Building a Stronger Economy: The Role of Technology in Iceland

This is the eighth piece in a series on Iceland’s economy and the case against trading away monetary sovereignty. The previous piece showed where Iceland’s self-made inflation actually goes — it lands on competitiveness, squeezing the margins of every company that sells to the world, and making Europe look deceptively cheap. This piece is the answer to that squeeze: what Iceland should build instead, why technology is the one engine that can fight it, and why that engine only runs if the country keeps control of its own instruments.

Every argument I have made so far has been, in a sense, about a leak — inflation that no one absorbs, a cost of capital no currency change can touch, competitiveness quietly bleeding out through prices that the internet has made globally visible. This piece is about the pump that runs the other way. There is exactly one force in a modern economy that pushes structurally against the inflation flywheel rather than relaying it, and Iceland has more of it than almost any comparable nation is using. That force is technology, and the companies that embody it. The affirmative case for Iceland is not “endure the structural problems.” It is “build the deflationary engine faster, and keep it here.”

Why technology is deflationary — and where it is not

Start with the mechanism, because the claim is precise and it is easy to overstate. Technology is deflationary in a specific way: it drives the marginal cost of production toward zero. Software written once serves a million customers; a biotech platform proven once treats patients in twenty countries; automation turns a rising wage bill into a falling unit cost. A technology company carries, in its margins, a buffer — the gap between what a product costs to make and what it sells for — that a commodity business or a domestic service business does not have. Recall the squeeze from the previous piece: the exporter whose indexed cost base rose 5% a year against a globally-fixed price watched its margin fall from 20% to negative in five years. A technology firm starts that same race with a far larger margin — 60%, 80%, sometimes more — so the same indexation that bankrupts a low-margin business in five years merely dents a high-margin one. That buffer is what lets a technology firm absorb the input-price pressure, currency swings, and structural inflation that break the businesses around it. It can eat the cost the rest of the economy is busy passing along — which is exactly why, in an economy built to relay inflation onto competitiveness, the high-margin technology sector is the one part that can take the hit and keep selling to the world.

Now the honest boundary, because a careful reader will test it. Technology is deflationary in the traded, scalable sectors — the ones that sell globally and produce at near-zero marginal cost. It does not directly lower the price of a Reykjavík apartment, a litre of milk, or a haircut, and those domestic, non-traded items are the heaviest weights in Iceland’s inflation basket. So I am not claiming that building more software companies will, by itself, bring down the CPI. That would be the overclaim, and it is false. The claim is different and, I think, more important: technology builds the competitive export sector that can thrive despite the domestic inflation, and over time it shifts the economy’s centre of gravity toward the part of the economy that generates value faster than the flywheel can tax it. The structural reforms of the earlier pieces fix the domestic machine. Technology builds the engine that makes the whole thing worth fixing. They are two different jobs, and Iceland needs both.

The proof that it works: companies that punched above the country’s weight

This is not a theory imported from a textbook. Iceland has been running the experiment for four decades, and the results are extraordinary for a nation of under 400,000 people.

Kerecis, founded in the Westfjords town of Ísafjörður — not even in the capital — took a by-product of the cod industry, fish skin, and built it into a wound-care technology used in more than twenty countries. In 2023 it became Iceland’s first unicorn, acquired by Coloplast for USD 1.3 billion. The detail that matters most for this argument: the company kept its headquarters and operations in Ísafjörður, employs 150 people there against 700 globally, and the intellectual-property transaction that followed generated roughly 40 billion krónur in tax — enough, on its own, to turn a projected government deficit into a surplus. One deep-technology company, born from a fish, materially moved the national budget. That is what a margin buffer looks like at national scale.

Kerecis did not appear from nowhere. Its founder learned medical technology at Össur, the prosthetics company founded in 1971 that grew into a global leader with roughly a billion dollars in revenue. Össur in turn shares a lineage with Marel, which began as a University of Iceland research project in the late 1970s and became a food-processing-technology company with revenues around 1.7 billion euros and some 7,500 employees across thirty countries. CCP Games, founded in Reykjavík in 1997, built EVE Online — a science-fiction universe with a player-run economy so sophisticated the company later hired a former Central Bank of Iceland economist to help design its in-game monetary policy. (An Icelandic video-game studio recruiting a central banker to manage virtual inflation is the kind of detail you could not invent; Icelanders understand monetary mechanics from the inside.) And the current generation is already here: Alvotech in biosimilars, Controlant in supply-chain monitoring, Oculis in ophthalmology, Guide to Iceland in travel technology, Indó in banking — companies still independent and still headquartered in Iceland.

Set beside these the traded sectors that have always understood the point instinctively: the seafood companies and the travel companies, which sell globally and have, for decades, used the flexibility of the króna to stay competitive through every cycle. The pattern across all of it is one thing — Iceland is astonishingly good at building globally competitive companies from a tiny base. The talent, the institutions, the appetite are all present and proven. The question this series keeps returning to is why the country makes it harder for itself than it needs to.

