Privatization Viking Style - Model Or Misfortune?

by Roderick T. Long

Can the experience of Icelandic Vikings eight centuries ago teach us a lesson about the dangers of privatization? Jared Diamond thinks so. In his article "Living on the Moon," published in the May 23, 2002, issue of the New York Review of Books, Diamond portrays the history of Iceland in the Viking period as a nightmarish vision of privatization run amuck.

Libertarian scholars and free-market enthusiasts have often pointed to the Icelandic Free State (930-1262) as a positive example of a society that functioned successfully with little or no government control. Writing in the Journal of Legal Studies, economist David Friedman observes that the Free State "might almost have been invented by a mad economist to test the lengths to which market systems could supplant government in its most fundamental functions." As Diamond himself notes:

"Medieval Iceland had no bureaucrats, no taxes, no police, and no army. … Of the normal functions of governments elsewhere, some did not exist in Iceland, and others were privatized, including fire-fighting, criminal prosecutions and executions, and care of the poor."

But unlike those who see who see the Icelandic system as a model to emulate, Diamond charges that the Free State’s excessively privatized character made it radically unstable, ultimately leading to the system’s violent collapse in 1262; his essay has already been cited by The American Prospect as a crucial resource for those "making the case against privatization and shrinking government." So who’s right? Does medieval Iceland illustrate privatization’s benefits, or its hazards?

Lying in the North Atlantic between Norway and Greenland, its northern shores brushing the Arctic Circle, Iceland is a stark and desolate landscape of basalt and frozen lava, punctuated by volcanoes, geysers, and glaciers – eerily beautiful for tourists, though a wearying challenge for farmers. Such a harsh natural environment might have attracted few immigrants, were it not for a still harsher political climate back on the mainland. Iceland’s first settlers – Norse and Celto-Norse refugees from King Harald Fairhair’s attempt in the late ninth century to impose centralized control and property taxes on all of Norway – established what historians call the Icelandic Free State, or Icelandic Commonwealth, around the year 930. In Diamond’s words, "they privatized government beyond Ronald Reagan's wildest dreams" (since Reagan dramatically increased the size and expense of government over the course of his administration, this is quite an understatement), "and thereby collapsed in a civil war that cost them their independence."

This "thereby" is somewhat misleading, however, since civil strife did not become a serious problem in Iceland until around 1220, nearly three centuries after the system was established – and the system’s final collapse did not come until 42 years after that. As I have written elsewhere: "We should be cautious in labeling as a failure a political experiment that flourished longer than the United States has even existed." Indeed, given Diamond’s criterion of instability, the United States cannot be called stable until it survives the year 2108. (Though one could argue that it has already failed the test: the United States had to wait only 85 years from its founding before plunging into a catastrophic civil war, by contrast with Iceland’s 290 years.)

How did the Icelandic Free State work? The 11th-century historian Adam von Bremen described Iceland as having "no king but the law." The legal system’s administration, insofar as it had one, lay in the hands of a parliament of about 40 officers whom historians call, however inadequately, "chieftains." This parliament had no budget and no employees; it met only two weeks per year. In addition to their parliamentary role, chieftains were empowered in their own local districts to appoint judges and to keep the peace; this latter job was handled on an essentially fee-for-service basis. The enforcement of judicial decisions was largely a matter of self-help (hence Iceland’s reputation as a land of constant private feuding), but those who lacked the might to enforce their rights could sell their court-decreed claims for compensation to someone more powerful, usually a chieftain; hence even the poor and friendless could not be victimized with impunity.

The basis of a chieftain’s power within the political order was the power he already possessed outside it, in civil society. The office of chieftaincy was private property, and could be bought or sold; hence chieftaincies tended to track private wealth. But wealth alone was not enough. As economic historian Birgir Solvason notes in his masterful study of the period, "just buying the chieftainship was no guarantee of power"; the mere office by itself was "almost worthless" unless the chieftain could "convince some free-farmers to follow him." Chieftains did not hold authority over territorially-defined districts, but competed for clients with other chieftains from the same geographical area.

A chieftain was politician, lawyer, and policeman rolled into one: he represented his clients in parliament, served as their advocate in arbitration, and offered them armed assistance in dispute resolution. If his customers were dissatisfied with the quality or price of these services, they could switch to a different chieftain without having to change their physical location; the relation between chieftain and client could be freely terminated by either party, so that signing up with a chieftain was rather like signing up for insurance or long-distance phone service today; legal jurisdictions were, in effect, "virtual" rather than physical.

The fact that the provision of "governmental" services was a competitive rather than a monopolistic enterprise was arguably one of the Free State’s greatest strengths; just as in any other market, the competitive discipline imposed by the fear of losing clients to rival service providers served as a check on inefficiency and abuse of power. Icelandic law owed its resilience and flexibility to this decoupling of authority from geography.

