In December, reports surfaced that Treasury Secretary Henry Paulson pushed his Wall Street bailout package by suggesting that, without it, civil unrest in the United States might grow so dangerous that martial law would have to be declared. Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), warned of the same risk of riots, wherever the global economy was hurting. What really worried them wasn't, I suspect, the possibility of a lot of people thronging the streets with demands for social and political change, but that some of those demands might actually be achieved. Take the example of Iceland, the first -- but surely not the last -- country to go bankrupt in the current global crash.

While the United States was inaugurating its first African-American president, Icelanders were besieging their parliament. Youtube video of the scene -- drummers pounding out a tribal beat, the flare and boom of teargas canisters, scores of helmeted police behind transparent plastic shields, a bonfire in front of the stone building that resembles a country house more than a seat of government -- was dramatic, particularly the figures silhouetted against a blaze whose hot light flickered on the gray walls during much of the eighteen-hour-long midwinter night. People beat pots and pans in what was dubbed the Saucepan Revolution. Five days later, the government, dominated by the neo-liberal Independent Party, collapsed, as many Icelanders had hoped and demanded it would since the country's economy suddenly melted down in October.

The interim government, built from a coalition of the Left-Green Party and the Social Democrats, is at least as different from the old one as the Obama administration is from the Bush administration. The latest prime minister, Jóhanna Sigurdardóttir, broke new ground in the midst of the crisis: she is now the world's first out lesbian head of state. In power only until elections on April 25th, this caretaker government takes on the formidable task of stabilizing and steering a country that has the dubious honour of being the first to drop in the current global meltdown. Last week, Sigurdardóttir said that the new government would try to change the constitution to "enshrine national ownership of the country's natural resources" and to "open a new chapter in public participation in shaping the structure of government," a 180-degree turn from the neo-liberal policies of Iceland's fallen masters.

Iceland is now a country whose currency, the króna, has collapsed, whose debt incurred by banks deregulated in the mid-1990s is 10 times larger than the country's gross domestic product, and whose people have lost most of their savings and face debts and mortgages that can't be paid off. Meanwhile, inflation and unemployment are skyrocketing, and potential solutions to the crisis only pose new problems.

The present government may differ from the old, but not as much as the Icelandic people differ from their pre-October selves. They are now furious and engaged, where they were once acquiescent and uninvolved.

Before the crash, Ólafur Ragnar Grímsson, the figurehead president of Iceland, liked to compare his tiny society -- the island nation has 320,000 people -- to Athens. One of my Icelandic friends jokes darkly that, yes, it's Athens, but not in the age of Socrates and Sophocles; it's Athens now in the age of anti-governmental insurrection. The Iceland of last summer -- I was there for nearly three months -- seemed socially poor but materially rich; the Iceland I read and hear about now seems to be socially rich at last, but terrifying poor materially.

Iceland is a harsh, beautiful rock dangling like a jewel on a pendant from the Arctic Circle. Bereft of mineral resources, too far north for much in the way of agriculture, it had some fish, some sheep, and of late some geo-thermal and hydropower energy and a few small industries, along with a highly literate human population whose fierceness was apparently only temporarily dormant during the brief era of borrowing to spend. The people I've talked to since are exultant to have reclaimed their country and a little terrified about the stark poverty facing them.

After going hat in hand for bailout funds to Washington, the Bank of England, and the European Central Bank, Iceland turned to Russia and, reluctantly, to the global lender of last resort, the International Monetary Fund, that temple of privatization and globalization. Usually along with money, the IMF imposes its own notions of what makes an economy work -- as it did in Argentina until that country's economy collapsed eight years ago, leading to an extraordinary rebirth of civil society and social upheaval. In Iceland, the process was reversed: first upheaval, then the IMF. Now, you have an insurrectionary public and a new incursion of the forces of neo-liberalism that helped topple the country in the first place.

As economic hard times have spread, so have a spate of protests and insurgencies across Europe -- of which Iceland's has only been the most effective so far -- suggesting that a new era of popular power in the streets may be arriving. Iceland's upheaval poses the question of what the collapse of capitalism will bring the rest of us. Last fall, major financial newspapers were already headlining "the end of American capitalism as we knew it," "capitalism in convulsion," "the collapse of finance" and "capitalism at bay." The implication: that something as sweeping as the "collapse of communism" 19 years earlier had taken place.

Since then, the media and others seem to have forgotten that the body in question was declared terminally ill and have focused instead on how to provide very expensive first aid for it. This avoids the question of what the alternatives might be, which this time around are not anything as one-size-fits-all and doctrinaire as old-school socialism, but a host of existing localized, grassroots, and mostly small-scale modes of making goods, providing services, and serving communities -- and remaining accountable.

Sod Houses to Private Jets and Beyond

Iceland is a strange country, as I found out. Situated on the volcanically and seismically active seam between the North American and European tectonic plates, the place seems to belong to both continents, and neither. Usually regarded as part of Scandinavia, it was controlled by Norway, and then Denmark, from the collapse of its proudly independent parliamentary system in the thirteenth century to 1944. That year, while Denmark was occupied by the Nazis, it officially became an independent republic.

