Geographically located in the North Atlantic, Iceland is surrounded by one of the world‘s richest fishing resources. Economic progress in Iceland has, not surprisingly, been closely related to its fisheries. Although other product exports, especially aluminium and export of services, such as tourism, have been steadily growing, Iceland is still quite dependent upon its fisheries. This is especially true after the collapse of the country‘s young financial sector. After all Icelanders have accumulated experience and knowledge in the fishing industry for centuries: on resource management, the fishing activity, fish processing, on technological aspects, consumer markets, etc.
Throughout the 20th century Icelanders fought to extend their Exclusive Economic Zone to 200 miles around the island. Winning the so-called “cod wars“ and gaining full control over the waters within 200 miles in May 1976 was a breakthrough, not only for Iceland but for other coastal states as well. Soon Icelanders realised though, that they were overexploiting their most valuable fish stocks. The country‘s strategy of a free, open access to the fishing grounds had also resulted in vast over investment in the fishing fleet. There were too many boats catching too little fish. It was neither economically nor environmentally sustainable.
Sustainable management of the fish resources is of crucial importance for the Icelandic economy. Icelanders did realise this, and in a quarter of a century they revolutionized the industry. Catch limitations and gradual introduction of a property rights based, fisheries management system, in both pelagic and demersal fisheries did, according to the best scientific knowledge available, prevent a collapse of the fish stocks. What is not of less importance is that despite extensive catch limitations the transformation of the industry‘s economic efficiency has been quite astonishing.
In short an Individual Quota system was introduced in the early 80‘s, whereby fishing rights were granted to incumbents relative to their historical catch over a certain period (the development was somewhat more complex but the small details are not relevant to this short introduction). Quota was allocated per ship, a percentage of a TAC (Total Allowable Catch) decided by the minister of fisheries once a year based upon scientific advice. But it was not until the vessel owners were allowed to trade the quotas and an ITQ (Individual Transferable Quota) system was fully implemented that efficiency started to increase. The more economic efficient fishermen could permanently buy out the less efficient.
Consequently the fishing fleet shrank and there was an overall cost reduction in the fishing activity. Sometimes overlooked but of major importance was the legal title to an easily tradable asset that could as well be used as a collateral. A lot of dead capital thus sprang to life. It made mergers easier as well as investment within the industry. Technological improvements increased efficiency and created offsprings, such as in design and production of fish processing machinery, navigational techniques etc. Corporate planning was also greatly improved and Icelanders soon had a competitive edge in the marketplace. They could plan and manage their catch according to consumer demand, instead of the management system dictating their market transactions. Today the industry relies on a skilled workforce, and lends great support to Icelandic educational centre‘s and universities.
Though the ITQ system is an economic success story, it has always been politically controversial. The main reason is the classic ideological debate on private vs. public property. As efficiency increased, wealth within the industry was accumulated. And though it trickled down into the society as a whole, which was to a point not a very visible effect, many found individual wealth through access to this natural resource hard to stomach. On the basis of populist ideas the new left wing government in Iceland plans to make dramatic but extremely damaging and misguided changes to the system. There is big opposition to their plans in Iceland and there is hope that the ITQ system will continue to be a living example of successful institutional reform in natural resource management.