Economic and development objectives: Prosperity and quality of living
In many ways living conditions are good in Iceland. There was a great deal of economic progress in the last century and this is reflected in the fact that, between 1945-2009, the GDP per capita increased by 450%. This is a striking achievement and economic growth was greater in Iceland during the post-war years than in many of the countries we tend to compare ourselves with. This evolution can be attributed to many factors. All things being equal, nations that industrialise late can, under the right conditions, achieve industrialisation quite rapidly. The success of the economy in the last century, however, does not constitute a guarantee for economic growth in the current one.
Economic growth is not a guaranteed indication of happiness. Research has demonstrated that there is a limited correlation between national income and national happiness. If an increase in national income comes at the expense of a deterioration of the environment and resources, for example, or growing inequalities in the community, the increased income can actually lead to a reduction in well-being. It is therefore important to measure well-being by more yardsticks than economic growth alone. There are many yardsticks available for measuring the well-being of a nation, such as the Genuine Progress Indicator (GPI) and the UN's Human Development Index (HDI). The HDI ranks the well-being of a nation from the per-capita gross national income, standard of education and life expectancy. We could also call this the UN's quality of life inventory. The highest score on this yardstick is one and the lowest is zero. The Nordic countries have ranked on top of this list for many years. Iceland ranked third in 2008 with a value of 0.969, but dropped to the 17th position by 2009 with a value of 0.869. In 1980, Iceland measured at 0.886. The Genuine Progress Indicator takes a number of factors into account, such as differences in income, and the cost of environmental damage and the unsustainable exploitation of resources, as well as many other factors, and adjusts economic growth measurements accordingly. If the GDP is not sustainable, growth in the Genuine Progress Indicator will be lower than the growth in GDP.
Despite good economic growth in the long term, economic instability and volatility have been more pronounced in Iceland than in other countries. The lack of good governance for decades led to much more elevated inflation than elsewhere, with consequent costs, damages and uncertainty regarding value. The estimated GDP per capita is similar to what it was between 2003-2004. There was a great deal of volatility between these periods, however, first during the upswing years up to 2007, and subsequently during the downturn and financial crisis between 2008-2010. The upswing turned out to be a bubble that burst. This delivered a harsh lesson to the nation on the importance of economic stability and sustainable growth.
One of the greatest tasks the nation now faces is to reset its priorities and a sensible framework within which to guarantee both stability and economic growth. In order to achieve this, the nation needs to train itself to think ahead on economic and financial issues. Concrete objectives and clearer polices are required in the state's fiscal and monetary affairs. It is equally vital to ensure that the necessary measures are taken to reach these goals. A clear vision for the future, a credible framework for economic development and joint long-term planning are fundamental preconditions for achieving a consensus and peace in the labour market. The members of the labour market, interest groups and government therefore need to work closely together on these issues.
Economic and development objectives need to be clear, easily measurable and comprehensible. It is also useful to place them in the context of the performances of other nations.
The economic and development objectives are:
- That public debt shall not exceed 60% of the GDP by 2020.
- That, by 2020, inflation shall be no more than the Central bank´s target rate, which is now 2,5%.
- That, by 2020, interest rates (long-term interest rates) shall be no more than two per cent higher than the interest rates in the three EU member states with the lowest interest rates.
- That the UN's Human Development Index (HDI) for Iceland shall be comparable to those of the top five nations on the index.
- That the Genuine Progress Indicator (GPI) shall always remain on a level with the growth in GDP.
Iceland 2020 forms the basis for the Icelandic government's policy-making and planning in specific areas over the coming years. The monitoring of the 20 yardsticks that have been defined in this chapter on economic and development objectives, as well as the previous chapter on social objectives, give some indication of the progress made in moving Iceland along on the path to welfare, knowledge and sustainable development. The Prime Minister's Office is responsible for monitoring Iceland 2020 in relation to other ministries and ensuring that the policies, plans, tasks and measures that are detailed below are followed. The Prime Minister's Office shall assess the status of the twenty objectives on an annual basis.