The Icelandic Welfare State in the Twentieth Century
Providing economic and social security has been one of the fundamental features of
state activity in Iceland during the 20th century. The rise of modern social politics
occurred at about the same time as in the other Nordic countries, towards the end
of the 19th century, in response to upheavals associated with industrialization,
urbanization and labour-force differentiation. The impulses behind the emerging
welfare policies varied, of course, ranging from the conservatives’ efforts to
maintain stability in the face of the breakdown of traditional social and familial
institutions, to the “maternal politics” of the women’s movement, aiming at
extending social policy to maternal and child welfare and redefining social
citizenship. Various forms of welfare programmes and services emerged in the
course of the century, but it was not until after 1945 that the central state became
the primary locus of welfare provision. Prior to this, the local community, voluntary
organizations and labour unions were all actively taking measures to cope with the
insecurity and unpredictability of social and economic conditions.
The rise of the Icelandic welfare state is circumscribed by another historical
process: the creation of the nation-state, which grew out of the modernization of
society and the political campaign of Icelanders for independence from Denmark.
As more powers were transferred to Iceland, leading to full independence in 1944,
the Icelandic government gained control over central state functions, to enforce a
national law, raise taxes and mint money. With each step they took towards self-
Gudmundur Jonsson, born 1955, Ph.D., is Senior Lecturer at the University of Iceland, Reykjavõ´k. His published
works include Institutional Change in Icelandic Agriculture, 1780–1940, Scandinavian Economic History
Review, vol. 41 (1993 ); Hagskinna. So¨g ulegar hagto¨lur u m I
´sland [Icelandic Historical Statistics] (1997 );
Hagvo¨xtur og iðnvæðing. Þjo´ðarframleiðsla a´ I
´sland i 1870–1945 [Economic Growth and
Industrialization. Iceland’s Gross Domestic Product 1870–1945] (1999 ). He is currently engaged in research
on the history of the Icelandic welfare state.
Address: Department of History, Nyi Gardur, Universityof Iceland, IS-101 Reykjavõ
´k, Iceland. E-mail: email@example.com
For a survey of the Icelandic welfare state from an international comparative perspective, see S.
´slenska leiðin. Almannatryggingar og velferð õ
´ fjo¨lþjo´ðlegum samanburði. Tryggingastofnun rõ´kisins
(Reykjavõ´k, 1999a). The findings are published in English in S. O
´lafsson “The Icelandic Model.
Social Security and Welfare in a Comparative Perspective”, in B. Palier, ed. Comparing Social Welfare
Systems in Nordic Europe and France, vol. 4 (Nantes, 1999b ). See a lso by the same author, “Variations
within the Scandinavian Model: Iceland in the Scandinavian Perspective”, in E. J. Hansen, S.
Ringen, H. Usitalo & R. Erikson, eds. Welfare Trends in the Scandinavian Countries (New York, 1993),
pp. 61–88. The development of social legislation until the early 1940s is presented in J. Blo¨ndal, ed.
Fe´lagsma´l a´ I
´slandi. Ministry of Social Affairs. Saga Alþingis IV (Reykjavõ´k, 1942). A historical
account of social security legislation is offered in G. Guðmundsson, Almannatryggingar a´ I
aldar saga Tryggingastofnunar rõ´kisins (Reykjavõ´k, 1992).
Scand. J. History 26
government, the more positive did the Icelanders’ views of state power become, not
least because it was viewed as an important agent of societal change. For the greater
part of the century, however, active state involvement in the making of modern
society was primarily focused on economic tasks such as the development of the
economic infrastructure, active industrial policy in support of agriculture and the
fisheries, and the provision of credit for the expanding economy, not least in order
to ensure a high level of employment so that individuals could earn their own
livelihood. Social policy has played only a subordinate role in public policy and
debate, a feature that Iceland seems to share with Finland (cf. Pauli Kettunen’s
article in this issue ). Great fluctuations in the economy and long periods with a high
rate of inflation have not created an environment that encourages social safeguards
to cope with setbacks in the unstable economy; on the contrary, welfare services
have been perceived as a product of the economic well-being of the nation and
consequently subject to changes in the fortunes of the economy.
2. The emergence of modern social politics, 1890–1936
The period from 1890 to the early 1930s saw the disintegration of traditional
institutions of social security and social control and the introduction of a more
liberal social legislation. The emergence of modern social politics can be dated to
the decades around the turn of the century, when a fundamental shift in economic
and social policy occurred. Until then, very extensive and authoritarian legislation
regulated the labour force and family formations.
A stringent labour bondage,
which required almost all unmarried people above the age of 16 in dependent
positions to be hired out as servants, was abolished in 1894 and the legal
occupational restrictions on cottars and crofters were abolished in 1907. Old ties of
paternalistic welfare were replaced by more liberal social legislation, based on
individualistic ideas of self-help, prudence and hard work. The poor had now more
freedom to choose their means of living; they could elect to leave the countryside to
settle in villages and towns by the seaside and establish a family more easily than
before. But as urban wage labourers, however, their lives were even more
unpredictable, as they had less family support and job security than farm servants,
who were protected against seasonal swings by whole-year services and a
paternalistic legislation of mutual obligation between householders and servants.
Looking at Icelandic welfare politics in broad terms, the most significant change
prior to World War I was not in the field of social insurance or social assistance, but
in education and health. The state was rapidly assuming responsibility in these
areas, particularly in education, which by 1910 had become the biggest category of
public social expenditure. One of the peculiarities of Iceland is that, despite high
literacy rates, formal schooling at primary level was almost non-existent until the
last decades of the 19th century. Parents were responsible for instructing their
children under the supervision of the parish pastor. Around the turn of the century
a rapid expansion of the school system took place, in which local authorities were
´. Gunnlaugsson, Family and Household in Iceland 1801–1930 ( Uppsala, 1988 ), chapter III. See al so
J. Blo¨ndal, ed., op. cit. , pp. 149–182.
Scand. J. History 26
250 Gudmundur Jonsson
made responsible for primary education, receiving a small financial state support,
while central government provided vocational and higher education. The 1907
Education Act was the first comprehensive legislation introducing compulsory
public education and minimum school attendance for most children between the
ages of 10 and 14 years.
Public involvement in health had been largely confined to the co-ordination and
execution of public health policy through the Directorate of Public Health, which
was also responsible for the services and administration of district doctors and
midwives. Gradually, the state assumed the responsibility for hospital services,
opening a leprosarium in 1898 (a gift from the Danish Oddfellows), establishing a
mental hospital in Reykjavõ´k in 1909, and assuming the management of a
tuberculosis hospital in 1916, while offering only limited financial support to
general hospitals until the late 1920s.
