Predicting renewed growth, the Faroe Islanders are finding untapped competitive advantage in their distinctive community, telecommunications infrastructure and international business connections.
Before David Ricardo first enunciated his theory on comparative advantage in 1817, the Faroese had long been busy specializing in woollen socks for the Danish military; after all, Faroese sheep were abundant and exquisitely competent knitters were available (and still are). The saying, of course, soon sprang up that “Faroese wool is Faroese gold”. Would that all those warm socks were exchanged for gold in those days, but that is another story.
When the trade monopoly ended in 1856, the Faroese quickly sought out another comparative advantage and turned to yet another abundant resource—the fisheries surrounding the Faroe Islands. Outfitted with two-masted schooners and indomitable courage, Faroese fishermen soon became very adept at harvesting this new Faroese gold (and still are). The Faroese fishing fleet is formidable and is spread around the globe.
Closer to home, sea farms began to spring up in the fjords and sounds of the Faroes in the 1980s. Aquaculture became a new source of gold, as prices for farmed salmon soared and world production kept pace with increasing demand. Not to be outdone, the Faroese took steps to enhance their comparative advantage by expanding local production in a variety of ways.
Maintaining comparative advantage, however, is tricky business. The Faroese were not alone in strengthening their position as a leading producer of farmed salmon and comparative advantage became elusive. Overproduction worldwide, plummeting prices and even disease provided a strong dose of economic reality. Well-managed sea farms, backed by reorganized debt facilities, however, survived. At the same time as the aquaculture business in the Faroes was adjusting to worldwide economic reality, the Faroese fishing fleet faced its own challenges. Because more than 95 percent of the registered export of goods is fish and fish-related products, the Faroese economy is extremely vulnerable to the quixotic nature of this world encompassing industry. Diminished catches and price deflation have time and again compromised a thriving Faroese economy.
Miniature world: Over the years, the economic swings have sometimes been dramatic. During some periods, the Faroese exchequer is flush with revenue. At other times, surpluses spiral into deep deficits. When to spend and when to save are economic conundrums faced by all trading nations. “Historically, the Faroese Parliament has been pro-cyclical in dispensing its tax revenues,” observes Zvonko Mrdalo, a senior researcher with Statistics Faroe Islands, the national statistics administration. “Any government that is pro-cyclical in the upswing will be forced to be pro-cyclical in the downswing,” he adds. Available statistical data in the Faroes conforms to this economic truism advanced by Mr Mrdalo. During economic downturns, the Faroese Government would retract spending on infrastructure and R&D and during boom times, which generated large budget and current account surpluses, the government would launch significant projects and infuse its various business investment funds with new allocations.
To mitigate the effects of these economic swings, business leaders and economists have long championed the privatisation of government-owned enterprises with concomitant investment in education and R&D. Given the pro-cyclical nature of government planning, to be most effective the sale of these assets should occur at the height of a market upswing not during depressed times, like the one currently facing the Faroese economy. “At a time when the exchequer has a surplus of revenue from profitable commercial initiatives and high employment, proceeds from privatisation sales could be allocated to R&D, public investment or external debt repayments,” Mr Mrdalo says. “Furthermore, to make financial resources available by privatisation, generates additional dynamics within the Faroese economy that could well cushion any subsequent downswing.”
Aside from privatisation, which seems to be marching to its own drumbeat, another very effective way to mitigate economic fluctuations and establish comparative advantage is to seek out and develop previously untapped competencies within the Faroese community. One such competency that has gone unappreciated for years until now is the very distinctiveness of the Faroese community itself. Although it is a tiny nation by world standards and as yet has no voice at most international fora, including the United Nations, it is a distinctive microcosm of the world’s more developed countries. What is meant by ‘microcosm’ in this sense is the fact that the Faroe Islands has all the basic political and social infrastructure of any large country, yet in miniature. It is a separate region with distinct boundaries; it has a small (under 50,000), but well-educated population; it has a parliament of at most 32 members, a separate executive and judicial system, a viable and usually thriving business community; it has a liberal share of world-recognized artists, musicians and authors; it has a competent public works administration and an excellent transport infrastructure; it has a multitude of schools, a university, a national symphony, orchestras, bands of all flavours, choral groups, service clubs and organizations.
