Prof. Baldur Thorhallsson, Jean Monnet Professor, University of Iceland
“Small States without Economic and Political Shelter: The Icelandic Crash and its Consequences”
Prof. Thorhallsson is a Jean Monnet Professor of Political Science, and founding member and chair of Centre for Small State Studies at the University of Iceland, which aims at furthering research on small states in international relations. He has published widely on small states in Europe, European integration and Iceland’s foreign policy, and is the author of two books.
“Limits of Being Smart in the Post-080808 Era: Comparing Finnish and Estonian Cases”
Dr Lehti is a Senior Research Fellow at the Tampere Peace Research Institute TAPRI, University of Tampere, and the Academic director of the Baltic Sea Region Studies Master’s Program, University of Turku. His current research focuses on the Balkans, transatlantic relations, identity politics and nationalism, and the Baltic Sea area. He is widely published, with two co-edited books out in 2010.
Chair and Comments:
Dr Juha Jokela, Director of the European Union Research Programme, Finnish Institute of International Affairs
Summary of the Seminar
The seminar was opened by Dr Juha Jokela, Director of the European Union Research Programme at the FIIA, who stressed the importance of the topic of the seminar. With fundamental changes taking place in the arenas of world politics, also small states need to go through a period of adaptation to these changes.
Dr Teija Tiilikainen, Director of the FIIA, then gave her opening remarks on the seminar topic, putting forth a slightly provocative theory-based argument. The conceptual framework here is of multipolarism and multilateralism, and in Dr Tiilikainen’s view there are no small states in the world of multipolarism. The worldviews behind the two approaches are very different, although they are often “thrown in” together in the same sentence with little distinction. Multipolarism, Dr Tiilikainen continued, represents a realist worldview, where states and sizes matter, as do geopolitics, neighbors and borders. The multipolar world seeks to achieve a balance of power between the poles, and in this system small states and big states very much do exist, with the identity of a small state being defined by the same criteria that define power. The multilateral world, on the other hand, is quite opposite: based on an idea of a “common order”, in stead of realism, this system does not seek a balance of opposing powers. Thus in multilateralism, Dr Tiilikainen emphasized, a different type of “actorness” and world order is created; here there are no big and small states but power is based on a different setting, more dependent on common institutions, norms and rules that bind the actors. To conclude, Dr Tiilikainen sees that before one can asses the role of small states, first a position must be taken on the desired character of the “World of Gs”, including elements from both multilateralism and multipolarism. The new world of Gs indeed contains a possibility for a new type of multilateralism to emerge, and it is the combination of these two worldviews that matters to small states when they assess their own role in the changed situation.
Prof. Baldur Thorhallsson, Jean Monet Professor at the University of Iceland, gave a presentation on the topic Small States without Economic and Political Shelter: the Icelandic Crash. Prof. Thorhallsson also touched upon the reasons of why Iceland has applied for EU membership. As a theoretical framework, he brought up P. Katzenstein’s theories on domestic flexible adaptation, according to which small states need two things in order to be successful: mechanisms to adapt flexibly to sudden change, and a system that socializes risk, i.e. specific welfare state and labor market policies that work to that end. Prof. Thorhallsson called these precautions and actions domestic buffers – though the effectiveness of these buffers in the new neoliberal world order are for him still a question mark.
Recounting the recent history of Iceland, Prof. Thorhallsson noted that in the first half of this decade Iceland witnessed dramatic growth, but when the global economic crisis hit, the Icelandic government was suddenly defenseless. In October 2008 not only were other European states including Nordic countries reluctant to aid Iceland, but the British and Dutch governments got into disputes with the Icelandic government over the Icesave accounts. Also the IMF delayed its offered financial package because of the ongoing dispute. Prof. Thorhallsson noted that finally Russia was willing to provide Iceland with a beneficial loan – to the displeasure of other European states, but to the relief of Washington as it meant that the US, a long-term partner of Iceland, did not need to bail out Iceland.
In this context Prof. Thorhallsson asked: did the Icelandic government fail in providing economic and political shelter? He noted that there are three roles for a government in ensuring political (including diplomatic) and economic shelter in a small state: one, reduction of risks before a crisis hits; two, assisting in absorbing shocks when the crisis is on; and three, cleaning up after the event. During the Cold War, the US was strategically important for Iceland in providing economic and trade-related shelter, and since the 1970s Iceland has also sought shelter from the European project by then joining the EFTA. The European Economic Area has indeed opened up the possibility for greater economic growth for Iceland, but Prof. Thorhallsson also stressed that at the same time it has increased risk in the system, creating the conditions for the current collapse. With a free flow of capital there are fewer tools available to defend the economy and external threats cannot in that case be managed solely through democratic problem solving, Prof. Thorhallsson concluded. In the midst of the economic crisis Iceland has applied for EU membership, with the hopes of boosting up its economic and political shelter in the current order.