Before 1900, the fight against poverty, the principal task of social policy, was
mostly confined to poor relief provided by local authorities, constituting their
costliest task. This assistance, which had a long and established history, was entirely
administered and financed by local authorities, and took one of two forms. Paupers
(mainly orphans, physically or mentally disabled persons and the elderly ) were
“taken in” by householders in the commune and provided with food, clothing and
shelter. On the other hand, “outdoor relief” was provided, in money or goods for
families in temporary difficulties. Poor relief was thus entirely provided as a
“domiciliary” aid without the institutionalization of the recipients. In fact,
poorhouses or workhouses were never set up in Iceland and institutional care for
the socially needy was only established after 1920 in the form of homes for the
elderly and childcare institutions.
Owing to population pressure, structural problems in the economy and a spell of
colder climate in the 1880s, poverty increased significantly in the last quarter of the
19th century. The numbers of the poorest sector of the population, recipients of
poor relief and their families, swelled to reach nearly one-fifth of the total
population during the bleakest years in the 1880s.
Thousands of people moved
from the countryside and emigrated to America until economic recovery and the
emergence of a modern fishing industry started to turn the flow more and more to
villages and towns in the coastal areas.
It was during the decades around the turn of the century, when the state
structure was still rudimentary and public responsibility restricted to traditional
poor relief, that a space opened up for charity run by private individuals and
organizations. Riding on the wave of the nascent women’s rights movement, which
was at its most active between 1895 and 1920, voluntary organizations were largely
run by women.
They established charities in towns to help the poor and sick and
V. Jo´nsson, Skipun heilbrigðisma´la a´ I
´slandi (Reykjavõ´k, 1942).
Author’s estimates, cf. “Agents and Institutions in the Creation of the Icelandic Welfare State,
1880–1946”, paper for Nordisk Historikermøde (A
ºrhus, 2000 ) [to be published in the conference
M. Guðmundsdo´ttir, “Verðir heilbrigðinnar. Hju´ krunarfe´ lagið Lõ´kn 1915-1935”, in H. M.
Sigurðsson, ed. So¨guspegill. Afmælisrit A
´rbæjarsafns (Reykjavõ´k, 1992 ), pp. 258–279; Same author,
Aldarspor (Reykjavõ´k, 1995 ). S. Th. Erlendsdo´ttir, Vero¨ld sem e´g vil. Saga Kvenre´ttindafe´lags I
1992 (Reykjavõ´k, 1993 ); I. Huld Ha´konardo´ ttir, “Philanthropy, Politics, Religion and Women in
Iceland before the Modern Welfare System, 1895–1935”, in P. Markkola, ed. Gender and Vocation.
Women, Religion and Social Change in the Nordic Countries, 1830–1940 (Helsinki, 2000), pp. 177–210.
Scand. J. History 26
The Icelandic Welfare State in the Twentieth Century 251
promote temperance in the name of good Christian morality. The women’s rights
movement was also active in the political sphere, establishing organizations
campaigning for women’s political rights and interests.
Between 1908 and 1920
women formed their own slates in local elections as well as elections to the
parliament, the Althing, in 1922 and 1926 which, seen in an international
perspective, were very successful. Women’s activism during the first two decades of
the century had a significant impact on the development of the Icelandic welfare
state, not only by pioneering efforts in the fields of child welfare, care for the elderly
and healthcare, but also by redefining social politics and advocating active state
involvement in this area. Women’s influence was particularly felt in the field of
healthcare through various measures: providing home care for the sick, and
establishing healthcare services such as a tuberculosis screening unit, infant care
unit and even a hospital in Reykjavõ´k.
Labour unions, emerging after 1890, designed various strategies to cope with the
unpredictability of economic life, ranging from mutual sickness funds and co-
operatives to common vegetable gardening, childcare, libraries and housing
In 1916 the Icelandic Federation of Labour was founded, with the Social
Democratic Party (SDP) as its political wing. From that time on the labour
movement became seriously engaged in national politics, pressing for social reform
under the banner of socialism. Revision of the Poor Law, social insurance and
workers’ housing programmes were among the political priorities of the SDP in the
decades that followed.
Against the background of accelerating economic growth and structural changes
in the Icelandic economy, the more optimistic mood of the 1890s created
conditions for radical revision of labour policy and new thinking on social issues.
Even before 1890, the protracted public debate on poor relief was taking new
directions. Instead of agonizing over the rising costs of poor relief inflicted on local
authorities, thinking up ways to set stricter restrictions on public funds, and
quarrelling over the financing of poor relief, politicians and officials began to talk
about new forms of social assistance such as poorhouses, homes for the elderly and
preventive strategies to keep the poorest of the working class from falling into utter
poverty. The burgeoning of new social ideas, mostly imported via Scandinavia,
were felt both in the emerging voluntary organizations, many of which were
affiliates of international movements, and in the political debate. In 1890, the first
social insurance legislation was enacted, providing for old-age pension funds. It was
but a small step and much more modest than the Danish old-age pension law
passed in 1891, as it was confined to “old and infirm” servants, financed by the
servants themselves, and had means-tested benefits which were so low that they
made little if any difference to the servant class.
A law on old-age pensions passed by the Althing in 1909 marks more
appropriately the beginning of modern pensions. Old-age support funds were to
be established in every commune in the country, financed by a fixed contribution
A. Styrka´rsdo´ ttir, From Feminism to Class Politics. The Rise and Decline of Women’s Politics in Reykjavõ´k,
º, 1998 ).
Þ. Friðriksson, “Við bru´n ny´s dags. Fe´lagsso¨ guleg rannso´ kn a´ samto¨kum reykvõ´skra verkamanna,
lõ´fsha´ttum þeirra, kjo¨ rum og umhverfi” (manuscript).
Scand. J. History 26
252 Gudmundur Jonsson
from people aged between the age of 20 and 60 years plus a state contribution,
which accounted for about one-quarter of the costs. Subsistence grants were means-
tested, paid out once a year, and directed primarily toward the poor and sick or
invalid people above the age of 60. The benefits were very low, on average only
around 30 kro´nur during the first years after the scheme’s inception, or less than 4%
of the wages of an unskilled worker. This compares rather unfavourably with
similar benefits in other countries; for example 17% in Germany, 22% in Britain
and 30% in the USA.
