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The Journal of Socio-Economics 41 (2012) 843– 848

Contents lists available at SciVerse ScienceDirect

The Journal of Socio-Economics

j our nal ho me p age: www.elsev ier .com/ loc ate /soceco

thical crises in the international political economy

esse Russell ∗

623 Keogh Drive, Sparks, NV 89431, USA

r t i c l e i n f o

rticle history:eceived 1 April 2012eceived in revised form 24 June 2012ccepted 23 August 2012

a b s t r a c t

The Icelandic banking crisis provides a useful example of how the global economic downturn transformedinto a domestic crisis and then transformed again into an international conflict. Rather than a stricteconomic analysis, discussion around the economic causes and potential cures surrounding the Icelandicbanking crisis have been framed in terms of ethics. The analysis shows that ethical paradigms based onconsequences, in line with Kant’s hypothetical imperative, do not align well with categorical imperatives

eywords:celandanking crisisthicsant

nternational conflictategorical imperative

based on duty when considering international political conflicts. It is unclear that any accounting wouldhave the potential to achieve reconciliation.

© 2012 Elsevier Inc. All rights reserved.

. Introduction

During the recent global economic downturn, several localizedrises have emerged. The risk of sovereign debt default has arisenn Greece and other parts of Europe, bank failures have struck thenited States and Ireland among others and civil unrest has been

een in Europe, Asia and other parts of the world. Many aspects ofhese crises signal contagion, cross-border spillover and interna-ional dispute. The case of Iceland provides a marked example ofow the global economic downturn first transformed into a domes-ic crisis and then into an international conflict.

Iceland’s banking crisis centered on the failure of the coun-ry’s three large commercial banks in late 2008. In spite of theize of Iceland, with just over 300,000 citizens, the crisis there hasad significant international consequences. In the words of onenalyst, “Iceland experienced the deepest and most rapid finan-ial crisis recorded in peacetime” (Danielsson, 2009, p. 9). Thecelandic crisis has been significant for not only Iceland itself, buts a microcosm of the sources of economic problems elsewhere. Asnother analysis concludes, “the repercussions on both the coun-ry’s native Icelanders as well as global financial markets giveeason to dedicate serious attention to the causes and cures, ofhis unfortunate and wholly avoidable event” (Bagus and Howden,

009, np).

Discussion around the economic causes and potential cures sur-ounding the Icelandic banking crisis has been framed in terms of

∗ Tel.: +1 775 297 6763.E-mail address: jesse.r.russell@gmail.com

053-5357/$ – see front matter © 2012 Elsevier Inc. All rights reserved.ttp://dx.doi.org/10.1016/j.socec.2012.08.001

ethics. Icelanders facing the costs of repaying depositors, the cit-izens of other countries who have lost their deposits, politiciansacross Europe and economists around the globe have reacted to thecrisis from an ethical stance. Exploring the variance among thesereactions can help build an understanding of how ethical paradigmsand international political economy interrelate.

The purpose of this paper is twofold. The first aim is to under-stand better the broad role of ethics in international economicaffairs and the challenges faced when bringing ethical discuss-ions into international political economy. The second aim is tomore narrowly analyze how ethical paradigms helped to shapenational and international reactions to the Icelandic banking cri-sis. From the Icelandic banking crisis, the international conflictthat resulted was roundly pitted in terms of ethical standards,but the two broad camps in this dispute each used differentrubrics. In this international banking dispute, the rubrics lead tovastly different ethical conclusions. The analysis shows that ethicalparadigms based on consequences, in line with Kant’s hypotheticalimperative, do not align well with categorical imperatives basedon duty when considering international political conflicts. It isunclear that any accounting would have the potential to achievereconciliation.

The remainder of this paper will first review the Kantian frame-work of ethics. The following section considers the model of homoeconomicus. The third section outlines the Icelandic banking cri-sis within an international political economy context. Fourth is

a consideration of reactions to the crisis, followed by a sectionthat offers a comparison of the ethical frameworks that can befound in the reactions to the crisis. Finally, some conclusions areoffered.

