When Path Dependence Becomes an Argument for Saying No

Smári McCarthy identifies an existing path dependence but mistakes that observation for a rebuttal to Carl Baudenbacher. It is nothing of the kind.

Baudenbacher does not claim that Iceland is choosing between “a path” and “no path” on 29 August. His argument concerns the consequences of the particular decision now before the electorate: whether to reopen accession negotiations with the European Union.

The fact that Iceland’s present relationship with the EU has developed over thirty years does not mean that reopening accession negotiations would leave the country’s institutional trajectory unchanged. Nor does it follow that all path-dependent arrangements transfer the same powers, cover the same policy areas or are equally difficult to reverse.

On the contrary, the relevant question is precisely what kind of path Icelanders wish to follow.

The EEA is not EU membership by another name

McCarthy describes the EEA as “the most path-dependent arrangement imaginable”, involving the continuous adoption of EU law, “no seat at the table, no vote” and ever-deepening institutional lock-in.

This familiar slogan is not an adequate description of how the EEA Agreement works.

The EEA is based on a two-pillar structure consisting of an EU pillar and an independent EFTA pillar. Its purpose is to maintain a common internal market without transferring legislative powers to supranational EU institutions. Decisions to incorporate new EU acts into the EEA Agreement are taken by consensus in the EEA Joint Committee. The EEA EFTA States assess whether legislation is EEA-relevant, negotiate adaptations where appropriate and invoke constitutional requirements when parliamentary approval is needed.

EU legislation therefore does not automatically become Icelandic law merely because it has been adopted in Brussels.

It is true that Iceland does not vote when the EU itself adopts legislation. That is a genuine limitation of the EEA arrangement and should not be concealed. But EEA EFTA experts participate in the preparatory stages of legislation, the EEA EFTA States may submit comments and seek adaptations, and incorporation into the EEA requires their consent.

Nor does membership provide the uncomplicated “seat at the table” suggested by the slogan. Iceland would gain representation in EU institutions, but would also become bound by decisions taken under the EU treaties, frequently by qualified majority, across a vastly wider range of policies. Agriculture, fisheries, the customs union, common trade policy, economic and monetary policy and growing areas of foreign, security and judicial cooperation lie outside the EEA Agreement but within the sphere of EU membership.

The difference is not between having influence and having none. It is between two distinct institutional arrangements, with different rights, obligations and consequences for national self-government.

The argument proves Baudenbacher’s point

McCarthy argues that the existing path may eventually become untenable and that Iceland could then face the same decision under less favourable circumstances. No evidence is offered that the EEA Agreement is in fact approaching collapse. The assertion that it “visibly frays” is simply presented as fact.

The EEA has endured for more than three decades, weathered repeated treaty changes and enlargements of the European Union and continuously incorporated new internal-market legislation. Like every international agreement, it presents political and institutional challenges. Those challenges are not proof that the agreement is ceasing to function.

More importantly, McCarthy’s reasoning demonstrates rather than refutes Baudenbacher’s account of path dependence. His argument is essentially that Iceland has already travelled so far towards the European Union that it should now take the next step.

That is exactly how path dependence operates. Earlier choices are invoked to narrow the range of choices that may reasonably be made today.

Baudenbacher’s point is that reopening negotiations would create new institutional structures, expectations and interests directed towards membership. Ministries would commit personnel and resources to the process. Businesses and organisations would begin planning around the presumed destination. EU institutions and member states would invest political capital in bringing the negotiations to a successful conclusion. The public debate would gradually shift from whether Iceland should join to the conditions under which it should do so.

A second referendum would remain formally available. But the existence of a later vote does not remove the path-dependent effects created before that vote takes place. That is the very distinction Baudenbacher asks Icelanders to consider.

Prosperity is not a sequence of windfalls

McCarthy also portrays Icelandic prosperity as a succession of fortunate accidents: the Marshall Plan, herring, aluminium, banking and tourism. This is a remarkably reductive account of Iceland’s economic history.

Natural resources do not automatically create prosperity. Nor do access to markets, energy resources or new industries. Prosperity depends on human capital, institutions, investment, entrepreneurship, trade relations and the ability to adapt when circumstances change.

Banking, moreover, is a particularly strange example of a “windfall”, given the enormous economic collapse that followed the expansion of the financial sector.

A decision to retain the EEA Agreement, control over fisheries and agriculture, an independent trade policy and the constitutional protections of the two-pillar structure is not a refusal to make choices. It is itself a choice between institutional alternatives.

NATO membership and the transatlantic security relationship are also not relics of 1994 that can simply be replaced by EU membership. European security remains overwhelmingly dependent on NATO, and most EU member states themselves rely on that alliance.

Expertise is not a conflict of interest

The weakest part of McCarthy’s article is his suggestion that Baudenbacher may be motivated by some unidentified Swiss interest in keeping Iceland outside the EU.

No evidence is offered for this insinuation. It is a substitute for answering the argument.

Baudenbacher served as President of the EFTA Court for fourteen years and has spent much of his professional life studying the institutional relationship between the EU and the EFTA States. That experience does not disqualify him from contributing to the Icelandic debate. It is precisely why his analysis deserves to be addressed seriously.

His warning about the EU’s institutional and communications machinery is likewise not answered by calling it “laughable”. Accession negotiations inevitably mobilise officials, experts, funding, political contacts and communications resources on the EU side. Recognising the resulting imbalance is not an argument against democratic inquiry or access to information. It is an argument for understanding how institutions shape the political environment in which later decisions are made.

The existing EEA path is undoubtedly influenced by decisions made in the past. Baudenbacher has never denied that. But Icelanders are now being asked to make a new decision with its own institutional momentum and its own long-term consequences.

Pointing to the path behind us does not make the path ahead inevitable. That is precisely why there is a referendum.

The author is an economist.