The coverage was also limited, reaching only 18% of people
older than 60 years of age in 1911. Old-age pensions remained unchanged until the
Sickness and accident pension schemes were introduced in the first years of the
20th century, the former primarily on a voluntary basis. Medical care was
rudimentary; only one hospital was in operation in Reykjavõ´k at the beginning of
the century and care of sick people took place almost entirely in the households.
Sickness and accident pension schemes were introduced in the early years of the
20th century and followed a similar path as those in the other Nordic countries.
The first sickness pension fund was founded by the Printers’ Union in Reykjavõ´k in
1897, the second not until 1907, when the Oddfellows in Reykjavõ´k initiated a
general fund for people aged 15–40 who owned property valued at less than ISK
5000 (about £275 ). Occupational accident insurance was the only part of social
insurance that made a significant impact before 1930. Life insurance for fishermen
on decked vessels was introduced in 1903, with two-thirds financed by the
employees and one-third by the employers. This was extended to all fishermen in
1917, but with the general legislation on state-managed accident insurance in 1925,
all seamen and workers (with the exception of agricultural workers) were covered
and the costs were fully paid by the employers.
Thus, the period from 1890 to 1930 saw the gradual build-up of social insurance
and even some improvements made to the system of poor relief. Still, welfare
provisions were considerably less advanced than in the other Nordic countries: the
traditional system of poor relief was still in place and social care services were only
starting to emerge. Many better-off people chose to buy life insurance policies from
foreign-owned private insurance companies.
Early initiatives to reform social legislation and promote social insurance took
place at a time when the political party system was still primarily based on the
independence issue. While there were no clear-cut party divisions on social
insurance, the “reformers” came from roughly the same social stratum of civil
servants, most of whom had been educated in Denmark, and the clergy. The
campaign for maternal and child welfare was, on the other hand, almost entirely
confined to the women’s movement, which pressed for municipally organized
childcare, free school meals and homes for the elderly.
The making of social policy changed fundamentally with the emergence of a
modern class-based party system in Iceland between 1916 and 1930, built around
´lafsson, op. cit. (1999a ), p. 80, and my own calculations based on employment income data from
my research on Iceland’s GDP 1870–1945, cf. Hagvo¨xtur og iðnvæðing.Þjo´ðarframleiðsla a´ I
1945. Þjo´ðhagsstofnun (Reykjavõ´k, 1999), chapter 3.
G. Jo´ nsson, op. cit. ( 2000 ).
Scand. J. History 26
The Icelandic Welfare State in the Twentieth Century 253
three competing power blocks. The agrarian-based Progressive Party, founded in
1916, represented farming interests and promoted the co-operative movement and
petit-bourgeois ideas of the independent small producer. The Social Democratic
Party, also founded in 1916, drew its support from the working classes in the
growing towns and had close organizational ties with the trade union movement.
Influenced by Danish Social Democrats, the SDP was a reformist party
campaigning for union rights and better living conditions for the urban working
classes. In the 1920s the party became the prime political force in the campaign for
social insurance and other welfare legislation. Communists split from the party in
1930 to form the Communist Party, which in 1938 merged with the left flank of the
SDP to form the Socialist Party. Rightists were the last to organize in one party,
with the founding of the Conservative Party in 1924, which five years later merged
with a small grouping to form the Independence Party. In spite of its individualist,
free-market philosophy, the Independence Party had a broad social base, including
large sections of the farming community, most of the commercial and business
classes and even urban wage earners.
The political party system was thus markedly different from those of the other
Nordic countries. The left was split into two parties after 1930, making the Social
Democrats much weaker than in the other Nordic countries, with only around 15%
of the vote. The right, on the other hand, was largely united in one big party, which
generally polled above 40% before World War II and just below 40% in the post-
war period. This political configuration was of major consequence for the
development of the welfare system in Iceland.
3. The age of social reform, 1936–1946
The 1930s and 40s brought sweeping changes to social policy and laid the
foundations for the post-war welfare system in Iceland. The policy shift was largely
a result of the growing strength of the left in both national politics and on the labour
market. The SDP’s position was greatly strengthened with the formation of the
Progressive Party’s government in 1927, which had to rely on its support. Although
no formal policy agreement was promulgated, it was difficult to ignore altogether
the issues the Social Democrats had prioritized. In 1929, they succeeded in pushing
through parliament workers’ housing programmes with substantial state contribu-
tions, while their campaign for social insurance reform, which was now becoming
one of their major political priorities, met with more resistance. The party called for
a radical overhaul of existing legislation and its replacement by a comprehensive,
tax-financed social insurance. A parliamentary committee was appointed to
examine the issue in 1930, but insufficient political support and mounting financial
difficulties caused by the Depression brought the work to a standstill. A party in
opposition after 1931, the SDP worked out an elaborate programme aimed at
revising and extending the existing social insurance legislation and presented a bill
for the reform in the Althing in 1932 and again in 1933.
After their biggest electoral victory ever in 1934, gaining 22% of the vote, the
SDP formed a government with the Progressive Party. This first “green-red”
government in Iceland, in power between 1934 and 1938, reached an agreement
on wide-ranging changes to social and economic policy, including comprehensive
Scand. J. History 26
254 Gudmundur Jonsson
social insurance legislation and a thorough revision of the Poor Law. Social reforms
proposed were comparable to recent pacts between the Social Democrats and the
centre parties in the other Nordic countries, which can be viewed as a compromise
between the working class, farmers and the liberal strand of the bourgeoisie at a
time of great social upheaval. The Social Democrats achieved important parts of
their programme – revision of the Poor Law, comprehensive social insurance
legislation and extended public health care, all of which required extensive state
involvement and financial support. In return, the Social Democrats accepted a
strict public regulation of the market for agricultural products, which effectively
abolished competition and led to higher prices. They also had to agree on increased
public support for new settlements in rural areas and rural housing schemes. The
fact that it was the centre party and not the Social Democrats who had the greatest
say in the social reform, influenced the outcome of the compromise also in other
ways. The SDP had to accept a reduction in benefits and state contributions to the
social insurance system. The most controversial part of the reform, the
unemployment insurance section, was watered down in the face of strong
opposition from the Independence Party and even parts of the Progressive Party, to
such an extent that it proved useless.
Although not as far-reaching as the social reform in the other Nordic countries,
the social legislation enacted in 1935 and 1936 marked an even greater advance in
Iceland because of the rudimentary social protection that existed before that time.