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. The Kantian framework

Understanding the bases of ethical behavior is, of course, partf a rich philosophical tradition. It is not the intent of this paper torovide a review of that literature—the purpose is not to contributeo the philosophical debate on ethics. Rather this paper focusesn one particular ethical philosophy, that of Immanuel Kant. Kantffers guidance on “the rule of behavior in regard to free choice”Lectures, 27:243). In Groundwork of the Metaphysic of Morals (1785),ritique of Practical Reason (1788), Metaphysics of Morals (1797), andhe collected Lectures on Ethics (1997), Kant outlines a philosophyf ethics that distinguishes “inclination” from “duty.”

As Balleta and Bazin, 2005 note, references to Kant are notew in economics. Kant’s theories play a role in economic analysis

rom Laffont (1975), Sen (1977), Elster (1998) and Wolfelsperger1999), among others. However, as Ballet and Jolivet (2003) pointut, these types of references to Kant do not typically fullyonsider Kantian ethics, especially the theory of the categoricalmperative.

Kant argues that acting morally only occurs when one sup-resses his or her “inclination and instead acts according to duty”Lectures, 27:672). Moral acts are those that are done “out of respector the moral law” (Lectures, 27:727). An act is moral if it is doneecause it is a duty to do so (Kelly, 2006). This is in contrast to anycts done simply in accordance with duty.

The distinction here is not among the acts themselves, buthether the motivation for those acts is from inclination or fromuty. Kant expresses this in terms of “good will”:

A good will is good not because of what it performs or effects,not by its aptness for the attainment of some proposed end, butsimply by virtue of the volition; that is, it is good in itself andconsidered by itself is to be esteemed much higher than all thatcan be brought about by it in favor of any inclination, nay evenof the sum total of all inclinations. (Groundwork, 6: 394)

hus, the dichotomy Kant proposes is between acts that are doneecause of the morality of the act itself—out of a duty to accord withoral law—and those that are done because of the consequences

r the effects of the act.Inclination should not be conflated with desire (Wood, 2002).

ne can desire to act out of duty for moral law. “So when Kant sayshat the man acts without inclination, this does not entail that hects without desire (which Kant, along with the rest of us, wouldegard as certainly unappealing and perhaps even impossible)”Wood, 2002, p. 20).

Kant offers further exposition of this point in terms of what heabels the “categorical imperative” versus the “hypothetical imper-tive.” Categorical imperatives are the basis of moral law derivedrom human rationality and free will. Categorical imperatives arerinciples of behavior that are inherently moral. They are not goodecause of their expected effects or consequences, but because theyre good in and of themselves. In the words of another theorist, thisthical system is “based on the moral status of actions themselves,ather than on their consequences, outcomes, or results . . . certainctions are prescribed (or forbidden) as matters of duty, regard-ess of the consequences of the action (or inaction)” (White, 2004,. 92).

Further, acts are moral not simply when in accordance withuty, but when done because of duty. Kant explains: “The cate-orical imperative would be that which represented an action asecessary of itself without reference to another end, i.e., as objec-ively necessary” (Groundwork, 6: 414). Categorical imperatives

hould be adhered to in all situations, by all people and at all times.ategorical imperatives, in this sense, are universal. Kant explainshe universal nature: “I ought never to act except in such a wayhat I can also will that my maxim should become universal law;”

nomics 41 (2012) 843– 848

and “act that you use humanity, in your own person as well as inthe person of any other, always at the same time as an end, nevermerely as an end” (Groundwork, 4: 402 and 4: 429).

In contrast, hypothetical imperatives are not universal. Theseimperatives are similarly borne out of human rationality, but onlywithin a specified goal and end one wish to achieve. Hypotheticalimperatives can be formed as conditional statements: if you wishto achieve some effect in a particular situation, then perform thisact. In this way, hypothetical imperatives, unlike categorical imper-atives, are based on the consequences of acts. “If now the action isgood only as a means to something else, then the imperative ishypothetical; if it is conceived as good in itself and consequently asbeing necessarily the principle of a will which of itself conforms toreason, then it is categorical” (Groundwork, 4: 414).

3. Homo economicus

In The Theory of Moral Sentiments (1759) and in The Wealth ofNations (1776) Adam Smith describes how economic behavior andmarket efficiency are based in human motivation. In particular, forSmith, self-interest is crucial in achieving optimal outcomes forall. Self-interested economic motivation does not work against thecommon good, in Smith’s account, but rather is the keystone ofcommon good. In Smith’s words, “It is not from the benevolenceof the butcher, the brewer, or the baker that we expect our dinner,but from their regard to their own interest” (Smith, 2010, p. 27).

