VoxEU Column Politics and economics

Constitution making in action: The case of Iceland

Iceland is in the middle of a major constitutional overhaul. This column looks at the unorthodox use of a referendum in drafting the constitution and argues that this democratic element could lead to its long-term success.

Strangely, democratic states often allow tiny minorities to get away with murder by exploiting the masses, big time. In Europe and the US, there is presently a fairly widespread feeling that this is what many bankers have done (Johnson and Kwak 2010). So let’s begin with a counterfactual thought experiment. What if the Roosevelt administration and Congress had introduced the Glass-Steagall Act of 1933 as a constitutional amendment rather than as an ordinary piece of legislation? Clearly, it would then have become that much harder to reverse Glass-Steagall half a century later. Lehman Brothers might still be standing. Perhaps the financial upheavals of recent years could have been averted altogether. But, then, perhaps not, for Europe never found it necessary to separate commercial banking from investment banking by law, nor did Canada.

From Ecuador to Iceland

FDR had an excuse. Banks and financial institutions are rarely covered by constitutions. The sole substantial exception to this rule is the detailed 2008 constitution of Ecuador which includes some pretty tough provisions (see Appendix). In essence, Art. 308 stipulates that bank managers who run their banks into the ground do so at their own peril. By Art. 309, negligent bank supervisors must be taken to court. By Art. 312, bankers are not allowed to own media or other nonbank businesses. Clearly, besides Glass-Steagall, the US could have benefited from constitutional amendments in this vein, and so could Iceland, because all three provisions would have kicked in immediately after the financial crash of 2008. 

Perhaps Iceland's new crowdsourced constitutional bill from 2011 ought to have contained such provisions, but it does not (Gylfason 2012a). Without them, the bill was thought to contain sweeping enough provisions, not least the one defining natural resources not in private ownership as the property of the nation stating that “government authorities may grant permits for the use or utilisation of resources or other limited public goods against full consideration and for a reasonable period of time.”

Why 'full'? Why not 'fair'? The reason is because 'fair' would have amounted to a constitutionally protected rebate to vessel owners and others who use the nation’s resources and also because the clause on property rights stipulates that: “No one may be obliged to surrender his property unless required by the public interest. Such a measure requires permission by law, and full compensation shall be paid.” Hence, without 'full' consideration in the natural resource clause, the bill would have featured an element of unconstitutional discrimination among owners of private property and owners of public property. The natural resource clause addresses one of the most contentious political issues in Iceland over the past 30 years or longer. It was felt that taking on the banks as well in the same round, with Ecuador as the sole existing precedent, could prove counterproductive. 

Democracy in the driver’s seat

The drafting of Iceland’s constitutional bill was guided by the National Assembly of 950 citizens drawn at random from the national registry. Every Icelander 18 years of age or more had an equal chance of being invited to take a seat in the National Assembly which, therefore, reflected the will of the nation in a statistically significant sense. The National Assembly convened for a day in November 2010 where the 950 representatives (a) resolved that Iceland needs a new constitution and (b) laid down the lines for some key provisions that a new constitution needs to contain, including ‘one person, one vote’ and national ownership of the country’s natural resources (Gylfason 2011, 2012b, 2013).

The Constitutional Council saw it as its task to convert the resolution of the National Assembly into a coherent constitutional bill, with minimal incongruity. In the process, the Council was encouraged by popular participation via more than 300 unsolicited reports from the public plus thousands of comments and suggestions on the Council’s interactive website. After four months of high-voltage work in mid-2011 in full view of the public, the Council approved the bill unanimously with 25 votes against zero, no abstentions. Eight months after receiving the bill in March 2012, the parliament (Althing) directed some issues to the Council, including the above question about 'full' vs. 'fair' consideration for the rights to use natural resources owned by the nation, and convened the Council for a four-day follow-up meeting. There, in response to the parliament’s questions and comments, the Council representatives present, again unanimously proposed alternative wording of some provisions in the bill, mostly for clarification, with minimal substantive changes involved. Four months thereafter, the parliament decided to hold a consultative national referendum on the bill and some of its key provisions on 20 October 2012.

The referendum was fought tooth and nail by the political opposition in parliament. First, the opposition used filibuster to prevent the parliamentary majority from holding the promised referendum at the time of the presidential election 30 June, timing that was considered likely to encourage voter turnout that tends to be notoriously low in referenda because, unlike parliamentary and local elections, they are orphans in the sense that political parties do not have strong incentives to encourage their voters to participate. In Switzerland, for instance, average turnout in over a hundred referenda since 2000 was 45%. Second, the opposition tried again to use filibuster to prevent the 20 October referendum from taking place, but failed to sustain the action. The referendum was approved in parliament by 35 votes against 15, with 13 abstentions, and took place on schedule. 

And the people said 'Yes'

The ballot presented six ‘Yes or No’ questions, all of which the voters answered decisively in the affirmative. Presumably, the parliamentary majority’s intention was to be able to say to the opposition afterward: Look, the voters not only accept the bill as a whole, but specifically also accept several of its key individual provisions. This strategy worked. Voter turnout was 49%, well above the Swiss average.

The questions and answers of those who took a stand were as follows:
1. Do you want the proposals of the Constitutional Council to form the basis of a legislative bill for a new Constitution? 67% said Yes.
2. Would you want natural resources which are not in private ownership to be declared the property of the nation in a new Constitution? 83% said Yes.
3. Would you want a new Constitution to include provisions on a National Church of Iceland? 57% said Yes. (This was the sole Yes not proposed by the bill.)
4. Would you want a new Constitution to permit personal elections to the Althing to a greater degree than permitted at present? 78% said Yes.
5. Would you want a new Constitution to include provisions to the effect that the votes of the electorate across the country should have the same force? 67% said Yes. (Two of the three rural electoral districts actually said No.)
6. Would you want a new Constitution to include provisions to the effect that a specific proportion of the electorate could call for a national referendum on a specific matter? 73% said Yes.