Diamond finds this competitive legal system unprecedented and bizarre: "Everywhere else in the world that I know of, competing chiefs ruled over mutually exclusive territories, within which everyone else had to be that chief's follower." He seems unaware that non-territorial jurisdiction has been a fairly common phenomenon throughout history; indeed, the prevalence of non-territorial jurisdiction in medieval Europe is often credited with explaining the "rise of the West." It is certainly true, however, that the Free State pressed the principle of non-territorial jurisdiction farther than most.

While non-territorial jurisdiction has its admirers, Diamond is certainly not one of them. On the contrary, he condemns this "weird territorial system" as a "recipe for chaos":

"Freedmen other than chiefs could choose their chief and switch alliances, regardless of which chief happened to reside nearby. A chief’s farm became surrounded by a mosaic of smaller farms, some of them occupied by his own followers, others by other chiefs’ followers. The resulting feuds fill The Sagas of Icelanders."

Yet in Jesse Byock’s Viking Age Iceland, one of the books on which Diamond claims to be basing his analysis, we find precisely the opposite information: the "lack of geographically defined chieftaincies" meant that no group could claim "exclusive or long-time control over any one area"; as a result, there were "few territorial ‘refuge areas’" where "feuding parties lived protected … by a cluster of kin and friends." This "made sustained feuding difficult," creating increased incentives for compromise. In other words, the non-territorial nature of Iceland’s legal order served to decrease, not to increase, the violence of feud. (Diamond also asserts that Iceland’s lack of a strong central government left it "defenseless against attacks," a charge he substantiates by recounting an incident from 1627 – at which time Iceland was under the "protection" of the Danish crown, and the Free State system Diamond is criticizing had been defunct for nearly four centuries!)

Reading the Icelandic Sagas initially gives the impression of unremitting violence – until one notices that most of the feuds they describe consist of low-casualty skirmishes at long intervals. Though often referred to as "Vikings," Icelanders made their living for the most part through farming and trade, and violence was sporadic; thanks to the economic incentives provided by Iceland’s legal system, conflicts were settled in court more often than in combat. Like any good storyteller, the authors of the Sagas simply skipped over the long boring periods when nobody was killing anybody.

To keep Icelandic feud in perspective, one may contrast it with continental Europe, whose princes, blessed with "mutually exclusive territories," launched massive wars. As Solvason points out, Icelandic society was "more peaceful and cooperative than its contemporaries"; in England and Norway, by contrast, "the period from about 800 to 1200 is a period of continuous struggle; high in both violence and killings." Byock contrasts the prolonged and violent civil strife which attended Christianization in Norway with its relatively swift and peaceful Icelandic analogue. Icelanders treated the conflict between pagans and Christians as a feud, to be resolved like any other feud – by arbitration. The arbitrator decided in favor of Christianity, and that was that. (So imbued were the Icelanders with the norms of conflict resolution through arbitration that they dealt with haunted houses in the same way – trying the ghosts for trespassing, in the confident expectation that, if found guilty, a good Icelandic ghost would respect the verdict of the court and peacefully depart!) Even at the Free State’s worst, during the system’s catastrophic breakdown into intestine warfare in the 1200s, the body count was fairly low; as Friedman writes:

"During more than fifty years of what the Icelanders themselves perceived as intolerably violent civil war, leading to the collapse of the traditional system, the average number of people killed or executed each year appears, on a per capita basis, to be roughly equal to the current rate of murder and nonnegligent manslaughter in the United States."

Obviously the level of violence during the three centuries before the civil war must have been even lower.

Diamond is best known for his 1997 book Guns, Germs, and Steel: The Fates of Human Societies, which argues that history is determined primarily by geographical rather than cultural factors; he applies a similar analysis here, maintaining that the Icelanders’ radically decentralized political system was forced on them by Iceland’s scanty supply of natural resources, leaving them "too poor even to afford a government." (Oh, for such poverty!) In short, the law of Iceland was not the product of its inhabitants’ own ideas and values, but was in effect selected for them by the nature of their physical environment.

But didn’t the Icelanders choose that environment because they were hostile to centralized power back home? And doesn’t the structure of their legal system reflect that very hostility? Diamond can hardly ignore these facts, but he minimizes their importance:

"Having emigrated to Iceland in order to be independent of the growing power of the Norwegian king, Icelanders wanted minimal government anyway, and that attitude let them make a virtue of the necessity imposed by their poverty."

In other words, Icelandic cultural attitudes were causally irrelevant to the outcome; although the system the Icelanders ended up with was to their liking, they would have ended up with much the same system whether they liked it or not.

