Tuesday, September 13, 2005

Iceland - Sticker stock in Reykjavik and touring the Golden Circle.

Why everything is so expensive and how Icelanders manage to live here is not so clear. Of course island nations from Tahiti to Iceland have to deal with importing most everything from somewhere else. Other than fishing, some cattle raising, and plenty of energy from geothermal and hydroelectric sources Iceland has to depend on other countries from produce to cars and computers. Add a hefty 25% tax on goods and cost of living can be frightfully high stripping clean your precious US dollar travel budget.

My simple comparative economic analysis makes it all very clear. A no frills meal at Shalimar, a down to earth, Indian-Pakistani restaurant costs $100 for three. A similar dinner at the Shalimar in downtown San Francisco (same name, similar food, similar ambience, similar Pakistani owners) would cost $45. As the average price for a gallon of gas in the US crossed $2.20 it set off a flurry of angst ridden calls on radio talk shows. In Iceland I pumped gas for $6.43 a gallon. I checked out the most trusted of benchmarks that The Economist uses everywhere in the world – the health-unconscious Big Mac. The MacDonald’s in Palo Alto, California serves it up for $2.90. The MacDonald’s in Aukereryi, Iceland will hit you for $7.40.

So how do Icelanders cope on what looks to me like modest salaries I ask many people. The explanations I get leave me unconvinced. Many people live off two or more jobs. Living off credit cars and other forms of debt are common. That sounds like a reasonable short term solution. I am baffled about how this model has been sustained over the years.

The economy is tiny, compact, and quaint. The Iceland Stock Exchange trades 15 stocks, Market capitalization is at $22 billion thanks to a threefold rise in three years making it one of the hottest but mite-sized markets in Europe. The market rose a stunning 58% in 2004 alone. Nevertheless the market is thin with seven companies accounting for 71% of the total equity trading last year. The big three – Iceland’s three largest banks – alone have assets three times the GDP of the country and account for two-thirds of market capitalization.

What makes Iceland really, really interesting lies outside Reykjavik and its stock exchange. Pramod and Aroma, an Indian family living in Iceland indulge me by driving full circle around the island over a few days. I have never met them before and only had a few email exchanges after an introduction through a mutual acquaintance. Their hospitality for a complete stranger leaves me very touched. Their Icelandic friends in turn extend their hospitality by inviting us to stay in their homes, summer houses, farms, and guest rooms. Add to that the delight of a precocious five year old called Vibhu with intelligent questions and jokes delivered fluently in three languages – English, Malayalam, and Icelandic – and I had the trip of a lifetime. By the end I am chanting nursery rhymes in Icelandic, “Ullen, Thullen, Thol, Pike, Pane, Gol…..”

Iceland and Greenland urgently require a name swap. Iceland is actually quite green with endless rolling hills and green plains. Greenland, as I flew over it, looked formidable and forbidden with its huge desolate snow plain, scarred by mighty glaciers, massive icebergs creaking in the ocean, and soaring snow covered peaks. Although massive compared to Iceland the frozen plains of Greenland are a land of snow and silence and home to only 56,000 people and some polar bears, reindeer, and artic foxes.

Iceland also needs a giant construction sign over it. Sitting on top of active volcanoes and geothermal hotspots, you almost want to check the weather report before venturing out in case your day is interrupted by rattling earth, stampeding lava, or showering ash. As recent as 1963 a volcano erupted in the waters off Iceland. TV cameras hovered overhead and people around the globe watched in fascination on television the creation of a brand new island called Surtsey named after the Norse God Surtur who has the duty of setting fire to the earth at the end of the world.

Vestmannaeyjar (the Westman Islands) is one of the friendliest places in Iceland due to its relative isolation; Vestmanaeyjar was hosting an annual festival the weekend I arrived in Iceland. The festival sounded like a cross between Burning Man and the Bonnaroo festival. One night in 1973, a volcano erupted on the island spewing 30 million tones of lava over the town of Heimaey. TV viewers around the world watched the chillingly compelling and morbidly fascinating footage of residents fleeing their homes against a background of angry, boiling lava.

Most visitors to Iceland will experience its natural beauty as they drive around the golden circle close to Reykjavik. Just outside the airport the Hitaveita Sudurnesja geothermal plant uses superheated water pulled out from a over a mile below to produce electricity. The water is then piped into one of Iceland’s most visited attractions – The Blue Lagoon. Throngs of tourists bob around in the waters wearing masks of silica. The eponymous lake gets its name because of its surreal pearly blue glow under a hazy, steamy pall created by the steam rising from the piping hot water into the frigid air. At Thingvellir, you can see the 2.5 mile gap between the European and North America tectonic plates. The gap is widening by about two inches each year as America and Europe drift away from each other tearing apart the heart of Iceland. Pingvellir is also the site of the Althingi, the Viking parliament from 930 AD. The Vikings had a fairly, sophisticated parliamentary process for far-flung settlements that gathered here once a year to settle disputes and ratify laws. Even as the rest of us were still clubbing each other to death over issues like “your cow strayed into my pasture”.

A little beyond is the community of Geyser with the original Geysir discovered in 1294 that can spout scalding hot water 250 feet. Every other Geysir in the world derives its name from the original one here. Alas, Geysir stopped spouting in the 60s after being bunged in by rock, dirt, and soap tossed in by tourists trying to set it off. Now it only comes to life after an earthquake and so the last spout off was in 2000. But right next to it is the little cousin Strokkur (the churn) which erupts faithfully every 10 minutes as the geothermally superheated water and steam trapped in a fissure and seeking an escape blasts out the cooler water on top shooting up about a 100 feet. The Golden Circle rounds off at Gullfoss, Iceland’s most photographed waterfall, where the Hvitao (white) river tumbles 90 feet into a steep canyon kicking up a fuss and lots of spray creating shimmering rainbows over the gorge. The falls almost disappeared in the 1920s when the Government accepted a proposal from investors to dam the river for a hydroelectric project. The landowner Tomas Tomasson refused to sell and his daughter Sigridur Tomasdottir walked all the way to the capital in protest and threatened to throw herself into the falls. The Government ignored her anyway and approved the project. Sigridour stayed dry on the side of the waterfall. The investors defaulted on the lease. The Government canceled the project. Where environmental activism did not triumph basic economics did – no pay, no way. The laws of economics are immutable even in Iceland, even if they are inconvenient.


.AK said...

Very interesting.

Anonymous said...

The UN did a study asking people around the world what they believe in. Answers included Christ, Islam, Budha, etc., but Icelanders overwhelmingly said "I believe in myself".

Mal said...

No offense but Icelanders have a much higher salary than any other countries in Europe (Probably as much as Norway wages though).
I think, adding to what you said, two jobs and loans help them coping the cost of living.

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Hank Freid said...

In my point of view, it is better analysis of economic, & one can also arrange a better trip to most reasonable place. Thanks for sharing nice information.

TG said...

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