Building upon this idea, Milton Friedman (1976) stated, “Everyindividual serves his own private interest. . . The great Saints ofhistory have served their ‘private interest’ just as the most moneygrubbing miser has served his interest” (p. 11). Similarly, Ludwigvon Mises (1949) stated, “The ultimate end of action is always thesatisfaction of some desires of the acting man” (p. 19).

This idea of self-interested human behavior has come to berepresented by the term homo economicus, representing humandecision-making in terms of economic calculations. One set ofeconomic theorists explains, “The standard view of economicdecision-making, embodied in the metaphorical figure of homoeconomicus, is that agents choose options to maximize utility basedon stable, given preferences within constraints usually provided bythe market” (Montero and White, 2007, p. 144). Homo economicusis thus a model of human behavior, especially of economic behavior,that suggests that humans make decisions according to a utility-maximizing cost benefit calculation from a set of preferences.

This model of human behavior has been a common tool foranalysis. White (2004) suggests, “This model has proven extremelyuseful in helping us understand countless aspects and examples ofhuman behavior, from common business decisions to governmentpolicy-making” (p. 89). At the same time, however, many have feltuncomfortable with how well the model mirrors reality. In partic-ular, Amartya Sen (1977) has pointed out the apparent absurditiesthat can result from the model.

Others have expressed discomfort in the lack of choice thatmight exist for homo economicus. Montero and White note manyeconomists have expressed that the calculative approach inherentin the model takes much of the sense of choice out of behavior.If one always acts in accordance with the calculated self-interest,what choice of action is there? In this vein, Mark Lutz (1999) hassaid that “economic choice takes the real choice out of economics”(p. 155). Similarly, G.L.S. Shackle (1961) has argued that “conven-tional economics is not about choice, but about acting according tonecessity” (p. 272).

Ethics has played a major role in these lines of critique. Oneanalyst posed the question directly: can the homo economicus bereconciled with ethical imperatives (White, 2004)? The fundamen-tal question is if calculations based on self-interest suggest that an

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nethical choice would be optimal, can homo economicus decideo make the ethical choice rather than the optimal self-interestedhoice. Morris Altman (2005a) notes that this “poignant critique”ritique of economic theory—the failure to incorporate notions ofltruism, morality, and ethics—is common in arguing that contem-orary economic theory is fatally flawed or in need of overhaulAltman, 2005a,b).

Mark White points out that most attempts to reconcile economicxplanations of behavior with ethical paradigms still “assumehe utility-maximizing agent seeks to achieve the best outcomeut of all the possible outcomes over which she has influence”White, 2004, p. 90). The explanations thus remain “consequen-ialist” (White, 2004, p. 90). This approach to ethics in models ofconomic behavior has been seen as problematic to some, andhere have been various efforts to reconcile the two (c.f. Sen, 1977;lster, 1989; Koford and Miller, 1991; van Staveren, 2001). How-ver, debate remains on how feasible the task is (c.f. the exchangeetween White, 2004 and Balleta and Bazin, 2005).

This disjunction is admittedly difficult. White (2004) argueshat “Despite all of their successes in other fields of inquiry, onerea in which economists have had significant difficulty is in theodeling of ethical behavior” (p. 89). Altman, 2005b argues thathile the moral dimension of economics “does not lie beyond the

ealm or capacity of economic theory” it has been long neglectedp. 751). Addressing this discussion in a narrower reference tontrepreneurial economic behavior, Tibor Machan (1999) suggestshat without a moral legitimacy in economic behavior, the spheref economics “would turn out to be under a constant moral cloud”p. 596). If there is no comfortable reconciliation between homoconomicus and an ethical standard of human behavior, economicxplanations will remain under this cloud.

Again, the task of this paper is not to provide a Solomonic answero this rich discussion. Instead, this paper seeks to use this discus-ion as a context for exploring an ongoing real-world crisis that isrounded in economics, ethics, and the clash between the two.