Diamond’s portrait of medieval Icelandic society as crippled by extreme poverty is not borne out by the evidence. In their supposedly hapless and half-starved condition, Icelanders created a rich literary tradition of Eddas and Sagas, developed a sophisticated legal code, and mounted voyages of exploration to North America – activities that would seem to indicate a higher degree of prosperity and leisure than Diamond suggests. Arguing that Icelanders were in fact relatively affluent, Solvason points to the steady improvement of economic conditions and increased production of export goods over the course of the Free State period.

Ship ownership was far rarer in Iceland than one might expect in an island community, particularly a "Viking" one; Diamond surmises that this is because Iceland was poor in timber (or quickly became so as settlers unsustainably exploited Iceland’s natural resources), so that "the original ships of the settlers could not be replaced by new ships." He infers that Iceland, being "almost entirely without ocean-going ships of its own," was left at the mercy of foreign navigators who "controlled and exploited Iceland’s trade." But as Solvason points out, timber was regularly imported to Iceland for a variety of purposes, and could have been used for shipbuilding if ships had been wanted; Solvason concludes that Icelanders voluntarily chose to exploit their comparative advantage in ranching (among Iceland’s chief exports were meat and wool) and leave shipbuilding to others, presumably because they found this decision more profitable.

Diamond’s geography-is-destiny approach to history deserves our skepticism in any case. The world is full of bleak, inhospitable, resource-poor regions whose inhabitants scratch out a meager living; but how many such regions have left us a cultural legacy comparable to medieval Iceland’s? Diamond would do well to heed philosopher R. G. Collingwood’s dictum that history is ultimately determined not by nature, but by what human beings make of nature. By all evidence, Icelanders maintained their privatized political system, not because they were driven by poverty and necessity to do so (though Diamond apparently finds their system so uncongenial that he can conceive no other reason), but quite simply because it worked.

But if the Icelandic Free State was so successful, why did it eventually collapse? Clearly, the explanation lies in the growing centralization of wealth and power. As Diamond writes:

"Originally, soon after settlement, Iceland had about 4,500 independent farms, but by the thirteenth century 80 percent of Iceland’s farmland was owned by five families, and all the other formerly independent farmers had become tenants."

These five families also managed to buy up most of the chieftaincies, enabling them to dominate the courts and parliament. The concentration of chieftaincies in fewer hands also meant an end to the existence of competing chieftains within the same territory; Iceland began to be fractured into regions, each operating as a local monopoly or mini-state. During the years 1220-1262, the resulting struggle for hegemony among these mini-states broke out into open conflict, a crisis that was finally resolved only when the Icelanders, exhausted by civil war, invited King Haakon of Norway to govern them, thus bringing the Free State period to a close.

To Diamond, this final decision illustrates the utter bankruptcy of the Icelandic system: "I cannot think of another historical case of an independent country that became so desperate that it turned itself over to another country." Perhaps he should have tried harder; he might have remembered England in 1688, offering the crown to William of Orange after deposing the Stuarts – or, harking farther back, the many small states who responded to civil strife by calling in a Roman garrison, thus submitting de facto to Roman authority. Moreover, the very desperation of the move indicates how unaccustomed the Icelanders were to levels of violence that had long been commonplace on the mainland. In any case, the Icelanders presumably saw the Covenant of 1262-64, not as a surrender of national independence, but simply as yet another case of signing up with a new chieftain because their previous chieftains had proven unsatisfactory. This new chieftain, the Norwegian king, was farther away, and so perhaps less dangerous; certainly he was wealthier than any Icelandic chieftain, and so (they imagined) less tax-hungry. What they failed to recognize was the incentive implications of switching from a competitive system to a monopolistic one – though admittedly, their own system had lost much of its competitive character already. (War is not a form of competition; it is what arises when competition breaks down.)

The process of competitive chieftaincies turning into monopolistic mini-states is obviously a move toward less privatization, not more; and it was precisely when Iceland had become less privatized and more like mainland Europe – a collection of principalities vying for supremacy – that it collapsed into the kind of large-scale warfare that had raged across the rest of Europe for centuries. It seems rather unfair, then, to blame this catastrophe on privatization. Still, why didn’t Iceland’s privatized system of law prevent the increasing concentration of wealth and power in the first place? Was this failure symptomatic of an inherent flaw in the Icelandic system?

Typically, Diamond offers an environmental explanation for the increasing concentration of wealth: Iceland’s harsh climate. "In cold years the poorer farms culled or lost their livestock in the winter because of insufficient hay," and so were "forced to become debtors who were dependent on others for survival." The cogency of this explanation is doubtful. Wealthier farmers had more hay, but they presumably also had more livestock; hence they most likely did not have more hay per head of livestock. Since wealth was held predominantly in land and livestock, not in currency, it’s unclear why hard winters should be expected to have a less severe impact on wealthy farmers than on poor ones.

