Why does Iceland have a relatively strong economy considering the near lack of resources?

Ok I was thinking randomly of Iceland for some reason when I had noticed that on the list of top countries for life expectancy, or infant mortality (those lists that Sweden somehow always wins), and Iceland was very high up, way past the US.

Ok but Iceland has almost no Natural resources except fisheries. And it’s isolated. Yet it is a first world country. I remember a Jared Diamond book mentioning that Iceland was the most ecologically devastated country in Europe (or was it deforested?)

Ok so, I don’t get it: Why do they have so much first world level wealth? Or anything much at all (Besides Ice and Fish). All I can think of besides those two things are thin blonde supermodels.

Planet Money actually did a couple of interesting stories on this. I’d suggest:

A City on the Moon

and

The Island That Ran Out of Money

Both ran in early 2011, so fairly topical. And Planet Money is great, I recommend it as a podcast.

YOu might want to wiki up Iceland. The name “Iceland” is bit of a misnomer.

For many centuries, Iceland was impoverished. The original settlement was based on livestock and as Diamond discusses, that wasn’t sustainable at the original intensity.

Iceland survived because it has one other resource–fish. In modern times, with the invention of decked fishing vessels, cheaper refrigeration, and cheap interoceanic transport, this has been a tremendous resource indeed and the basis of Iceland’s rise to a first-world economy.

It helped also that Iceland had (during the Cold War) an important strategic location, which brought in NATO defense dollars, and of course natural beauty, which since the invention of the jet airplane has brought in tourists.

The Icelandic governments, to their credit, channeled a share of the gain from these activities into education, with the idea of developing a more modern service economy. Unfortunately one of the services they emphasized was banking, and that didn’t work out too well.

Iceland is ranked 44 in the Heritage Foundation index of economic freedom. Not the best in the world but better than average. They score well in economic freedom, trade freedom, property rights and freedom from corruption although its high level of government spending drags it down.

http://www.heritage.org/index/Country/Iceland

Iceland also produces an insane amount of electricity. So much so that it is efficient to import bauxite, smelt it in Iceland (which is an electricity-intensive process), and then export the resulting aluminum.

Part of the answer is hot water - one resource that Iceland DOES have in abundance is geothermal. They get most of their energy from renewable hydro and geothermal, and they have a lot of it.

Consequently, some energy intensive industries are located in Iceland. Aluminum smelting is an important part of the economy.

All that hot water also means that they can have a lot of hothouse agriculture to grow various specialty crops and cut flowers (bananas are grown in Iceland, though generally not for export). They have more agriculture and farming than you might expect.

Keep in mind that Iceland also has a very small population - about 300,000. It doesn’t take a massive economy to give them a very high living standard.

The location was also strategic WRT to the early aviation industry. At first, you didn’t have commercial airliners that could make the jump across the Atlantic without refueling. Gander in Newfoundland and Reykjavik became important refueling stops.

Iceland is being called “the Cuba of the north” after voters rejected what would have been a debt repayment of $65,000 per household plus interest.

Two other things Iceland has a lot of: cheap energy (as mentioned by other posters) and culture. Various sources state that Iceland has the highest number of published authors per capita, the highest number of books and journals per capita, and the highest literacy rate of any country.

However Iceland has historically (like the other Nordic countries) been very poor, facing periods of starvation, and only started to become wealthy in the 20th century.

I’m not sure that natural resources (or lack of them) are a good predictor of a country’s long-term wealth and well-being. Some of the wealthiest places, such as Monaco and Singapore, have effectively no natural resources at all.

Edited: Maybe a better predictor of wealth is stability. And that’s something that Iceland has.

This is bit off topic, but there is some ambiguity as the validity of said debt. The sequence of events was something like:

(1) Icelandic banks go nuts offering accounts to foreigners through brands like IceSave.
(2) Said banks go under.
(3) Icelandic government says, “we’re going to guarantee domestic deposits for these banks; foreign depositors, tough titties”.
(4) Foreign countries step in and guarantee the deposits of their citizens at those banks, costing them X amount of money.
(5) Foreign countries say, “Hey Iceland, you now owe us X amount of money for guaranteeing the deposits at your banks”.
(6) Iceland says, “Nuh-uh! We said ‘tough titties’, and we meant ‘tough titties’, so good on you for bailing your citizens out of their participation in this bad financial venture, but recouping you is not our problem”.

Leahcim, you missed the bit between [1] and [2] when said Icelandic banks guaranteed all investor deposits (domestic and foreign) up to €50,000 with the backing of the Icelandic government.

Another thing: codfish is selling for up to $9.00/lb. in the USA…now that the Canadian(Grand Banks) fishery is gone. Icelandic waters still produce a ton of codfish, which is widely eaten in Latin America (Christmas Diner).

Dammit, why is everything “Podcast” these days? Is there anywhere I can get a transcript of those? I really don’t have the patience to sit and listen when I can read much faster.

Reykjavik is STILL an important mid-Atlantic fueling stop for airplanes.

Anal-retentive nitpick: The international airport is in Keflavik (now part of Reykjanesbær), 45 minutes out of Reykjavik. Reykjavik Airport is only used for domestic flights.

Ok, fine sometimes it’s called Reykjavik-Keflavik Airport. That’s why it’s a nitpick.

People are forgetting Iceland’s two most important exports: EVE Online, and LazyTown!

Iceland was strategically important enough in WW2 that rather than risk having it occupied by Germany, first Britain and then the US occupied Iceland, a sovereign country they weren’t at war with. During the war the number of Allied personnel stationed there exceeded the native population.

Then again, a high ranking in economic freedom conferred by a conservative think tank might be biased, and not necessarily reflect average living standards. Jordan, Chile, El Salvador, and Cypress all received higher rankings than Iceland. To be fair, however, so did some other First World European countries apparently considered more socialist-leaning, like Sweden and Norway, Germany and Finland.

IMHO (sorry, but the question probably doesn’t have an objective answer): there is not a large upper class sucking all the air out of the economy.

Emphasis added. It’s not quite that simple: http://en.wikipedia.org/wiki/Iceland#Kingdom_of_Iceland_1918.E2.80.931944