. Crisis in the international political economy context

Robert Gilpin (1975) suggested that international politicalconomy (IPE) may be defined as “the reciprocal and dynamicnteraction in international relations of the pursuit of wealth andhe pursuit of power” (p. 43). Similarly, Benjamin Cohen (2008)xplains, “IPE at its most fundamental, in short, is about the com-lex interrelationship of economic and political activity at the levelf international affairs” (p. 16). While these definitions are certainlypt, some theorist would prefer the social aspects of IPE be morexplicitly accommodated (c.f. Inayatullah and Rupert, 1994). In anyase, the topic under view in this paper, the recent global economicownturn broadly and the Icelandic banking crisis more narrowly,an be understood to involve a dynamic international interactionetween political activity and economic activity.

We can understand banking crises in terms of Charles Kindle-erger’s classic treatise Manias, Panics, and Crashes: A History ofinancial Crises (1978). Kindleberger posits, “For historians eachvent is unique. In contrast, economists maintain that there areatterns in the data and particular events are likely to induce sim-

lar responses. History is particular; economics is general” (p. 24).his general model is one of a boom and euphoric expansion, anxogenous shock (often international contagion), and then a rapidust.

Luc Laeven and Fabian Valencia (2008) offer a more technical

escription of the general model:

Under our definition, in a systemic banking crisis, a coun-try’s corporate and financial sectors experience a large numberof defaults and financial institutions and corporations face

nomics 41 (2012) 843– 848 845

great difficulties repaying contracts on time. As a result, non-performing loans increase sharply and all or most of theaggregate banking system capital is exhausted. This situationmay be accompanied by depressed asset prices (such as equityand real estate prices) on the heels of run-ups before the crisis,sharp increases in real interest rates, and a slowdown or reversalin capital flows. In some cases, the crisis is triggered by deposi-tor runs on banks, though in most cases it is a general realizationthat systemically important financial institutions are in distress.(p. 5)

This definition varies from the Kindleberger definition not in termsof its specifics, but rather in terms of its technicality. Kindlebergerhighlights the human and the irrational element (euphoria, panic,mania) of banking crises.

Together, these two descriptions of a banking crisis appear tofit the case of the Icelandic banking crisis well. In September 2008,the Icelandic government announced that Glitner Bank would benationalized. The following week, Landsbanki and Glitner Bankwere both sent into receivership by the Icelandic Financial Supervi-sory Authority. In early October, Kaupthing Singer and Friedlander(Kaupthing) were sent into receivership as well. Landsbanki oper-ated the Icesave brand as an online savings bank for account holdersin the United Kingdom and the Netherlands.

According to news reports, more than 300,000 British deposi-tors had £4 billion and 125,000 Dutch accounts held D 1.7 billion inIcesave accounts at the time Landsbanki was sent into receivership(Agence France-Presse, October 08, 2008 and Bloomberg, October11, 2008). Relative to the size of its economy, Iceland’s bankingcrisis was the largest that any country has ever experienced (TheEconomist, December 11, 2008).

Some analysts noted at the time of the crisis that the Icesavemodel was tenuous. One news report stated, “The best way of see-ing Iceland is as a country that turned itself into a giant hedgefund” (BBC News, October 4, 2008). The Icesave business modelrelied upon arbitrage among differentials in international interestrates—borrowing where interest rates were low and lending wherethey were high.

This type of arbitrage relied on, and contributed to, the globalincreases in credit leading up to the global downturn. However,as Kindleberger points out, these types of bubbles must surelyburst eventually. As credit became scarcer and more costly glob-ally, the tenability facing the Icelandic banks in renewing theircredit was questioned. That questioning only made credit moredifficult to secure, and the difficulty fed into itself as the risk ofdefault appeared on the horizon. In this environment, credit defaultswaps—insurance against default—became unbearably costly forthe Icelandic banks. The Wall Street Journal reported, “On Friday(October 3, 2008) the cost of insuring Icelandic government debtsoared to punitive levels” (Wall Street Journal, 2008). In the end,the Icelandic banks were on the verge of defaulting on their obliga-tions as their lenders tried to escape an apparently sinking ship. Asthe same time, news report indicated as the crisis was unfolding,“it’s difficult to see how [the Icelandic banks] can re-float” (BBCNews, October 4, 2008)

5. Reactions to the crisis

International outrage fomented immediately following the col-lapse of the Icelandic banks. On the day that Kaupthing was sent intoreceivership, the United Kingdom’s Finance Minister expressed his

have told me, believe it or not, they have no intention of honoringtheir obligations there” (Agence France-Presse, October 08, 2008).This expression of surprise and frustration largely captures whatthen became the British reaction.

