Online archive - find the most current content at

Social innovation in local development:

Icelandic national context

Iceland’s population density is among the lowest in the world, with only 3.6 persons per square kilometre. More than 60 percent of the country’s 330 thousand inhabitants live in the continually urbanising capital area and the others are scattered in smaller towns, in rural, remote and sparsely populated areas around the country. SI is a relatively new concept in Iceland that has received minimal research and policy attention. Despite this, past initiatives suggest that the community is both willing and able to step-in and take action when challenges arise.  

Funding and governance of Icelandic services

Iceland has two levels of governance, national and municipal. As in the other Nordic countries, structural reforms (1993 and 2005) have resulted in sharp reductions in the number of municipalities, down to 74 (197 prior to the 1993 amalgamation). The initial role of the Icelandic municipality was based on mutual aid. Their existence can be traced back to the democratic traditions of the settlers, and they have played an important role in the society for centuries. Today, municipal responsibilities include administrative activity (e.g. ensuring regulations are upheld and issuing permits), providing welfare and community services (e.g. social services, education and leisure activities) and providing technical services (e.g. maintenance of public spaces and water, waste and sewage services) (Sveitastjórnir á Íslandi, n.d.). Municipalities also play a significant role in local economies and are the biggest single employer in some areas. The majority of municipal revenue (63%) is raised through special municipal taxes. The remainder is obtained through service fees, property taxes and with payments from a governmental equalisation fund, a national fund designed to equalize the different expenditure needs and local tax revenues.

Key issues in remote and sparsely populated areas

According to the Icelandic Regional Development Institute, the proportion of Iceland’s population that lives in the capital area is increasing. In response to this trend, the Icelandic Government now implements a Strategic Regional Plan every three years. The main objectives of the 2014-2017 Plan are:

  • Ensuring equal access to work and services for everyone.
  • Mitigating differences in living standards between rural areas and urban areas.
  • Promoting sustainable regional development across the country.

The plan also prioritises combating long-term depopulation, unemployment, substantial dependence on single industry and promoting gender equality. This work is supported by the Icelandic Regional Development Institute, an independent, state-owned institution that implements government policy via the introduction of regional strategies. Its aim is to strengthen rural settlements by providing support (including financial support) for viable, long-term projects and creating a diverse range of new economic activities.

Social innovation in Iceland

According to a 2015 report from the Nordic Council of Ministers, SI as a concept is relatively unknown in Iceland. This is supported by other research, which finds little evidence of interest in SI in the Icelandic context – in either the academic literature, or the policy debate. This research concluded that the absence of SI from the policy discussion was more likely an indication of limited political interest in SI, rather than a sign that no SI was happening in the country.

One clear example of SI in practice is the volunteer rescue teams that operate across Iceland. The first of these was founded in 1928, following an accident that claimed the lives of 15 of the 25 fishermen on the voyage. At that time it was not uncommon for dozens of fishermen to die at sea each year. The Icelandic society still relies on the rescue teams to save lives year around and these volunteers form an important part of the national security system in Iceland.

Social innovation in local development

The lack of discussion of SI in general makes it difficult to comment on the situation relating to TSI. In recent years, it is likely that there are third sector initiatives taking place in Iceland that could be classed as SI but that are yet to be recognised in research or policy. Overall, it appears that the absence of SI from the Icelandic policy discussion is a result of a lack of awareness rather than any active resistance to such initiatives. In light of the considerable damage sustained by the Icelandic economy in 2008 one could argue that SI has the potential to play a key role in providing social solutions both in rural and urban areas.

Download the full National Contexts report including a complete listing of sources cited


Page last updated September 2016.