But the United States military had arrived three years earlier and would stay on another 62 years, until 2006, at its huge air base in Keflavik. Before the collapse last fall, some of the biggest protests in the republic's history were about the occupying army, which broadcast its own television shows and brought a host of Americanizations and some prosperity to the island. More recently, Iceland became a place of wild neo-liberal ambitions and Scandinavian welfare-state underpinnings. Ordinary people worked too many hours, like Americans, and took on too much debt to buy big cars, new condos, and suburban houses.

Poverty was not very far behind just about everyone in Iceland: person after person told me that his or her grandparents or parents had lived in a sod house, built out of the most available material in a country with scarce small trees, and that they themselves or their parents had worked in the fish-processing factories. The country's best-known artist showed me, with a deft flick of his wrist, how his grandmother could fillet a cod "like that," and added that most of the island's fish was processed offshore now. Until recently Reykjavik, the capital, was just a small town, and Iceland a rural society of coastal farms and fishermen.

The boom in this once fairly egalitarian nation created a new class of the super-wealthy whose private jets landed in the airport in downtown Reykjavik and whose yachts, mansions, and other excesses sometimes made the news, as did charges of corruption in business and in the government that countenanced that business. It wasn't corruption, however, that did in the Icelandic economy. It was government-led recklessness and deregulation. I had expected to find that, in such a small country, democracy would work beautifully, that the people would be able to hold their government accountable, and that its workings would be transparent. None of those things were faintly true, as I noted in a cheerless pre-collapse report I wrote for Harper's Magazine on "Iceland's Polite Dystopia."

A lot of people muttered then, in hapless dismay, about what the government was doing -- notably destroying the country's extraordinary wilderness to create hydropower to run the energy-intensive aluminum smelters of transnational corporations. A small group of dedicated people protested, but their sparks never seemed to catch public fire or do much to slow down the destruction. Icelanders generally seemed to tolerate privatizations and giveaways of everything from their medical histories and DNA to their fishing industry and wilderness, and a host of subsidiary indignities that went with this process.

Take, for example, the transnational retail empire of the Baugur Group ([now] essentially bankrupt and owing Icelandic banks about two billion dollars), run by father and son team Jón Ásgeir Jóhannesson and Jóhannes Jónsson. Their Bónus stores, with a distinctive hot-pink piggybank logo, had managed to create a near-monopoly on supermarkets in Iceland. They provided cheap avocados from South Africa and mangos from Brazil, but they'd apparently decided that selling fresh fish was impractical; so, in the fishing capital of the Atlantic, most people outside the centre of the capital had no choice but to eat frozen fish.

Icelanders also ate a lot of American-style arguments in favour of deregulation and privatization, or looked the other way while their leaders did. Kolbrún Halldórsdóttir, then an opposition Left-Green parliamentarian, now Minister of the Environment in the new government, didn't. She told me last summer, "The nation was not asked if the nation wanted to privatize the banks." They were not asked, but they did not ask enough either.

Fortune magazine blamed one man, David Oddsson, prime minister from 1991 to 2004, for much of this privatization. "It was Oddsson who engineered Iceland's biggest move since [joining] NATO: its 1994 membership in a free-trade zone called the European Economic Area. Oddsson then put in place a comprehensive economic-transformation programme that included tax cuts, large-scale privatization, and a big leap into international finance. He deregulated the state-dominated banking sector in the mid-1990s, and in 2001 he changed currency policy to allow the króna to float freely rather than have it fixed against a basket of currencies including the dollar. In 2002 he privatized the banks."

In 2004, he was replaced as Prime Minister, but in 2005 he took over the Central Bank. By the mid-1990s Iceland had, through dicey financing and lots of debt, launched itself on a journey to become one of the world's most affluent societies. Fortune continues: "But the principal fuel for Iceland's boom was finance and, above all, leverage. The country became a giant hedge fund, and once-restrained Icelandic households amassed debts exceeding 220% of disposable income -- almost twice the proportion of American consumers."

Throwing Eggs at the Bank

The first of the hedge-fund-cum-nation's three main banks, Glitnir, collapsed on September 29, 2008. A week later, the value of the króna fell by nearly a third. Landsbanki and Kaupthing, the other two banking giants, collapsed later that week. Britain snarled when Landsbanki froze the massive Internet savings accounts of British citizens and turned to anti-terrorism laws to seize the Icelandic bank's assets, incidentally reclassifying the island as a terrorist nation and pushing its economy into a faster tailspin.

Not so surprisingly, Icelanders began to get angry -- at Britain, but even more at their own government. The crashing country, however, developed one growth industry: bodyguards for politicians in a country where every pop star and prime minister had once roamed freely in public. An Icelandic friend wrote me, "Eggs were being thrown at the Central Bank. Such emotional protests have not been seen since the early part of the twentieth century, although then people were too poor to throw eggs." Soon eggs were also being heaved at Prime Minister Geir Haarde, whose policies were an extension of Oddsson's.

A dormant civil society erupted into weekly protests that didn't stop even when the government collapsed, since Icelanders were also demanding that the board of governors at the central bank be suspended. One of Prime Minister Jóhanna Sigurdardóttir's first acts was to ask for their resignations. So far they have not cooperated.