Why the leaders leave — and what it actually tells us

Look carefully at that roll of honour and you notice something uncomfortable. Marel was acquired by the American firm JBT and delisted from the Icelandic exchange in early 2025. Össur rebranded as Embla Medical and has been listed in Copenhagen, not Reykjavík, since 2009. CCP was bought by Korea’s Pearl Abyss in 2018. The biggest Icelandic technology champions have a habit of ending up foreign-owned or foreign-listed.

The easy reading — the one the euro’s advocates will offer — is that this proves Icelandic companies inevitably outgrow the króna and must leave to reach real capital markets, so Iceland should just join the deepest market it can. I think that reading is wrong, and getting it right matters.

Companies get acquired for many reasons, and I am not going to pretend the currency explains any single deal. JBT made Marel a strategic offer; Össur’s shareholder base and sector consolidation drove its path; CCP reached for capital and scale in gaming that no domestic source was going to provide. These were rational decisions with many drivers. But underneath the specific deals there is a pattern, and the pattern is partly structural: when an Icelandic company outgrows the domestic ecosystem, one of the reasons it lists abroad or sells is that the deep pool of capital it needs to stay independent simply does not exist at home. A billion-dollar company needs a deep equity market, a broad institutional shareholder base, and a low cost of capital to remain independent and headquartered where it was born. Iceland, for all the reasons this series has laid out — the pension pool that crowds the market, the three-bank concentration, the high real cost of capital, the shallow domestic exchange — offers none of those at the scale a global champion requires.

So the leaders do not leave because the currency failed them. They leave, in part, because the country never built the capital depth that would let them stay by choice. That is not a law of nature. It is a policy failure, sustained over decades, and it is fixable. Every Marel that delists and every Össur that lists in Copenhagen is, read correctly, a receipt for structural under-investment in Iceland’s own capital markets — not evidence that Icelandic companies must emigrate to succeed.

And here is why this strengthens the case for domestic reform rather than the case for the euro. There are three ways to give a maturing champion the capital depth it needs. The first is to surrender your monetary and fiscal sovereignty and join someone else’s market — the euro route — which solves the depth problem by dissolving the very thing that made the company Icelandic; the champion becomes a branch office of a continental economy. The second is the do-nothing status quo: let them leave, and treat it as fate. The third is to build the depth at home — free the pension capital to deepen domestic markets, break the banking concentration, lower the cost of capital, create the non-bank financing channels a scaling company needs. All three routes concede that scale requires deep capital. Only the third keeps the companies Icelandic and keeps the levers in Icelandic hands. Kerecis is the proof the third route works: even when the exit went to a foreign buyer, a company rooted in genuine Icelandic innovation kept its headquarters, its jobs, and — through tax — an enormous share of the value onshore. The goal is not to prevent every acquisition. It is to make the domestic ecosystem a real option in the room when a founder decides, instead of an absence that makes leaving the default.

The currency, correctly understood

I have argued across this series that the króna’s day-to-day value is second-order — that founders and investors who back real ideas do not price the denomination, and that the country’s real problems are structural. That remains true, and it is worth reconciling with what I am about to say, because the two are easily confused.

The króna’s level is not a competitiveness strategy. I am not making the argument that Iceland should hold a weak currency to subsidise its exporters — that is the path that earns tariffs and currency-manipulator complaints, and in a moment I will explain why that path is especially dangerous now. The point is different: the króna’s control is the asset. A sovereign currency and an independent central bank are the instruments a small economy uses to absorb a shock on its own terms and its own timetable, rather than waiting on a policy set for a continent that does not share its cycle. China has shown, at the largest scale, that a currency is a genuine economic instrument of national strategy — not a template for a small rule-of-law democracy to copy, but proof that the lever is real and powerful. For Iceland the lever’s value is not in manipulating a price. It is in retaining the capacity to respond when the world does something no model predicted — which, increasingly, is the only kind of thing the world does.

Standing and fighting in the new world order

Which brings us to the moment we are actually in. The international trading order that made deep integration look costless is being rewritten in real time, and it is being rewritten through tariffs — the United States setting terms, others responding, and small open economies discovering that their access to markets is now a variable other powers adjust for their own reasons. Iceland has already felt an edge of this in the disputes over export tariffs affecting its own producers. This is not a stable world into which one safely dissolves one’s instruments. It is a world of exactly the idiosyncratic, unforecastable shocks that a small nation needs its own tools to meet.

The answer to a more hostile trading environment is not to hide, and it is not to surrender the levers in the hope that a larger bloc will shelter you. A small country cannot out-wait a tariff war or a supply-chain weaponisation; it has to be able to respond — to adjust its exchange rate, set its own monetary policy, shape its own rules of engagement for the industries it is trying to build. You cannot stand and fight without the tools, and you cannot fight with tools that are administered from Frankfurt and Brussels on a timetable and for a purpose that is not yours. The case for keeping monetary and fiscal sovereignty is strongest precisely when the world is least predictable — and the world has rarely been less predictable than now.