Dr Marko Lehti, Senior Research Fellow at the University of Tampere gave a talk on the topic Limits of Being Smart in the Post-080808 Era: Comparing Finnish and Estonian Cases. Dr. Lehti in particular took the Russia-Georgian war in 2008 as a case study, to which the “080808” refers to in the title, and through that examined the different ways small states like Finland and Estonia can position themselves in such events. As his theoretical starting point, Dr Lehti took up the thesis of R. Kagan on how the competition between the liberal democracies on the one hand, and autocratic countries that challenge Western ideas and dominance on the other, will dominate the 21st century world. This division, Dr Lehti notes, is widely agreed upon in US political discourse, but there is little agreement on how to solve many of the problems associated to it.
Small states can take various positions in such debates as initiated by R. Kagan, Dr Lehti noted, and the Russia-Georgian war is a good example of this. The war has been explained, Dr Lehti continued, at least in two opposing ways: either as a localized conflict in a post-Soviet space, or as a turning point in power politics. Fitting with R. Kagan’s ideas, Estonia interpreted the “post-080808 situation” as a “turning point in European history”, while Finland took a similar but more toned-down view as the Finnish Foreign Minister Alexander Stubb stated that “the tectonic plates have moved again”. More pronounced differences between Finland and Estonia emerged on the conclusions that were made after the conflict. Estonia criticized heavily the role of the EU, and emphasized that of the US and NATO in possible future conflicts; Finland on the other hand emphasized the role of the EU, and saw that it had become more important than ever in situations such as these. Dr Lehti argued that while Finland did not see the crisis as threatening to the security of Finland, Estonia very much saw the Baltic States under threat. In this vein, while Finland emphasized mediation, Estonia called for solidarity. Of course the fact that Finland at the time was holding the chairmanship of the OSCE and had a large role to play in that function also, might have influenced the statements of the Foreign Minister.
Finally, Dr Lehti noted that the significance of the different approaches to the conflict by Finland and Estonia is that it tells something about the role that national self-esteem can play in the international politics of a country. Small states, in trying to cope with their smallness, generally seek acceptance from dominant countries, and this becomes a big part of the political discourse of small states. A small state can, according to Dr Lehti, either escape from marginality and call for the recognition of the centre, or escape to marginality as a source of a strong national self-esteem. Within this formulation, Estonia can be seen as having escaped to the centre in the 1990s through alliances with the US and NATO, while Finland during the Cold War sought to escape from the center by trying to retain a neural stance. The final conclusion Dr Lehti presented was that in the aftermath of the Russia-Georgian war, Finland did not lose belief in legitimate international governance, while Estonia did; hence the conflict had an effect on Estonia’s national self esteem, but not on that of Finland.
In the general discussion part of the seminar one of the major topics was: how can small states be part of the new developments that are shifting emphasis to the G –fora, and perhaps away from organizations such as the UN? The G –formations are reforming global governance, and one seminar participant suggested that these formations could even provide an international consensus that is hard to achieve in the truly global fora like the UN. Another participant pointed out that all organizations and formations have also internal struggles. Prof. Thorhallsson responded by saying that he was skeptical about the G –formations changing the role or standing of small states; small states will continue to need organizations such as the EU. Interestingly though, Prof Thorhallsson continued, occasional calls for establishing some kind of a Nordic group has not been met with enthusiasm in the Nordic states: such a group is considered as unhelpful marginalization, and the Nordic countries see themselves as having a better shot at gaining influence at broader arena such as the EU. Prof. Thorhallsson also noted that bilateralism, rather than multilateralism, has served Iceland well in the past, both with Denmark and later with the US; even now with the EU not willing to comment on the situation with Britain and The Netherlands, the suggestion is that this is still a bilateral matter. Dr Tiilikainen noted that the occurrence of internal struggles in international organizations is not necessarily about multipolarism, but about poor multilateralism; similarly if European institutions become places where mainly big states can exert power, then it is again not a question of multilateralism but one of power struggles. Multilateralism and multipolarism as concepts should not be used independently of their theoretical roots, Dr Tiilikainen concluded.
There was also a lively discussion on the way Iceland sees itself today. One seminar participant suggested that the fact that Iceland for example applied for a seat in the UN Security Council in 2008, a bid it eventually lost amid some controversy, is evidence that being part of such formations is important to the self-esteem of Iceland; after all, the nonpermanent seat brings with it little additional power or say, it was noted. Prof. Thorhallsson agreed that in Iceland there has been a back and forth movement between greater integration and retreating to marginality. At the moment the situation is of political chaos, and for example joining the EU is not favored by many in Iceland - though this might change in the coming two years. Since the late 1990s Iceland has also been more reactive to international developments in for example the context of the Council of Europe, and by maintaining a small peacekeeping force. At the moment a victim mentality is prominent in Iceland as both the people and the politicians seem to feel they were cheated by bad business men and the international system – evidence that questions of identity and self-esteem are still unresolved. Finally, Dr Lehti touched upon possible ways Finland might carve out a new position for itself, and noted that in particular in the field of peace mediation there would be great potential for a small country like Finland to play a larger role.