First, the Social Assistance Act of 1935 introduced more humane treatment of
paupers, in line with a change of the electoral law two years earlier, in which
recipients of social assistance were granted full voting rights. Secondly, state-
provided healthcare was extended by law in 1936. Thirdly, the first comprehensive
legislation on social security, the Workers’ General Insurance Act of 1936,
stipulated a greatly improved accident insurance to cover both accidents and
occupational diseases. Sickness insurance funds were made compulsory in all towns,
resulting in greatly increased coverage – they covered about one-quarter of the
nation and further amendments to the law in 1943 extended that coverage to
Of greatest importance was the introduction of old-age and
invalidity insurance for people 67 years of age and older and disability pensions for
people aged 16–67 years. The coverage of the pensions increased from about 23%
to 70% (pensioners as a percentage of the 67‡group), while benefits remained
means-tested and very low. The scheme was financed by the insured (43% on
average 1937–1946), local authorities (42% ) and the state (15% ).
During World War II social policy underwent a major renewal, prompted by
new ideas about the relationship between the state and society in social planning, in
which social and economic security became major goals of public policy. The
change was markedly influenced by ideas circulating in Europe at the time on
universal tax-based social insurance and extensive social care services, but domestic
conditions were also working in favour of new and bold welfare policies. The
political balance was shifting in favour of the two left-wing parties, which acquired
´lafsson, op. cit. ( 1999a), p. 106.
G. Jo´ nsson, op. cit. ( 2000).
Scand. J. History 26
The Icelandic Welfare State in the Twentieth Century 255
pivotal positions in coalition governments. Economic development was also
favourable, as Iceland was one of the few countries to prosper during the war with
the fastest growing economy in Europe. By 1945, Iceland had one of the highest
GDP per capita levels in Europe.
Soaring export prices and the flurry of
economic activity after the Allied occupation in 1940 wiped out unemployment and
generated unprecedented economic growth. Iceland was in a better economic
position than most countries to embark upon an ambitious social and economic
The establishment of the Ministry of Social Affairs in 1940 was a clear indication
of a higher profile given to social policy, with more resources put into research and
policy-making. A commission was appointed by the government in 1943 to plan
future social security legislation, undertake an in-depth investigation of legislation in
other countries, general economic conditions and the fiscal capacity of the state to
embark on major improvements in the social field.
This work was part of a wider
re-examination of public policy aimed at major economic and social renewal after
Realization of the new social policy fell primarily to an unusual coalition
government, in power from 1944 to 1947. After long-drawn-out efforts to replace a
non-parliamentary government, the Independence Party, the SDP and the Socialist
Party formed a parliamentary government. The Social Democrats were reluctant to
participate, some because of hostility towards the Independence Party, others
because of the participation of their old rivals, the Socialists. The SDP, therefore,
inflated its demands in the negotiations and insisted on a new legislation on social
security that would be “as good as any known system in the world at the time”.
Surprisingly, the Independence Party accepted the demand, as the only possible
option to form a majority government seemed to be a coalition of these three
parties. Faced with the acceptance of its demand the SDP had no choice but to take
part in the government, a decision that was taken with a majority of only one vote
in the party’s central committee.
In the subsequent years the “reconstruction government”, as it was called,
embarked upon radical changes in the field of social security as well as other social
policy areas, education, healthcare and housing. The Social Security Act, passed in
the Althing in 1946 and taking effect from 1 January 1947, was the first
comprehensive legislation on social insurance in the Nordic countries, combining
almost all social insurances under one system. It included an old-age pension for all
people above the age of 67 years. In the original bill the benefits were flat-rate, but
for money-saving purposes a provisional clause was inserted, stipulating earnings-
related benefits. The same benefits were paid as invalidity pensions. Universal
occupational accident insurance was introduced for all wage earners in the form of
G. Jo´ nsson, op. cit. ( 1999), p. 178.
The most important official reports published during that time are J. Blo¨ ndal, ed., op. cit.; Fe´lagslegt
o¨ryggi eftir strõ
´ð (Reykjavõ´k, 1943); J. Blo¨ndal & J. Sæmundsson, Almannatryggingar a´ I
´slandi. Sky´rslur og
tillo¨gur um almannatryggingar, heilsugæslu og atvinnuleysisma´l (Ministry of Social Affairs Reykjavõ´k, 1945);
Alþy´ ðutryggingar a´ I
´slandi og õ´ nokkrum o¨ðrum lo¨ndum. Erlendar framtõ´ðartillo¨gur. Fylgirit sky´rslu um
almannatryggingar a´ I
´slandi (Reykjavõ´k, 1945 ).
E. Olgeirsson, I
´sland õ´ skugga heimsvaldastefnunnar. J. Guðnason skra´ ði (Reykjavõ´k, 1980 ), p. 168.
Scand. J. History 26
256 Gudmundur Jonsson
per diem benefits, disability benefits and death benefits. The law ensured a greater
coverage than in most European countries at that time (around 80% of the
population ), but benefits were low. General sickness pension was introduced for
people between 16 and 67 years of age, providing hospital healthcare free of
charge. By 1950, 58% of Icelanders were insured against sickness, which was well
above the European average. New types of benefits were also introduced, including
child benefits, family benefits (paid to families with more than four children), and
benefits for widows. When it came to financing the pensions of the social security
system, however, the share of premiums paid by the insured in the benefits (a flat-
rate social-security tax) was higher and the contribution from state and local
authorities less than that in the other Nordic countries.
The 1946 Social Security Act introduced a universal system, which in terms of
coverage and expenditure was on a similar level to that of the other Nordic
countries. It was modelled on Nordic welfare principles and the British Beveridge
Plan, with universalism and unified benefits at its core, but it deviated from the
Nordic model in several important aspects.
The system was less generous,
entitlements were more limited and benefits lower than in the other Nordic
countries. Old-age pensions were earnings-related, an amendment to the original
bill that was to be a temporary money-saving measure but lasted until the 1960s. In
this respect the Icelandic system resembled the New Zealand legislation of 1938,
which Icelandic policy-makers had studied. Thirdly, unemployment insurance was
not adopted in the 1946 legislation owing to insufficient political support. Only
after a long and bitter strike of general workers in the Reykjavõ´k area in 1955, did
the right-wing government of the IP (Independence Party) and the PP (Progressive
Party) agree to legislate on unemployment insurance as a part of the collective
bargaining to solve the wage dispute.
The comprehensive social security system and the National Health Service were
the two most important strands of the post-war social reform. The Education Act of
1946, introducing a comprehensive school system and wider access to further
education, was also of great significance and was in force for nearly 30 years. Social
reforms were part of the wider renewal of society after the war, which defined social
security as encompassing government involvement in economic as well as social
The most ambitious and expensive public action of the
“reconstruction government”, and from which it draws its name, was an “economic
reconstruction programme”, which entailed a substantial renewal of the fishing
fleet, factories and new technology in agriculture.