A more plausible explanation for the Free State’s decline points to the introduction of the tithe in 1096. Made possible by Iceland’s conversion to Christianity a century earlier, the tithe – to pay church officials and maintain church buildings – was Iceland’s first real tax. (Previous "taxes" generally turn out on closer inspection to be voluntary exchanges of fees for services.) Assessed at 1% of the payer’s property, it was also Iceland’s first graduated tax (earlier fees were one-size-fits-all), and so took in much more revenue. Most importantly, the tithe lacked a competitive element. Recall the non-territorial character of a chieftain’s jurisdiction: a chieftain’s temptations to self-aggrandizement were kept in check by the knowledge that if he acquired delusions of grandeur or charged too high a price for his services, his clients could abandon him for a rival. But the tithe was territorial; all those who lived in the vicinity of a particular church building had to pay for its upkeep, and were not at liberty to transfer their support elsewhere. The catch is that the portion of tithe revenue allocated to maintaining church buildings went not to the official church hierarchy but to the wealthy private owners (usually chieftains) of stadhir, "churchsteads," i.e., plots of land on which churches had been built. The tithe was a property tax; but chieftaincies, though marketable commodities, were exempt – as were the churchsteads themselves, predominantly owned by chieftains. (The parliament that enacted the tithe law was of course composed entirely of chieftains.)

The tithe thus did more than just increase the income of the chieftains; it decoupled that income from accountability. Economic inequalities per se are not a serious threat to liberty so long as they operate in a genuine market context, where the way to gain and maintain wealth is to please one’s customers; before the introduction of the tithe, a chieftain who proved too power-hungry would alienate his customers and so suffer financial discipline. But chieftains who owned churchsteads now had a captive market, and so were freed from all competitive restraints on their accumulation of wealth and power. Through buying off or intimidating less wealthy chieftains, the top families were able to gain control of multiple chieftaincies. This gave them a lock on the parliament, enabling them to pass still further taxes; it also decreased competition among chieftains, allowing them to charge monopoly prices and drive their clients into a serf-like state of debt and dependence.

The Icelandic system did fall through an inherent flaw, then, but not the one Diamond imagines; the Free State failed, not through having too much privatization, but through having too little. The tithe, and particularly the portion allotted to churchstead maintenance, represented a monopolistic, non-competitive element in the system. The introduction of the tithe was in turn made possible by yet another non-competitive element: the establishment of an official state church which everyone was legally bound to support. Finally, buying up chieftaincies would have availed little if there had been free entry into the chieftaincy profession; instead, the number of chieftains was set by law, and the creation of new chieftaincies could be approved only by parliament – i.e., by the existing chieftains, who were naturally less than eager to encourage competitors. It is precisely those respects in which the Free State was least privatized and decentralized that led to its downfall – while its more privatized aspects delayed that downfall for three centuries.

Diamond pities the medieval Icelanders. We might do better to emulate them.

Further Reading

Bruce Benson. The Enterprise of Law: Justice Without the State. Pacific Research Institute, San Francisco, 1990.

Tom W. Bell. "Polycentric Law." Humane Studies Review, Vol. 7, No. 1, 1991/92.

Jesse L. Byock. Feud in the Icelandic Saga. University of California Press, Berkeley, 1982.

-. Medieval Iceland: Society, Sagas, and Power. University of California Press, Berkeley, 1988.

-. Viking Age Iceland. Penguin, London, 2001.

David Friedman. "Private Creation and Enforcement of Law: A Historical Case." Journal of Legal Studies 8, 1979.

-. The Machinery of Freedom: Guide to a Radical Capitalism. Second Edition. Open Court, La Salle, 1989. Chapter 44.

-. "Viking Iceland: Anarchy that Worked," Liberty 2, no. 6 (July 1989), pp. 37-40.

Albert Loan. "Institutional Bases of the Spontaneous Order: Surety and Assurance." Humane Studies Review, Vol. 7, No. 2, 1992.

Roderick T. Long. "The Decline and Fall of Private Law in Iceland." Formulations 1, no. 3 (Spring 1994).

William I. Miller. Bloodtaking and Peacemaking: Feud, Law, and Society in Saga Iceland. University of Chicago Press, Chicago, 1990.

Birgir T. Runolfsson Solvason. Ordered Anarchy, State, and Rent-Seeking: The Icelandic Commonwealth, 930-1264. Ph.D. Dissertation in Economics, George Mason University, 1991.

-. "Ordered Anarchy: Evolution of the Decentralized Legal Order in the Icelandic Commonwealth," Icelandic Economic Papers 17 (1992).

-. 1993. "Institutional Evolution in the Icelandic Commonwealth." Constitutional Political Economy 4, no. 1, pp. 97-125.

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