everyone on the left in Iceland. A recording exists of a parliamentary member talking on the phone to a “leader” of the “people” outside, telling him what to do at the same time the people outside threw rocks at the parliament. That’s brainwashing and has nothing to do with democracy!

The only thing one can learn from all this is how not to fix an economy.

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Miguel Marques December 10, 2013 at 04:37

About the importance of civil society in Iceland you can see this http://potspansdocumentary.wordpress.com/

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