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The Finance Minister continued, “We have decided we will standehind those savers.” The United Kingdom did then guarantee theeposits of British citizens (though not of British municipalities orrganizations). The Netherlands took a similar approach. As theyad bailed out their own citizens, the United Kingdom and theetherlands requested that Iceland, as guarantor of the Icesaveccounts, repay them.

British and Icelandic officials had been communicating over theast months prior to the banking collapse (London Daily Telegraph,ovember 1, 2008). These ongoing conversations did not achieveonsensus and the United Kingdom turned to antiterrorism laws forheir reaction. The United Kingdom used its Anti-Terrorism, Crime,nd Security Act of 2001 to freeze assets of the banks, the Icelandicentral bank, and of the government of Iceland. The Economist notedhat this use of antiterrorism laws, “led to Iceland getting a pariahtatus in the financial system” and likely contributed to the collapsef the third Icelandic bank (Kaupthing) (The Economist, October 9,008).

In an official public address, Geir Haarde, Prime Minister ofceland, announced:

[T]he Icelandic Government has engaged a British law firm toinvestigate if there are grounds for litigation against the UKgovernment due to the absurd decision to invoke the TerrorismAct against Icelandic interests in Britain. . . Icelandic authoritieshave been quite clear on the point that we will never agree toconditions that would ruin our economy. (Haarde, 2008)

ogether, the statements by the British Finance Minister and thecelandic Prime Minister encapsulate the disagreement. The Unitedingdom and the Netherlands maintain that Iceland is liable toepay these governments for their payments to account holders inhese countries. Iceland holds that the scope of this expectation isnreasonable and that the government and people of Iceland woulde unduly burdened.

It is worth noting that the legal statuses of the British/Dutchlaim that the government of Iceland is obligated to repay the debtbecause the banks operated under Icelandic regulation), and thecelandic claim that it is not obligated to repay the debt (becausehe transactions, though international, were among private parties)emain unresolved. Iceland is a member of the European Economicrea (EEA) but not of the European Union. The legal aspects of theonflict involve fitting EEA law to Iceland law and establishing theole the Icelandic government had in creating the initial bankingrisis. At this point, it remains unresolved if any government shouldct as guarantor of bank deposits within the EEA, or if the govern-ent of Iceland has an obligation because of regulatory faults.Popular reactions on both sides of this disagreement have been

ehement. These reactions have also been emphatically based indeas of morality. From the depositors’ side, a letter to the editorn The Times argued, “The crisis is not so much a case of restor-ng confidence in banks but rather the restoration of moral valuesn banking” (The Times, October 10, 2008). Further, an editorial byhe Times took the position that, “The Icelandic authorities have

moral, as well as legal, duty to make good their promises” (Theimes, October 10, 2008).

Broader commentary from British citizens has also been fervent.he Guardian Unlimited reported a number comments along theines of, “If they cannot behave responsibly, cannot (or will not) payheir debts then they should be excluded from western economicctivity,” and “Not the first time Britain has been shafted by a bunchf reckless Vikings” (The Guardian Unlimited, January 8, 2010). Forome on this side of the dispute, the (im)morality of Iceland was

he crucial issue.

A news story in the Financial Times reported from the otheride of the dispute, “Others question the entire legal and moralrounds for Icelandic taxpayers to pick up the bill for foreign

nomics 41 (2012) 843– 848

deposits squandered by reckless bankers and lax regulators” (Finan-cial Times, February 26, 2010). Similarly, the Wall Street Journalcommented that, “it’s unclear why Iceland should bear the costsof bailing out the Dutch and British at all” (The Wall Street Jour-nal, February 23, 2011). For many observers, morality was raisedas a question: was there legitimate moral ground upon which theexpectation that Iceland should repay the banks’ debts could bebuilt?

