Branding as Industrial Policy: Economic Adjustment in Iceland

• In Event: The Politics of Overshooting in Advanced Economies

Abstract

In the 21st century, policymakers find themselves caught in a “double bind” (Breznitz and Zysman 2013), pressured to modernize their economies and foster innovation on the one hand, but fiscally constrained on the other. This paper focuses on “branding,” or collective narratives about a country’s position in the global economy, as a low-cost but potentially powerful instrument to accelerate economic restructuring. Analysis is based on Iceland, which has eschewed traditional industrial policies since the 1980s and is characterized by low levels of strategic coordination and policy concertation. To increase analytic leverage, the paper also draws on Finland, a coordinated market economy, and Ireland, a liberal market economy with a tradition of policy concertation. In each case, the paper demonstrates how branding was a crucial component of successful industrial policy initiatives in the past and can foster restructuring without significant fiscal outlays. While branding is obviously important in attracting external capital, it has also played an important role in transforming local business models.
Although branding is low cost, it is institutionally demanding. As evidenced by earlier, unsuccessful episodes to promote tourism, developing a new collective narrative requires a high level of cross-departmental coordination and, more importantly, an even higher level of private-public coordination than traditional industrial policy initiatives. That being said, the institutional prerequisites differ from traditional forms of state-led adjustment, strategic coordination, and policy concertation. More specifically, reform-oriented actors can rely on informal institutions to diffuse new business models and coordinate economic activity. This is particularly clear in Iceland, but it also applies to recent rebranding efforts in Finland and Ireland as well.
Rebranding is an attractive industrial policy instrument, but it is not risk free. The final section of the paper identifies collective narratives as another mechanism by which overshooting can occur. Icelandic dependence on tourism (and Irish dependence on US FDI) has increased their vulnerability to global economic flows. The risks are arguably even greater when countries use collective narratives to transform domestic business models, as evidenced by the financialization of Iceland (as well as the Irish housing bubble and the rise and fall of the Finnish ICT industry).

Author

• Darius Ornston, University of Toronto