Social assistance legislation was also revised in 1947, but as grinding poverty had
all but disappeared as living standards greatly improved during and after the war,
its importance had been significantly reduced. In principle, the organization and
financing of social assistance remained intact, still remaining means-tested and
fairly strict under the administration of special committees in each municipality.
´lafsson, op. cit. ( 1999a), p. 87.
This view is clearly expressed in Fe´lagslegt o¨ryggi eftir strõ
´ð, op. cit.
Scand. J. History 26
The Icelandic Welfare State in the Twentieth Century 257
4. Consolidation of the welfare system, 1946–1970
In comparison with the other Nordic countries, Iceland had been a laggard in the
field of social welfare before the war. Whether we look at the scope and generosity
of social insurance, the range of different social services programmes, or the levels
of public social expenditure, Iceland was much less “advanced”. It was only with
the post-war reforms that the Icelandic welfare state reached a similar stage in
terms of entitlements (although not generosity) and coverage, providing social
services and social insurance that were by and large on a par with the other Nordic
Iceland did not maintain its position in the Nordic league for long, as it did not
keep pace with the rapidly expanding social sector of the other countries during the
“golden era of the Nordic welfare system” in the 1950s and, especially, the 1960s.
The growing gap between Iceland and the other Nordic countries is clearly
illustrated in Fig. 1, which shows social expenditure as a percentage of GDP. In
1950, this ratio was similar across the five countries, ranging between 6% and 8%,
while by 1970 the gap had dramatically widened. The social expenditure ratio had
risen to 19% in Denmark, over 16% in Sweden, 13% in Finland and Norway, but
less than 10% in Iceland.
This lagging behind of Iceland is all the more striking when one considers that
the SDP was in government without interruption from 1956 to 1971 and
throughout all of these 15 years it was in charge of social affairs, including social
security. Economic rather than social issues were top priorities in public policy in
the 1950s, during which the government struggled with serious structural problems
in the economy, public sector financial difficulties and mounting public debt. In
1960 the government implemented radical economic reform, which, together with
improvement in public finances, created conditions for a bolder social policy and
increased social expenditure, both in real terms and as a proportion of GDP. The
biggest changes to social security in the 1950s and 1960s, however, came about
through collective bargaining on the labour market or changes in economic policy.
Family benefits were extended to the second and the third child as a measure to
solve a labour dispute in 1953, but benefits for the third child in family were cut
back in 1956. Unemployment benefits were finally introduced in 1955 to resolve a
workers’ strike in Reykjavõ´k. The biggest rise in benefits came in 1960 as a part of
the economic stabilization programme, in order to compensate wage earners for
price rises brought about by a massive devaluation of the Icelandic kro´na.
Thus, despite lacking political support from a strong Left in government for most
of the post-war period, the labour movement had the organizational strength to
shape the welfare state by obtaining social rights through collective bargaining. The
strength of the labour movement is evident in the high level of trade union
membership and centralization of union power that have characterized the
Icelandic system. As early as 1940 the unionization rate among blue-collar workers
was 70–80% and in the following decades more than 90% of wage earners became
unionized, one of the highest in the Western world. Other factors were also at work,
such as priority of union members in hiring, and the Employment Act of 1938,
which recognized trade unions as legal negotiating parties and put them on an
equal footing with employers and government.
Scand. J. History 26
258 Gudmundur Jonsson
Fig. 1. Social expenditure in the Nordic countries as a percentage of Gross Domestic Product (GDP ), 1950–1995.
Sources:Social tryghed i de nordiske lande 1998 [Social Security in the Nordic Countries 1998]. Nordisk Socialstatistisk Komite´ (NOSOSKO) 13:2000 (and earlier publications
in the same series).
Note: Social expenditure as defined by NOSOSKO, i.e. primarily public transfers and services, but also employers’ contributions to social security, pay during illness
and compulsory private pension funds.
Scand. J. History 26
The Icelandic Welfare State in the Twentieth Century 259
The labour movement was further strengthened in the post-war period by a
remarkably high level of economic activity, resulting in one of the highest labour-
force participation rates, the longest working week and the lowest unemployment
rate in the OECD countries. While commitment to full employment was a central
factor in public policy, high employment did not come without cost, since the
government kept wage levels low and responsive to market fluctuations. This type
of enforced income policy encouraged industrial conflicts, with the result that until
the 1990s strike activity in Iceland was among the highest in the OECD countries,
setting it apart from the more corporatist labour markets in the other Nordic
Independent pension funds are good examples of how the labour movement
influenced an important part of the welfare system. Early on, they operated
alongside the National Pension Scheme and were mostly confined to state and
municipal employees and retail trade and office workers. An important change in
the old-age pensions was legislated in 1963, when all independent pension funds
were defined as supplementary to Social Security pensions. Since then, pensions
from these occupationally based funds no longer led to a reduction in basic
pensions, while everyone was obliged to pay premiums to the National Pension
Scheme. The occupational pension funds were further strengthened when
employers and the Federation of Labour negotiated the establishment of such
funds for workers in 1969. Membership of such funds was made compulsory for all
employees in 1974 and in 1980 for the self-employed. The funds, now between 60
and 70 in number, are managed jointly by employers and labour unions, the
former contributing 6% of employees’ wages into the funds and the latter 4%. Full
rights give normally about 60% of former pay at the time of retirement, but
entitlements vary between funds. In the last quarter of the century, occupational
pensions have become the prime source of pensions while the public system comes
in only for those lacking occupational pension rights or receiving less than a certain
Before World War II, social insurance and other welfare programmes centred
round the nuclear family based upon the male breadwinner. Public measures were
directed toward the wage earner and the labour market in which the participation
of women, especially married women, was much more limited than men. Women
were therefore not considered to have the same need as men for sickness, accident
or unemployment pensions. On the other hand, the old-age pension was of great
significance to women because they earned less in the labour market and thus saved
less money for their retirement, their occupationally earned benefits were lower,
and they lived longer. The 1946 Social Security Act greatly strengthened the
position of women and children, with the introduction of child benefits, paid to
orphans and widows, pensioners and invalids with children under the age of 16,
family benefits, paid to families with four children or more, maternity benefits and
benefits for widows. These benefits were aimed at promoting equality of
Þ. Friðriksson & G. Guðmundsson, “Klassesamarbejde i Island: Underudvikling eller egne veje?”, in
D. Flemming, ed. Industriell demokrati i Norden ( Lund, 1990 ), pp. 327–435; S. O
´lafsson, op. cit. ( 1993).