What happens next?

With this unequivocal guidance from the people via their clear expression of the popular will – after all, they called the shots! – the parliament must now finalise the bill and ratify it. The 1944 constitution stipulates that, for the bill to take effect, the next parliament, following a parliamentary election in April 2013, must also ratify the bill.

This is where the plot begins to thicken. The current opposition and allied forces have at least three important reasons for opposing the bill. First, the opposition has strong, some would say umbilical, ties to the fishing industry that has for many years received practically gratis fishing quotas from the government, a corrupt arrangement that the bill aims to end. Second, the opposition, and some would say not only the opposition, is worried about ‘one person, one vote’ because some of their elected MPs would not have much of a chance of being re-elected under ‘one person, one vote.’ Third, the freedom of information provisions in the bill aim to promote transparency by breaking a pervasive culture of secrecy that has enabled the political class to get away with, yes, murder, including the Russian-style privatisation of the banks 1998-2003 that paved the way off the cliff in 2008. The parties currently in opposition in parliament might gain strength in the 2013 election because the post-crash government formed in 2009 has had the thankless task of cleaning up after the crash, with IMF and Nordic help.

The opposition insists on the right to propose substantive changes to the bill even if the bill has already been accepted by the people two to one “as the basis of a legislative bill for a new Constitution.” Some think the opposition really aims to kill the bill. The parliamentary majority, by contrast, wants to respect the will of the people by making only a few changes of wording if necessary as well as perhaps fairly minor changes that the Constitutional Council already approved at its March 2012 meeting. Confident of continued popular support for the bill, the prime minister has raised the possibility of presenting the final version of the bill to a second referendum at the time of the parliamentary election in 2013 in an attempt to reduce the likelihood that the next parliament tries to thwart the will of the people and kill the bill. In any case, the bill – and the process of putting it together which members of the Comparative Constitutions Project at the University of Chicago call “tremendously innovative and participatory” (Elkins, Ginsburg, and Melton 2012) – awaits a bumpy ride through parliament. “The people have put the parliament on probation,” said the prime minister after the vote. Stay tuned.

Constitutional endurance

“Without a reform of the Constitution, there is no future possible,” said the president of the Spanish Constitutional Court in 2009. Constitutions do wear out if they fail to anticipate social, economic, and political change. Around the world, nations routinely change their constitutions, every 19 years on average (Elkins, Ginsburg, and Melton 2009). Thomas Jefferson would not have been surprised. In a remarkably prescient 1789 letter to James Madison, Jefferson wrote that “Every constitution ... naturally expires at the end of 19 years” because “the earth belongs always to the living generation.” On the basis of its textual elements, taking into account its various provisions, Elkins, Ginsburg, and Melton (2012) predict that the new Icelandic constitution, if ratified, will last 60 years, adding that “drafting the right text has been found to be surprisingly important for constitutional mortality”. They conclude by declaring the bill to “be at the cutting edge of ensuring public participation in ongoing governance, a feature that we argue has contributed to constitutional endurance in other countries.”


Elkins, Zachary, Tom Ginsburg and James Melton (2009), Endurance of National Constitutions, Cambridge University Press.

Elkins, Zachary, Tom Ginsburg and James Melton (2012), “A Review of Iceland’s Draft Constitution”, ConstitutionMaking.org, University of Chicago, 15 October.

Gylfason, Thorvaldur (2011a), “From Crisis to Constitution”, VoxEU.org, 11 October.

Gylfason, Thorvaldur (2011b), “Crowds and Constitutions”, VoxEU.org, 13 October.

Gylfason, Thorvaldur (2012a), “Finance and Constitutions”, VoxEU.org, 11 April.

Gylfason, Thorvaldur (2012b), “Constitutions: Financial Crisis Can Lead to Change”, Challenge 55(5): 106-122

Gylfason, Thorvaldur (2013), “From Collapse to Constitution: The Case of Iceland”, Public Debt, Global Governance and Economic Dynamism, Springer (forthcoming).

Iceland Constitutional Bill (2011), delivered by Constitutional Council to Parliament 29 July.

Johnson, Simon and James Kwak (2010), “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown”, Pantheon Books.

Appendix: Excerpts from the 2008 constitution of Ecuador
  • The regulation and control of the private financial sector shall not transfer the responsibility of bank solvency, nor imply any guarantee by the State. Managers of financial institutions and those controlling the capital thereof shall be held liable for the solvency of said institutions. (Art. 308)
  • The national financial system is comprised of the public and private sectors … Each of these sectors shall be governed by laws and regulations and shall have specific, differentiated control bodies, the role of which shall be to uphold their security, stability, transparency and soundness. Said entities shall be autonomous. The directors of control bodies shall be held liable for their decisions in administrative, civil and criminal law. (Art. 309)
  • Financial entities or groups may not possess permanent holdings, whether total or partial, in companies that have nothing to do with financial business. Financial entities or groups, along with their legal representatives, board members and shareholders are forbidden to have any share in controlling the capital, investment or assets of the media. Every entity belonging to the national financial system shall have a customer defence attorney, who shall be independent of the institution and appointed pursuant to the law. (Art. 312)

2,100 Reads