Writer questions focus on a single inflation reading

In an opinion article published by Morgunblaðið, Vilhjálmur Bjarnason argues that too much importance is being attached to the consumer price index reading expected at the end of August. He says one measurement cannot determine how an entire society is managed.

The consumer price index is one of two variables used to measure changes in wages’ purchasing power over a given period. The other is nominal wage growth. If poor collective wage agreements are negotiated, he writes, the parties must bear the consequences.

He also criticises agreements made under the guise of improving the situation of “the worst-off”. Improving the position of the worst-off will always create a new group that is worse off, he argues, asking what that group is expected to suffer.

Economic management

Monetary and financial affairs are collectively referred to as economic affairs. The author says there has probably never been greater ambition in the management of the economy than in the bill that became Act No. 13/1979, titled the Act on Economic Management and Related Matters.

The act contained 12 chapters and 64 articles. Forty-seven years later, the author’s assessment is that fulfilling its objectives was largely impossible, except perhaps for the authorisation to index financial obligations.

Chapter VII contained 14 articles with provisions of varying precision on the indexation of financial obligations. Matters not covered were left to the Central Bank of Iceland in consultation with the government. The act contained no provisions on how to respond if its poorly defined objectives were not achieved.

The bill that became law was, in the author’s view, worse than the most misguided 10-year plans in the Soviet Union.

He considers it particularly difficult to implement Chapter V, titled “Progress in industries and efficiency in business operations”. Progress in business, he says, has emerged from scientific institutions, companies’ research departments or the workplace itself, rather than from government initiatives.

Examples of “state-led progress” include a herring-processing plant in Skagaströnd, while the municipal cowshed in Krísuvík is cited as an example of “municipal progress”.

The bill was not a government bill but was introduced by the prime minister. The legislation postponed the collapse of the government for six months, the author writes, but was largely useless apart from preventing savings in financial companies from collapsing.

A period of progress in society and business did begin in 1993, he says, when Iceland joined the European Economic Area.

The nature of the EEA Agreement is legal harmonisation, meaning that Icelandic legislation was aligned with the legislation governing the common internal market.

This harmonisation was not based on brainstorming sessions at ministers’ homes. Rather, it resulted from the careful work of groups of people who defined and discussed the problem that the legislation was intended to address.

The author says this legal harmonisation has managed to avoid lobbying by individual pressure groups, with the possible exception of French farmers. He writes that governments fear little more than French farmers driving their tractors into French cities and dumping rotten grapes and cow manure.