´lafsson, op. cit. (1999a ), pp. 91–92; OECD Economic Surveys 1992–1993. Iceland (Paris, 1993 ), p p.
Scand. J. History 26
260 Gudmundur Jonsson
opportunity and ensuring minimum living standards, but the policy-makers also
stressed their function as a social investment enhancing the productive capacity of
The same would also apply to public provision of education and
healthcare, subsidized school meals, the old campaign issues of the women’s
movement earlier in the century.
Modelled on Norwegian laws, the first child protection legislation in Iceland was
enacted in 1932. Child protection boards were to be set up in every town, while
school boards were entrusted with this task in rural areas. The law confirmed a
change in the 1927 Poor Law forbidding the removal of children from their parents
on the grounds of poverty. Since then, Iceland has followed the other Nordic
countries in adopting laws concerning the rights of children, with the exception of
child labour, on which the law is still less restrictive, reflecting the traditional
importance attached to child labour, especially during the long school holidays in
The first childcare facilities were set up by charitable organizations and women’s
labour unions during the inter-war period. Sumarg jo¨fin, an independent organiza-
tion in Reykjavõ´k, was a leading body in the development of childcare, running
dozens of different facilities with financial support from the Reykjavõ´k City Council;
it was not until 1978 that the Council took over the administration.
Early on, it
was the Socialist Party (the People’s Alliance after 1956) that advocated general
legislation on publicly provided childcare. The left-wing government of 1971–1974
enacted general legislation in 1973 on child daycare institutions based on the policy
that all preschool children should have the right to a place in a daycare institution.
These services were to be financed and operated jointly by the state and the local
authorities. Against a background of sharp increase in women’s work participation
and pressure from the growing women’s movement, public daycare – provided
primarily by municipalities with state financial support – expanded rapidly in the
1980s and 1990s, reaching a level similar to that of the other Nordic countries
towards the end of the century. Part-time care and home-based childcare are,
however, particularly pronounced in the Icelandic services. Public daycare is
payable but subsidized, with single parents and students having priority of access to
With old people as a fairly low proportion of the population (the 65‡group
accounting for 7.5% of the population in 1950, 11.2% in 1995 ), Iceland did not
have to direct resources to care of the elderly to the same extent as in many other
countries. Institutions for the elderly were initiated by charitable organizations,
such as the Salvation Army in the town of I
´safjo¨rður in 1920 and the Samaritans in
Reykjavõ´k two years later. The Poor Relief board was allocated places there for its
Almannatryggingar a´ I
´slandi, op. cit., pp. 19–20.
´. Garðarsdo´ttir, “Working Children in Urban Iceland 1930–1990”, in N. de Coninck-Smith, B.
Sandin & E. Schrumpf, eds. Industrious Children, Work and Childhood in the Nordic Countries 1850–1990
(Odense, 1997 ), pp. 160–185. See also G. Kristinsdo´ ttir, Child Welfare and Professionalization. Umea
Social Work Studies 15 (Umea
I. Broddado´ttir, G. Eydal, S. Hranfsdo´ ttir & H. Sigurveig Sigurðardo´ttir, “The Development of
Local Authority Social Services in Iceland”, in J. Sipila¨, ed. Social Care Services: The Key to the
Scandinavian Welfare Model (Aldershot, 1997 ), p. 56.
Ibid., pp. 59–62.
Scand. J. History 26
The Icelandic Welfare State in the Twentieth Century 261
clients, but demand soon far exceeded the supply. Homes for the elderly were
established throughout the country in the subsequent decades, some run by
charities but most by municipalities. By 1970 there were more places per capita in
old people’s homes than in any other Nordic country and a higher proportion of
the aged lived in institutions (12.3% of the population above 65 ). The expansion of
homes for the elderly was greatest in Reykjavõ´k, which provided 70% of all places in
1971, prompting many elderly persons in the rural areas to move there.
growing criticism of institutionalization of the services, a shift in policy around 1980
produced a greater emphasis on home-help services and home nursing.
In few areas of social policy is the peculiarity of the Icelandic society greater than
in housing, where self-provision, the work ethic and homeownership have been
more pronounced than in the other Nordic countries.
It was not until after 1945
that housing became a significant area of public policy, although public support was
given to certain classes, notably farmers and workers, before the war. The
Cultivation Fund (1925 ) and the Housing and Settlement Fund (1928 ) granted
loans toward renovating and building residential houses in rural areas, and in 1929
legislation on workers’ housing programmes was passed. Under the last-named
programme 300–350 dwellings were built for workers, which was in itself a sizeable
improvement, but these homes accounted for less than 5% of new housing
construction until 1946. In that year the first general housing legislation was
enacted, providing the legal framework for local authorities’ rented accommoda-
tion, with a significant state contribution. Its effects were small, however, since
financing was not provided until the foundation of the State Housing Agency in
1955. In the following decades the Agency formed the major source of credit,
together with pension funds and to a much lesser extent commercial and savings
banks. Importantly though, self-financing and even self-construction have been very
important features of housing, a tradition that persisted well into the 1980s. High
inflation and negative real interest rates no doubt impeded the building-up of
strong mortgage finance institutions and more active state involvement in housing.
The authorization of partial indexing of housing loans in 1976, extended to all
loans in 1979, paved the way for a stronger system of state-run housing finance in
the 1980s, so that by the end of that decade the State Housing Agency was
furnishing about 85% of all residential housing credit.
Self-ownership has been the basic tenet of public housing policy since 1945,
advocated most vehemently by the Independence Party, the main government
party and the p arty which controlled the Reykjavõ´k City council almost
uninterrupted until 1991, but also enjoying considerable support from the labour
movement. Thus, the ratio of self-ownership increased from 56% in 1940 to 89% in
By the same token, social housing has been rather insignificant and, for that
Ibid., pp. 62–65.
For a historical survey of housing conditions and housing policy, see J. R. Sveinsson, Society, Urbanity
and Housing in Iceland (Tierp, 2000). See also I. Valur Jo´hannsson & J. R. Sveinsson, I
hu´snæðiskerfið ( Reykjavõ´k, 1986).
´bu´ ðabyggingar og opinbera hu´ snæðiskerfið 1981–1993”, Fja´rma´latõ
´ðindi XL (1993),
Hagskinna. So¨gulegar hagto¨lur um I
´sland.Icelandic Historical Statistics. Statistics Iceland. Edited by G.
Jo´ nsson & M. S. Magnu´ sson (Reykjavõ´k, 1997 ), p. 374.
