Business Models Inc.

A new business model for Iceland…

January 31, 2010 | Patrick van der Pijl

Today I had the opportunity to meet the producer Sigurður Gísli Pálmasonof of the documentary Dreamland. The movie was playing at the International Docpoint filmfestival in Estonia, Tallinn. The movie about Iceland – a nation standing at the cross-road. See the trailer of the movie here.

What does Iceland have to do with business modeling one might ask? I’ll explain.

In 1918 Iceland became independent from Denmark. Iceland was recognized as fully-sovereign state. Now Iceland needed to become a sustainable state on its own. The problem was how to get the economy going in a small country (population is 300.000).

An opportunity came from the US. They requested Iceland to build large military bases in order to create a hub for Asia in times of war. In October 1946, the Icelandic and United States’ governments agreed to terminate U.S. responsibility for the defense of Iceland, but the United States retained certain rights at Keflavík, such as the right to re-establish a military presence there, should war threaten.The immediate post-war period was followed by substantial economic growth, driven by industrialisation of the fishing industry, foreign income through the military bases and Marshall aid. (picture below of the spectators in Tallinn).

The Americans left Iceland far after the cold war in 2006 whereas 2000 people lost their jobs. Now in the former military base there is a university campus. But how could Iceland find itself a new business model? The government offered the low energy prices and started negotiations with big corporations. Interest came from high energy consumers. Iceland became the largest aluminum producer in Western Europe, after allowing US based aluminum manufacturer Alcoa to built their plants in Iceland. To power the plant, the government started the largest mega project in the history of Iceland by building the largest dam in Europe. Alcoa could use now cheap electricity for an aluminum smelter in the rugged east fjords of Iceland. This model was bringing a lot of new jobs to Iceland. Alcoa became the new provider of prosperity but also the threat to the environment.

The financial crisis…

The financial crisis had hit Iceland hard. All three banks went bankrupt. Iceland took huge loans to cover the deficits from IMF, Nordic countries and Poland. It relied on few industries incl. aluminum sales to pull it out of the worst recession. The price of aluminum dropped and Iceland needs to look for new options. Options which don’t pollute the country and destroy the unique nature. Many options. Because it can’t rely on only one. Iceland should know now.