Revising a Concept of Corruption as a Result of the Global Economic Crisis – The Case of Iceland

The authors of this chapter consider that the collapse of the financial sector and subsequent economic crisis in Iceland in 2008 was brought about by its entire business culture, which was not as strong, open, and transparent as that of many other developed countries. The weak business culture was compounded by the lack of diversity and tight personal networks in managerial relationships and ownership. To exacerbate the situation, political traditions and a history of heavy state intervention in the economy helped create an unprecedented bond between politics and business, where the political elite was making all major decisions on who was going to get involved and who was going to miss out on the best business opportunities. This kind of nepotism contributed greatly to the incompetence of the civil service, which, along with political connections being a key guiding business principle, made both regulation and oversight close to impossible. The lack of supervision in turn led to an unsustainable expansion of the Icelandic financial institutions, which prompted the entire crisis. This chapter argues for the necessity of revising both mainstream concepts and measurements of corruption in light of the global economic crisis. To justify this point, the chapter discloses questionable business practices that have recently come to the attention of the general public in Iceland, the country that was hit the hardest by the financial crisis among all developed nations. These practices reveal specific types of corruption on a scale that ultimately facilitated the downfall of the Icelandic economy, but yet were not measured by traditional indices and concepts of corruption. The chapter also offers specific recommendations to both policy makers and business leaders wishing to engage in business activities in a transparent, ethical manner and learn from the tragic Icelandic experience