Safety by hi-tech: A recent study commissioned by Faroese business leaders revealed that major international companies viewed the advanced telecommunications infrastructure enjoyed by the Faroe Islands, in combination with its distinctiveness as a microcosm of the world at large, as advantageous for information and communications technology (ICT) innovation and showcasing. The study launched the creation of a new, privately held business development entity in the Faroes—Bitland Enterprise, which has gained the support of the Faroese business community as well as the Faroese Government.
The Faroese economy now stands at the cusp of a new era of unprecedented growth and development, as it seeks out once again a new area of comparative advantage, based on the very distinctiveness of the Faroese community and its technically advanced telecommunications infrastructure. Ólavur Gregersen, executive director of Bitland Enterprise, is full of enthusiasm for the new initiative, noting: “It is anticipated that increased collaboration in a variety of areas with international ICT companies will foster greater economic growth, greater competitiveness, greater creative imagination and greater innovation in the Faroes. All this activity would encourage and stimulate a more self-reliant economy that will, in turn, contribute to the progress and well-being of Faroese society as a whole.”
One might be prompted to view such hopefulness as mere publicity hype—that is, if it were not supported by reality.
The Bitland Enterprise promotional theme is ‘reality-tested in the Faroes’ and by all accounts there is major ‘reality-testing’ underway. For example, fish traceability initiatives are being explored. This combines ICT competencies in a number of innovative ways to enable the tracking of fish literally from the place where they are caught to the family dinner table. EU and other international legislation will soon go into effect requiring this comprehensive tracking of fish products and the Faroes may well play a role in ‘reality-testing’ the technology required.
Another area is safety at sea. This concept merges the Faroese competence in sailing upon the open seas with its growing ICT competence. Utilizing emerging EDGE and WiMax technologies, individuals lost overboard and wearing innovative safety gear could be quickly located and rescued. For instance, during crisis evacuations of oilrigs, individuals could be located and brought to safety. The uses are limitless, the economic potential of such innovation spectacular.
Economic advantage: These projects are yet in their infancy. One visionary project, however, has been successfully deployed and is attracting worldwide attention. Several years ago, when the municipal government of Tórshavn, the capital of the Faroe Islands, decided not to continue providing analogue TV for its citizens, Faroese Telecom, the leading telco in the Faroe Islands, determined to step in and capture the market with a newly developed technology, DTT, or digital terrestrial television. In essence, digital TV signals are sent wirelessly to set-top boxes that interpret the signal and feed it too a person’s television.
Although a number of countries and communities are experimenting with DTT, very few have successful and viable commercial deployments, except the Faroe Islands. Beyond using advanced DTT technology, what makes the Faroese Telecom initiative even more unique is their deployment of a sophisticated subscriber management system developed in collaboration with a local Faroese software company. As a consequence, the new company created by Faroese Telecom to manage the DTT service, known as Televarpið, has very few employees. At last count, there were two and that has really caught the imagination of companies around the world.
Ricardo postulated that countries would prosper if they focused on their inherent competencies to evolve a comparative advantage in world trade. Modern economic theory has moved on since 1817, as the world has become more interconnected and capital and labour shifts rapidly about the planet, yet each and every nation continues to focus on what it can do best. The Faroe Islands are restricted by geo-political reality, yet they are doing their best to tap and exploit their inherent potential in new and innovative ways. It may very well be that in the not too distant future many an advanced piece of technology will bear the stamp, ‘Reality-tested in the Faroes’ as a sign of its quality and durability. It will also serve as a testament to the foresight of a remote archipelago in the heart of the North Atlantic to seek out and develop its hitherto unrecognized and certainly under-appreciated economic comparative advantage.
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