I want to be fair to the strongest objection, because it is a real one. Estonia, Ireland, and Finland built world-class technology and export sectors inside the EU and the euro; sovereignty did not build their success and integration did not prevent it. That is true, and it should be conceded plainly. But their shocks correlate with the continental cycle in a way Iceland’s — driven by fish, aluminium, tourism, and geothermal energy — simply do not, so the euro fits their economies and misfits Iceland’s. And Ireland in particular paid for euro membership with one of the deepest internal-devaluation adjustments any developed economy endured after 2008 — the same austerity-and-emigration cost this series has warned is what happens to a country that loses the exchange rate as a shock absorber. Those countries succeeded; the model does not transfer to an economy shaped like Iceland’s.

Build it here

Put the whole argument together and it resolves into a single sentence: the answer to Iceland’s problems is to build world-changing companies from Iceland, and that requires both the structural reforms to make the domestic ecosystem deep enough to keep them, and the retained sovereignty to steer through a world that no longer rewards the passive.

Technology is the deflationary engine — the one force that generates value faster than the flywheel can tax it, and the sector where a small nation’s ingenuity scales without limit. Iceland has proven, again and again and far above its weight, that it can build these companies. What it has not done is build the ecosystem that lets them stay, mature, and compound their value at home — and that failure, not the currency, is why the champions so often leave. The reforms this series has argued for are what change that: a lower cost of capital, deeper markets, an end to the indexation that anaesthetises the economy, and the monetary and fiscal sovereignty to respond when the world turns. None of it can be outsourced. The institutions and the rules of engagement have to be local, because only local institutions will write rules conducive to the specific, idiosyncratic, world-changing companies Iceland is uniquely capable of building.

This cannot happen in a vacuum, and it cannot happen from Brussels. It happens the way Kerecis happened, and Össur, and Marel, and CCP, and the ones still to come — from within, by Icelanders who decided to build something the world had never seen, on a volcanic rock in the North Atlantic, with the tools of their own economy in their own hands. Keep the tools. Build the depth. And build it here.

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Sources and notes

• Deflationary technology. The argument that technology drives marginal cost toward zero and that high-margin traded sectors can absorb price pressure that low-margin domestic sectors cannot is developed from the author’s earlier writing on multiplicative growth and human leverage (Startup Iceland). The boundary — that technology does not directly lower non-traded domestic CPI components such as housing — is stated in the text as a limit on the claim.
• Kerecis. Acquired by Coloplast for up to USD 1.3 billion (2023), Iceland’s first unicorn; headquarters and operations remain in Ísafjörður; ~700 employees globally, ~150 in Iceland, sales in 20+ countries; an IP transfer to the parent generated an estimated ~40 billion ISK in Icelandic tax, reported as turning a projected government deficit into a surplus (Grapevine, ArcticToday, SeafoodSource, MedTech Dive, 2023–2026). Founder Guðmundur Fertram Sigurjónsson began his medtech career at Össur.
• Marel. Founded 1983 from a University of Iceland project; ~€1.7bn revenue, ~7,500 employees across ~30 countries; acquired by US-based JBT Corporation and delisted from Nasdaq Iceland in January 2025, now JBT Marel (Wikipedia, stockanalysis.com, economicactivity.org, 2025).
• Össur / Embla Medical. Founded 1971; global prosthetics and orthopaedics leader; ~USD 0.7–1.0bn revenue; IPO on the Iceland Stock Exchange 1999, listed on Nasdaq Copenhagen since 2009; rebranded Embla Medical in April 2024 (Wikipedia, Nasdaq, economicactivity.org).
• CCP Games. Founded Reykjavík 1997; developer of EVE Online; acquired by Korea’s Pearl Abyss in 2018; hired a former Central Bank of Iceland economist to help design in-game monetary policy for EVE Frontier (PC Gamer, 2025; Wikipedia). Recently renamed Fenris Creations.
• Still independent and Iceland-headquartered: Alvotech (biosimilars), Controlant (supply-chain monitoring), Oculis (ophthalmology), Guide to Iceland (travel technology), Indó (banking) — among others.
• Trade structure. Iceland’s service exports reached ~USD 7.2bn in 2023 against ~USD 4.8bn in service imports, driven by tourism, transport, and increasingly technology and financial services (Embassy of Iceland trade overview, 2026).
• Caveats. The claim that shallow domestic capital markets contribute to Icelandic champions listing abroad or being acquired is stated as one factor among several (strategic acquirer interest, sector consolidation, founder and shareholder liquidity), not as a monocausal or counterfactual claim about any specific transaction. The comparison with Estonia, Ireland, and Finland is addressed directly as the strongest counterargument. Company figures move over time and should be verified against current filings before republication.