Scand. J. History 26
262 Gudmundur Jonsson
matter, tenant protection has not been a priority in public policy. Rent laws
regulating the level of rents have only been in effect for two periods, 1917–1926
and 1939–1953. Tenants’ rights were strengthened by law in 1979 and further still
in 1994, but tenants still have not gained the same position as that in the other
Nordic countries. Contrary to most countries, Iceland did not have rent allowances
for tenants for most of the century. This long-standing policy was broken by a law
in 1997 introducing limited rent allowances for low-income earners.
Despite adverse circumstances, poor housing conditions at the end of World War
II and rapid population growth and urbanization in the post-war period, and
despite the late development of strong mortgage finance institutions and placing
instead an extraordinary emphasis on self-ownership, Icelanders have managed to
all but eradicate overcrowding and poor-quality housing and achieve housing
standards as good as any in Europe.
5. Years of expansion, 1971–1987
The “golden age of post-war economic growth” lasted longer in Iceland than in
most European countries, or until 1983. This fact explains, at least partly, why
Iceland did not experience “the crises of the welfare state” to the same extent as
that of many other European countries. Another obvious reason is that, since the
public sector was relatively small, not least because of modest social expenditure,
there were fewer grounds for neo-liberal complaints about the excesses of the
government and calls for rolling back the state. Such criticism was heard but
directed more towards government involvement in the economy than in the social
During the 1970s successive governments were under pressure to increase and
extend social security benefits to assist those persons considered as being “left
behind” as society became increasingly prosperous. A new Social Security Act was
passed in 1971, taking effect in 1972, which extended entitlements and raised most
benefits by more than 20%. A new, two-tier, old-age pension system was
introduced with a flat-rate basic pension and earnings-related income supplement,
leading to an increase in pensions for couples by no less than 42%.
Social expenditure rose faster in Iceland than in the other Nordic countries
during the 1970s and the early 1980s, as welfare benefits followed increases in real
income and social policy was given a higher profile, particularly housing and
health. Although this development can no doubt be explained to some extent by the
growing strength of left-wing parties which succeeded in achieving many of their
ambitious social policy objectives in coalition governments, it was also due to a
favourable economic environment. Despite its more rapid growth of social
expenditures during the 1970s and 1980s, Iceland had not caught up with the other
Nordic countries by 1990. Social expenditure as a percentage of GDP had only
risen to just over 17% in Iceland while it ranged between 26% and 35% in the
other Nordic countries.
The only area where expenditure had reached similar levels was public
healthcare, where the greatest expansion occurred in the 1970s and the 1980s
because of increasing demands for more and specialized manpower, high-tech
healthcare services and primary healthcare, especially in the rural areas. Ever since
Scand. J. History 26
The Icelandic Welfare State in the Twentieth Century 263
the 1946 social reform, public health insurance had represented the largest
component of social security expenditure, and its share grew even more after 1970.
With the Health Service Act of 1973 a policy of developing primary healthcare for
the whole country was initiated, leading to an increase in health centres and health
personnel across the country. Soon the Health Service had more hospital beds at its
disposal than most countries. Health expenditures rose sharply, both in real terms
and as a proportion of GDP, peaking in 1987 at more than 8%, well above levels
seen in Europe.
Although the general trend toward centralization influenced the
health service, local authorities retained considerable responsibility for financing
and administering health services until 1990, when primary healthcare was further
centralized and the state took over complete financial responsibility in that area.
6. Social protection on the defensive in the post-1987 period
A downswing in the Icelandic economy between 1988 and 1995 marked a turning
point in the development of social welfare, ushering in a time of restraint and cuts
in welfare programmes. Unemployment shot up from 0.5% to more than 5%, an
unprecedented level in the post-war period, making further demands on the public
purse. The welfare state came under increasing pressure as governments tackled
rising public debt and budget deficits by cost-saving measures in the welfare
services. The proportion of user-financing of services was increased and social
benefits increasingly linked to earnings. Even basic pensions were income-adjusted
with a new law on old-age and invalidity pensions in 1992, which resulted in
reduced pensions for about half of all pensioners. Linking the basic pension to the
average pay of manual workers was abolished. Social expenditure was checked and
even shrank in real terms until the mid-1990s, its proportion of GDP remaining
fairly stable at between 17 and 19%.
The National Health Service had been for most part a free system, but in the
new climate the authorities imposed restrictions and charges on more and more
services. Fees were charged for most ambulatory care, which greatly increased at
the expense of inpatient care in the 1980s and 1990s, and the share paid by patients
for pharmaceuticals increased from an estimated 18% to about 32% between 1991
Not all government actions, though, were marked by cut-backs. In
response to the growing concern for the unemployed, the maximum period of
unemployment benefit was extended in 1989 and benefits extended to self-
employed people in 1993.
The late 1990s were characterized by a slow improvement in the social welfare
system in conjunction with more favourable economic development, high economic
growth rates, a reduction in unemployment and budget surpluses leading to a more
lenient fiscal policy. Social benefits became less earnings-related and benefits were
increased in real terms, although not as much as wage-earners’ incomes.
Dissatisfaction with limited improvements in the level of benefits and the still high
OECD Economic Surveys 1992–1993, op. cit., pp. 58–68.
Social Protection in the Nordic Countries (1997 ), p. 15.
Staðto¨lur almannatrygginga 1999 (Figures f rom Social Security 1999 ). Tryggingastofnun rõ´kisins.
Scand. J. History 26
264 Gudmundur Jonsson
degree of income relatedness prompted the Organization of the Handicapped in
Iceland to take the government (The State Social Security Institute) to court for
unlawfully relating invalidity benefits to the incomes of the individual’s (married)
partner. Surprisingly, in a landmark ruling delivered at the end of 2000, the
Supreme Court accepted the Organization’s claim that not only was the regulation
on which the Social Security Institute operated between 1994 and 1998 not
supported by law but a new law of 1998 was in breach of the human rights section
of the Icelandic constitution (the section which concerns equality before the law and
Although open for interpretation, the Supreme Court’s
ruling is likely to have wider implications for both social benefits, strengthening
individually based rights, and earnings-related entitlements in general.
7. Not so Nordic: The peculiarities of the Icelandic welfare system
Iceland’s historical development is characterized by strong bonds with the other
Nordic countries, and its cultural make-up and social structure bear a close
resemblance to theirs. Icelandic policy-makers looked to Denmark, Norway and the
other Nordic countries for models in economic and social matters, as witnessed by
the influence of the latter systems on Icelandic politics and laws.