Andri Snaer Magnason, whose scathingly funny critique of his country's politics and society, Dreamland: A Self-Help Guide for a Frightened Nation, was a huge bestseller in this bookish country a few years back, told me this week:
"In economics, they talk about the invisible hand that regulates the market. In Iceland, the free market became so wild that it was not fixed by an invisible hand, but an invisible guillotine. So, in one weekend, the whole class of our newly rich masters of the universe lost their heads (reputation, power, and money), and all the power and debt of the newly privatized companies fell into the hands of the people again.

"So we have a very uncertain feeling about the future. At the same time, there is power in all the political debate and lots of political and social energy -- endless [political] parties popping up, Facebook groups, cells and idealists, and possibly a new constitution (not that we have read the old one), and people are speaking up. So, economic fear, political courage, shaking economy, and search for new values -- we need profound change… Now, businesspeople are losing their jobs, and they are scratching their heads and thinking that maybe politics do affect one's life. We need less professional politics and more participation of the people. I hope people will not give up now just because one government fell."

The economic fate of Iceland is uncertain and troubling. One friend there tells me that the already bankrupted banks may go bankrupt again, because their debt is so colossal. The billions in new loans from abroad are terrifying large for a country whose population is a thousandth the size of ours, and the Icelandic currency, the króna, is probably doomed.

The obvious solution is for Iceland to join the European Union (EU), and the April elections include a referendum on that question. Doing so, however, would involve letting the EU manage the country's fishing waters, its traditional and genuine source of wealth. That, in turn, would presumably open those waters up to all European fishermen and to a bureaucracy whose interests and ability to manage Icelandic fisheries is dubious. Iceland fought the Cod Wars with England in the 1970s to protect just those waters from outside fishing, and even in the years when everyone seemed focused on technology and finance, fish still accounted for about 40% of the country's exports.

Argentina and Iceland

A recent headline in the British Guardian read: "Governments across Europe tremble as angry people take to the streets." From the perspective of those governments, a fully engaged citizenry is a terrifying prospect. From my perspective, it's what disasters often bring on, and it's civil society at its best. I'm hoping Iceland's going the way of Argentina.

In mid-December 2001, the Argentinean economy collapsed. In its day, Argentina had been the poster child for neo-liberalism, with its privatized economy guided by International Monetary Fund policy. The economy's managers, foreign and domestic, were proud of what they'd done, until it turned out that it didn't work. Then, the government tried to freeze its citizens' bank accounts to keep them from turning their plummeting pesos into foreign currency and breaking the banks.

The poor had already been politically engaged, and the unions had called a one-day general strike (just as French unions last week called more than one million people into the streets to protest job losses in the latest economic crisis). When the banks were frozen, however, middle-class Argentineans woke up broke -- and angry.

On December 19th, 20th and 21st of 2001, they took to the streets of Buenos Aires in record numbers, banging pots and pans and shouting "all of them out." In the next few weeks, they forced a series of governments to collapse. For many people, those insurrectionary days were not just a revolt against the disaster that unfettered capitalism had brought them, but the time when they recovered from the years of silence and withdrawal imposed on the country in the 1980s by a military dictatorship via terror and torture.

After the crash of 2001, Argentineans found their voice, found each other, found a new sense of power and possibility, and began to engage in political experiments so new they required a new vocabulary. One of the most important of these experiments would be neighbourhood assemblies throughout Buenos Aires, which provided for some of the practical needs of a now-cashless community, and also became lively forums where strangers became compañeros.

Such incandescent moments when people find their voices and power as part of civil society are epiphanies, not solutions, but Argentina was never the same country again, even after its economy recovered. Like much of the rest of Latin America in this decade, it swung left in its political leadership, but far more important, Argentineans developed social alternatives and found a new boldness that had previously been lacking. Some of what arose from the crisis, including workplaces taken over by workers and run as collectives, still exists.

Argentina is big in land, resources, and population with a very different culture and history than Iceland. Where Iceland goes from here is hard to foresee. But as Icelandic writer Haukar Már Helgason put it in the London Review of Books last November:
"There is an enormous sense of relief. After a claustrophobic decade, anger and resentment are possible again. It's official: capitalism is monstrous. Try talking about the benefits of free markets and you will be treated like someone promoting the benefits of rape. Honest resentment opens a space for the hope that one day language might regain some of its critical capacity, that it could even begin to describe social realities again."

The big question may be whether the rest of us, in our own potential Argentinas and Icelands, picking up the cheque for decades of recklessness by the captains of industry, will be resentful enough and hopeful enough to say that unfettered capitalism has been monstrous, not just when it failed, but when it succeeded. Let's hope that we're imaginative enough to concoct real alternatives. Iceland has no choice but to lead the way.

Rebecca Solnit is a contributing editor to Harper's Magazine. Her book on disaster and civil society, A Paradise Built in Hell, will be out later this year.
Copyright 2009 Rebecca Solnit; courtesy TomDispatch.com

[http://www.tomdispatch.com/post/175031/rebecca_solnit_a_new_era_of_people_power_in_the_streets_]