Cold Facts From a Tiny Nation

Iceland has only 300,000 people. But unlike many other islands with Lilliputian populations, it's not a colony. Instead, it's a full-fledged nation with a distinct language, separated from neighbors by hundreds of miles of frigid open seas, and not real big on assimilating foreigners. As a result, Icelandic managers face the challenge of finding in this population, roughly the size of Pittsburgh or of Target's work force, the human resources necessary to run a thoroughly modern country with one of the highest per capita incomes on the globe.

An individual's chances of holding an interesting and important job—say, being a top ambassador or running the leading newspaper—are much higher in Iceland than in the United States. Assuming about half the population is in the work force, the odds of getting a particularly choice gig are about one in 150,000, compared with, say, one in 154 million in the United States. When Iceland's national soccer team takes the field, one in every 6,818 able-bodied men in the country is on the field. And it doesn't take much to be a big shot here. The Blue Lagoon spa, a giant swimming pool with a restaurant and gift shops— the size of a decent suburban country club—employs 220 people. It's one of the 300 largest enterprises in the country.

The fact the population has lived in isolation for several hundred years helps reduce wasteful economic friction. Security just isn't an issue in Iceland. When I caught a domestic flight at Reykjavik's airport, I parked (free!) next to the terminal, and was pleasantly surprised to encounter a series of no's: no security lines, no baggage inspection, no need to show ID before boarding.

In a massive market characterized by internal mobility, like that of the United States, signing on with an employer today means subjecting yourself to time-consuming and costly checks—criminal background, credit, references, calls to your kindergarten teacher to see if you drank your milk. In Iceland, where the operative term is "two degrees of separation," due diligence might entail dipping into an open-air swimming pool and asking another bather if she knows the candidate.

There are, of course, downsides to managing in a small nation. One has to assume (as I did while flying) that Iceland's small population contains people capable of carrying out specialized tasks like landing an airplane. When hiring, we all enjoy casting the widest possible net for talent, reviewing 100 résumés in search of the perfect candidate. Icelandic managers, who operate in a labor pool about as shallow as the Blue Lagoon, have no such luxury. The newly constructed Alcoa plant near Reydarfjordur has boosted the number of jobs in desolate east Iceland by about 20 percent. "In this region there are 16 people unemployed and about 500 in the whole country," said Tomas Sigurdsson, managing director of Alcoa in Iceland. If Icelandic firms adopted Jack Welch's mantra of firing the bottom 10 percent of performers each year, they'd be in a pickle. And today, with Iceland's financial-services sector under stress after breakneck expansion and official interest rates in the double digits, it seems as if Iceland suffers a shortage of seasoned M.B.A.s.

Iceland copes by investing in home-grown human capital. The literacy rate is off the charts. And because there's a real sense among citizens that they are doing their family and friends a disservice if they don't make themselves useful, everybody pitches in. The Alcoa plant operates the world's biggest "pot line," a cavernous expanse filled with hundreds of vats containing molten metal. As he gave me a tour, Hilmar Sigurd jornsson, a former management professor turned public-relations executive at Alcoa, paused to peer into a few of the pots. "Everybody does pot-tending here." Indeed, the usual divisions between executives and labor are hard to detect. On Icelandair, business class and coach board at the same time. At the companies I visited, senior executives ate in the same cafeteria as the workers.

Iceland's economy is also characterized by a greater reliance on networks, consortia and public-private partnerships than we're accustomed to in the United States. To ensure it will have sufficient staff to run operations, Reykjavik's largest utility is working with two local universities to create master's programs in earth sciences. The country's banks, geothermal drillers and utilities—many of whom own stakes in one another—frequently work in consortia. They travel in the vast world not as solo sailors but as crews in a galleon.

Iceland's scenery, and its approach to capitalism, may be unfamiliar to parochial Americans. But Iceland does call to mind one American microeconomy, which is characterized by its insularity and small off-season labor force. At times, Iceland reminded me of Martha's Vineyard in the off-season, when its service establishments, bereft of eager college kids, are staffed by indifferent locals. To call the service in Iceland desultory would be an insult to desultory service providers everywhere. When I asked for directions, hotel staffers sent me off on a series of wild-goose chases. At one restaurant, I eschewed the local fare (reindeer, teal, etc.) and ordered a Greek salad, figuring it would be the fastest food available. After an hour passed with sign of neither feta nor black olive, I left, famished, and rampaged through my hotel room's minibar like a Viking.

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