The other Nordic countries also share many of the characteristics of the Icelandic
welfare state. Close ties between the countries have resulted in similar timing of
many of the landmarks in the development of the welfare system. The principle of
universalism of social security benefits, tax-based benefits and services, public
healthcare and education, even the entitlements of different welfare programmes,
are all features that Iceland shares with the Nordic countries.
But there are and have been striking differences. In comparison with the other
Nordic countries, Iceland’s system of welfare lagged behind and was less extensive,
except for a brief period after World War II. For one reason or another, the
Icelandic welfare system was less committed to social equality than that in the other
Nordic countries, resting instead on a social policy which emphasized market
solutions and self-reliance (with a great deal of family support), not on a socially
defined minimum level of living based on a social right. The concepts of minimum
living costs and poverty line have rarely entered public debate on social policy. Self-
provision has been a characteristic of housing and social benefits are closely tied to
earnings on the market (i.e. sickness pay ). This corresponds well with a long-
standing assumption in incomes policy that earnings should be responsive to market
fluctuations. These structural properties of the labour market, which are reflected
in the welfare system itself, have no doubt been shaped by the fluctuations in the
economy, which are greater than in most other European countries, because of the
narrow resource base and dependence on few export commodities, fish and marine
products comprising between 70 and 90% of the country’s exports in the 20th
It could be argued from a functionalist perspective of differential societal needs
that the low level of social expenditure in Iceland is explained by less need for
Morgunblaðið, 20 December 2000, pp. 13–15.
Scand. J. History 26
The Icelandic Welfare State in the Twentieth Century 265
various social services. The elderly, for instance, are a smaller proportion of the
population and people retire later than in the other Nordic countries. The same
applies to the unemployed. Unemployment has been negligible for most of the post-
war period and therefore makes fewer demands on the public purse than in most
European countries. But even if we control for differential needs by examining
transfer ratios (i.e. size of expenditure in relation to the size of recipient groups),
Iceland is clearly lagging behind the other Nordic countries.
In the majority of
welfare programmes, entitlements are more limited and benefits lower, whether in
old age and invalidity pensions, unemployment benefits or family benefits. Despite
having the highest percentage of children in the Nordic countries, Iceland spends
less (as a percentage of GDP) on families and children.
Yet, Icelandic women
have had one of the highest work participation rates (second only to Sweden in the
Nordic countries) for at least two decades.
The Icelandic welfare system deviates also in respect of its widespread
application of user charges (i.e. in dentistry, ambulatory health services and
pharmaceuticals) and income-testing of benefits – which may undermine the broad
consensus on the welfare state in the near future. The taxation system is much less
redistributive in character, taxes are lower, especially income and property taxes,
and consequently transfers are a smaller part of people’s earnings.
In short, when we consider the place of the Icelandic welfare system in
international comparison, it stands apart in many instances. As for the social
security system in particular, we can agree with Icelandic sociologist Stefa´n
´lafsson, who has convincingly argued that Iceland comes close to the Nordic
model in terms of citizen-based rights, but when we look at the low generosity level,
Iceland has more in common with countries like Australia, Ireland, Britain and
New Zealand, a group of nations which can be viewed as having a cheaper version
of the Beveridge system.
Why has the historical development of the Icelandic welfare system differed so
much from that of the other Nordic countries? Three kinds of explanation have
mainly been offered for the Icelandic exceptionalism.
First, the lagging behind of Iceland in the formative period of the welfare state
between 1890 and 1946 is obviously associated with its late modernization and
industrialization, resulting not only in different societal needs for provisions, but
also limiting the organizational and fiscal capacity of the state to undertake welfare
measures. For most of the formative period, Iceland was the poorest and the least
developed of the Nordic countries. In terms of GDP per capita only Finland was on
a similar level, while the Scandinavian average (Denmark, Sweden and Norway)
was as much as 50% higher than Iceland in 1930. Economic modernization started
late in Iceland; industrialization only got underway during the last years of the 19th
century with the expansion of the market economy and the mechanization of the
fishing sector. Although rapid urbanization had started around the turn of the
century, agriculture and fishing were still the biggest industries in 1930, employing
´lafsson, op. cit. ( 1999a), pp. 153– 167.
Social tryghed i de nordiske lande, op. cit. ( 1995), p. 56.
See, for example, S. O
´lafsson, op. cit. (1993 ), pp. 61-88 and op. cit. (1999b ).
Scand. J. History 26
266 Gudmundur Jonsson
about 55% of the workforce, agriculture alone providing work for one-third. Blue-
collar workers, skilled and unskilled workers, made up less than 50% of the total
workforce, and if we include all urban wage earners, the percentage only rises to
56%. So when the social democratic movement and the political campaign for
social insurance really got moving in the 1920s, the working class accounted for less
than 50% of the workforce.
The late industrialization thesis has less explanatory value, however, for the post-
war period when the Icelandic economy converged more with the Nordic countries
in terms of development levels and per capita income. More relevant is the second
explanation, the special configuration of Icelandic politics, which is characterized
by a weak Left in comparison with the Nordic countries, while the strong right-of-
centre Independence Party has been the dominant party in government in the post-
war period. Not only has the size of the leftist vote been considerably smaller in
Iceland (about 35% in the post-war period), it has also been fairly equally split
between two antagonist parties, leaving the traditional standard-bearer of the
Nordic welfare ideal, the Social Democrats, fairly weak, with less than 15% of the
How and why this balance of political power was created is outside the scope of
this paper, but here it suffices to maintain that the politics of nationalism, a
dominating feature of Icelandic society during the formative period of the political
party system in the first half of the 20th century, worked against the left-wing parties
and in favour of the Independence Party, which succeeded in intertwining the
politics of the consensus-seeking independence struggle with middle-class liberal
ideology. This political configuration had immense consequences for the
development of the welfare state, since it gave the individualistic, pro-market
Independent Party a key position in shaping post-war social policy, although it
frequently had to compromise its policies under pressure from a fairly strong trade
union movement, which was able to gain various social rights in collective
bargaining on the labour market.
Thirdly, we can find a possible, albeit less tangible, explanation for the
differences in the prevailing value system in Icelandic culture which extols a strong
work ethic, a strong ethos of self-help or self-reliance and other values more
reminiscent of American-style individu alism than the pro-welfare attitudes
prevailing in the Nordic countries. These values have been reinforced by a social
and economic environment characterized by unusually high but fluctuating
economic activity during the whole post-war period, exceptionally low unemploy-
ment, high rates of work participation and a high proportion of self employment.
Scand. J. History 26
The Icelandic Welfare State in the Twentieth Century 267