Taking a different ethical stance from within the Icelandic posi-tion, Iceland’s Health Minister stated, “People here want Iceland tohonor its international legal and ethical obligations, including theIcesave obligations. But here we are talking about sums equivalentto about half the GDP of the country” (The Guardian, September28, 2009). This point of view suggests an acceptance of the moralexpectation that Iceland ought to repay the banks’ debts, but high-lights the practical difficulty with this.

Some state this moral position more firmly, suggesting not onlythat Iceland has no ethical duty to repay the bank debts, but alsothat the British and Dutch demands may themselves be immoral.Forbes commented that should Icelanders be forced to repay theUnited Kingdom and the Netherlands, it would be a “morally repug-nant result” (Forbes, June 16, 2009). The Sunday Times reported onviews from within Iceland, “Bjarni Hardarsson, a bookseller fromthe town of Selfoss, reflected the anger of many at Britain. ‘Whatwe have here is the reckless abuse by the old colonial powers withno moral conscience at all,’ he said. ‘There’s a lack of both legaland moral grounds for the nonsensical claim that Icelanders aloneare responsible for the debt”’ (The Sunday Times, March 7, 2010). Inthe same vein, Icelanders have taken to the streets to protest sug-gestions and legislation that they should repay the banks’ debts. Inpromoting turnout for one protest, a prominent Icelandic business-man stated, “It is in breach of all laws and ethics to make us pay.Both native and foreign specialists have pointed that out. The nationshould not accept such injustice without making noise,” (IcelandicReview, August 27, 2009).

6. Contrasting ethical frameworks in reactions to the crisis

It is clear from the comments highlighted above that there is asharp ethical disagreement overlaying the economic conflict. Forthis analysis, the question is if the variances in expressed moralviews can be accorded to the Kantian rubric.

For the British/Dutch stance, the appeal to ethical standardsappears to be built upon the idea that the debt must be repaid.The distinctions among the banks themselves, the Icelandic govern-ment, and the Icelandic people are secondary. The legal basis of theobligation, while being pursued, is also not foremost in the moralsentiment. Instead, calls for “honoring obligations,” and invocationsof “moral duty” are more prominent.

The invocation of moral duty is clearly reminiscent of Kant’sethical system. Recall that Kant suggested that moral behaviorinvolved acting out of duty. One should not only act in accordancewith duty, but out of duty. Moral duty in categorical impera-tives has no regard for consequences. As noted above, this typeof behavior (acting out of duty without regard for consequences)is difficult to reconcile with economic behavior (acting accordingto the mandates of homo economicus). This difficulty is presentin the Icelandic banking crisis as well. The British/Dutch callsto morality are based in the idea of morality as a duty. Thecontention is that Iceland has a duty to repay the debts. Fromthis position, Iceland is not being called on to repay the debts

because of the consequences (economic, political, diplomatic, orotherwise). Rather, Iceland is being called on to repay the debtsbecause it has a duty to follow a categorical imperative to paydebts.

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In contrast, the calls to morality from the Icelandic positionre much more related to consequences (and antecedent conse-uences). These calls to morality are expressed in terms of the costsf repaying the debt, the burden involved, and the potential “ruin”hat might befall Iceland—Iceland may like to repay the debt or toonor the obligation, but the amounts involved are simply too large.

n this way, the Icelandic moral position is more similar to Kant’sypothetical imperative—the imperative is conditional upon theoal. One goal of Iceland is to remain a member in full standingf the European economy. Another goal of Iceland is to maintainhe viability of its domestic political and economic system. Icelandould like to repay the debt given the consequences of being an

conomic pariah. Iceland would not like to repay the debt given theonsequences of domestic economic devastation.

Even if Iceland does ultimately repay the debt, agreeably, withrotest, or even under duress, it appears unlikely that it would doo as a matter of duty. The repayment of the bank debt might ulti-ately be in accordance with what the British and Dutch see as its

uty, but Iceland would not repay the debt because of a sense duty.hus, even if repayment occurred, by this standard Iceland wouldot be acting morally.

This last point might be the one that drives the fever of theonflict. While financial arrangements may be achieved in com-romise, and legal standards clarified, the affront felt by the Unitedingdom and the Netherlands and the insult felt by Iceland willemain. Ultimately, the sorest spot in this conflict is that Icelandook debt repayment as a hypothetical imperative, while the Unitedingdom and the Netherlands understood it as a categorical imper-tive.

