Why Iceland Isn't Just A Barren Rock

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Spring comes to Iceland. Saturday, May 21, 2011.

Spring comes to Iceland. Saturday, May 21, 2011. Jon Gustafsson/AP hide caption

itoggle caption Jon Gustafsson/AP

This is the latest in a series on Iceland by Planet Money correspondent David Kestenbaum and Planet Money's Icelandic intern, Baldur Hedinsson. Here's more from their trip to Iceland.

This was supposed to be the beginning of what passes for spring in Iceland. But a volcanic eruption is coating much of the country in grey ash.

It's a reminder of how harsh conditions on the cold, barren island can be. And yet, Iceland is one of the most prosperous nations on earth. How did that happen?

The early settlers were Vikings. But their life wasn't all grog and raiding. There was a lot of huddling in cold, single-room dirt houses, with livestock kept below for added warmth. They couldn't grow much of anything — even potatoes didn't get to Iceland until about 100 years ago, according to historian Sigurdur Gylfi Magnusson.

And not only was there not much to eat. There wasn't much to do. In the dark winters, people would hole up in their turf houses and read.

"These guys were more interested in books," Magnusson says "It's a strange society in a sense that you have this high quality of intellectual activity, but at the same time, dirt-poor society."

We know this because the Icelanders have always kept incredible records of life on the island. There's basically a gigantic national diary that's 1,000 years old. It used to be written on animal skins; now it's online.

One time, in the 17th century, the Danish king considered evacuating the whole isand, and moving everyone down to Denmark. But it didn't happen.

In 1783, an eruption killed nearly a quarter of the people on the island; the population dropped to 38,368. They documented that exactly. Three-quarters of the of the farm animals died.

This is what life was like for a thousand years. It was as if time had stopped on the island. In the 1800's, though something finally changed.

The seas around Iceland were full of cod. And the world wanted cod. Suddenly, these people living in dirt houses, with minimal contact with the outside world, saw their lives transformed.

Then the benefits start to build. Iceland finds a way to use the very things that make the island inhospitable. Volcanoes, for instance, also means geothermal springs that Icelanders now use to heat their homes.

Even the thing that once was a coping strategy — reading to wait out the long winters — becomes the foundation for a knowledge-based economy.

In the early years of the 21st century, Iceland went into International banking in a big way. Unemployment fell to 1 percent. By 2007, Iceland is no longer just a frozen rock in the ocean. It's looking like economic perfection.

The banking thing didn't go so well, though. During the financial crisis, the banks collapsed.

Someone's going to have to come up with a new idea.



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