The Iceland Chamber of Commerce has reviewed the findings every year and given their thoughts on what is needed to keep Iceland competitive and improve its competitiveness.
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Ragnar Sigurður Kristjánsson, Chief Economist at the Chamber, says that the main areas that have secured Iceland increasing scores are improved public efficiency and business efficiency.
“Iceland has always scored high in community infrastructure, which include health and education, and that is also the case in other Nordic countries.
“But the score is usually low in economic performance, partly because the economy is small and therefore there is not enough capacity to be as competitive as the bigger countries.”
Must do better in education
Kristjánsson says the improvements in business efficiency can be mainly explained as a bounce-back effect from the financial crisis that hit Iceland in 2008, when almost the entire banking system collapsed.
“In public efficiency, new legislation governing public finances increased our score. But we are still scoring relatively low in tax policy, and one of the criticisms is a lack of predictability in public policy.
“This is something I think we can clearly improve. For example, if we are making tax changes, we should give more notice and increase predictability on the effects they will have.
“Recently, a tax on every kilometre driven was introduced with just two weeks’ notice, and its effects were largely unpredictable, which has led to significant criticism.”
The labour market was one of the areas where Iceland scored high in these findings.
“Iceland clearly has a very strong labour market. The work force is highly educated and is very skilled. We at the Chamber of Commerce have wanted the authorities to do better in education, to prevent this hurting our competitiveness in the long run.
“We have highlighted the need for a standardised assessment for all age groups in primary school, so we have some kind of measurement for each and every school.
“That way, we can see how they perform compared to other schools and also compare the national results to other countries.
“I have always felt that there is a lack of data in discussions on education. We have the PISA findings that come every three years, but we don’t have anything else to use as a comparison.”
Kristjánsson says the biggest problem in the education system lies in primary schools, where PISA scores have declined across most subjects. He suggests that clearer performance measurements could help address this issue.
“We need clearer indications for when we are doing well and when we are not. That will be useful both for teachers and students. We also need a clearer emphasis on the students’ basic capabilities.”
Nordic countries have scored high on that list and Denmark has often been on top. For the past few years, Iceland has scored lowest out of the Nordic countries but is getting closer.
“Iceland is only one place below Finland now. But being in 15th among almost 70 countries is not bad. And part of the reason, again, is how small the economy is.”
Need a more predictable public policy
Kristjánsson says it is very important for a country like Iceland to be competitive internationally.
“Securing what is required for good competitiveness, like efficient business and strong community infrastructure, means we have the basis for a good and functional society.
“If we look at the countries that score the highest, like the Nordics, Switzerland, Singapore and Hong Kong, they have very high income per capita, a better quality of life and a well-functioning community.
“The IMD findings are of course just one of the measures of competitiveness, but they are widely regarded as a leading indicator, drawing on factors from economic performance to education and health.”
In Kristjánsson’s opinion, the authorities should aim to get Iceland even further up the list.
“Every year, we take stock on where we stand compared to other Nordic countries in more subjective areas. One example is predictability in public policy.
“This is something I think we should look at, especially where other Nordic countries are doing better than we are, and then set our sights on changes in public policy that aim to improve those areas.
“We can also look at other countries that are doing well. Singapore and Hong Kong, for example, are doing very well in education. Singapore has been on top of the PISA findings for the last few years. Even though the communities are different, we can definitely learn something from them.”
Persistent inflation
When asked what other changes he wants to see, Kristjánsson names inflation, which has been persistent for a long time.
“It has been high here compared to in most other countries. In my opinion, increased budgetary discipline on state level and in collective agreements will give the best results.
“We would like to see a more modest salary increase and for the state to run a surplus. There have been promises that this will happen in 2027, and we’re hopeful that it will.
“But at the same time, the state must exercise restraint in its borrowing. So you have to look at both the credit balance and whether there is a state budget surplus.”
Finally, Kristjánsson says the Chamber has constantly fought for more efficient regulation for the business sector.
“It needs to be predictable and free from overly burdensome supervision or frameworks that slow things down. I believe we must continue the ongoing effort to review regulations and make them lighter for businesses. If we do this, I am confident we can boost Iceland’s competitiveness.”