Why did the two sides of the conflict land on opposing moralositions? One thought might be that it is purely out of conve-ience or an aspect of strategic bargaining. The British and Dutchant to be paid, so they invoke the strongest arguments possible

or the obligation of repayment. Iceland does not want to makehe repayment, so it invokes a less stringent standard. This is cer-ainly a plausible factor, but it is not a satisfactory explanation. Iteaves something wanting because it would be difficult to estab-ish that the United Kingdom and the Netherlands are any moreikely to achieve repayment given their moral rhetoric. This maye a case where economic forces do not impose binding constrainsn choice of ethical framing. The imperatives for strategic behaviorre not dissolved, rather the imperative allow for more than a sin-le course of action. As Altman, 2005b advises, economic pressuresay permit a broader “array of behaviors and institutions than is

eemed viable by the conventional wisdom” (p. 702). In fact, thisariance of behavior within similar economic situations is part ofhe inherent complexity of the international political economy.

Further, while instrumental self-interested behavior might bexpected to lead to gain, neither party appears to have gained fromheir ethical stance. In fact, something of the opposite is more likelyrue. The absolutist moral line taken by the British and Dutch haseen something of a backlash. It may be that Iceland has benefitedrom its invocation of the hypothetical imperative, but an expla-ation along these lines would beg the question of why one partyay have acted strategically while the other did not. This is not a

atisfactory explanation of the divergence between the two in theirthical frameworks.

An alternative explanation might be based on the comparativeosition of each party in terms of how they relate to each other

n losses (Tversky and Kahneman, 1981). The British and the Dutchre in positions of loss—their citizens lost savings and they paid theosts of the bailout. However, their position of loss is not directly

ied to the government or people of Iceland. Their losses are indi-ectly related to the nation of Iceland, but are actually more directlyelated to the collapsed banks themselves. It was actions by theanks that caused the British and Dutch losses, not actions taken

nomics 41 (2012) 843– 848 847

by the state or the citizens at large. In contrast, the losses thathave been faced by Iceland in this conflict (separate from thosesuffered from the banking collapse itself) are more directly tied tothe United Kingdom and the Netherlands. The freezing of assets,the use of anti-terror laws and the demands for repayment comedirectly from the British and Dutch states.

From this standpoint, the United Kingdom and the Netherlandscannot make their claims directly to the parties whom they believecaused them harm (the banks themselves). In contrast, Iceland canmake its claims directly to the parties they believe caused themharm (the United Kingdom and the Netherlands). This availabilityallowed Iceland to invoke ethics in the form of the hypotheticalimperative—negotiation of consequences and outcomes requiresboth parties to be available. Relying on the hypothetical impera-tive and framing the ethical debate in terms of outcomes allowedIceland to bring the conversation back to homo economicus andthe consequences of repaying such a large debt.

Because the British and Dutch could not make direct claims in asimilar way, they were forced to take a more general stance on theprinciple of debt repayment: the moral obligation and the duty torepay debts. Because the United Kingdom and the Netherlands wererestrained by the disappearance of their (perceived) transgressors,their moral stance was forced into a universal duty rather than aparticular duty, thus it became a categorical imperative.

7. Conclusion

This type of moral disagreement may continue to pose a chal-lenge for the international political economy. Behavior within theinternational political economy might not always be best describedin terms of homo economicus. Nor is international political econ-omy always a simple intersection of politics and economics. Rather,the social and moral aspects that come with common human expe-riences within a global economy will need to be taken directly intoaccount.

The analysis offered in this paper aims to contribute the effortsto understand how ethics plays a role in the international politi-cal economy. By looking closely at the Icelandic banking crisis andthe ensuing conflict, it can be seen that ethics does not alwayssit comfortably within models of economic behavior. The anal-ysis highlights the path that led the United Kingdom and theNetherlands to a moral argument based on a categorical imperativeand the path that led Iceland to invoke a hypothetical imperative.Better understanding of these paths is crucial, though a reconcil-iation of the two remains to be found. Further work on how theimperatives of homo economicus, Kant’s categorical imperativeand the hypothetical imperative might both conflict and accom-modate each other would be valuable.

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