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President Kaljulaid at the Manufuture 2017 Conference in Tallinn

24.10.2017

What other see as efficiency gains, the others may see as job losses, so obviously there are many elements, which we need to consider when we are talking about „moving up the value chain".

Your conference has a history since 2003. The first Manufuture conference took place in 2003 in Milan. This event became a good tradition of gathering every second autumn in a country holding the presidency of the EU and discussing European manufacturing of the future with entrepreneurs, engineers, scientists and politicians.

As you saw from the introduction, you are in a country, which is a starry-eyed fearlessly future-looking first-time EU Council presidency. It is indeed the first time for Estonia to be in this spot and we are really enjoying this position, trying to irritate people with the discussion about the future. It is so close to us but sometimes we still fail to recognize how close it already is.

In Tallinn, you are discussing the 4.0 industrial revolution and how to make European nations more productive and competitive in our digital age. As President of Estonia, I proudly represent a digital society, which actually has a supportive state behind it. Yes, we here have already gone through a societal disruption to make sure that our citizens and businesses have a completely digital environment with the state and private partners. This means that when enterprises try to move up the value chain by going digital they only need to join the dots, since outside of their own production chain the environment is already completely digital.

When you are talking to the Estonian state, you never do it on paper. When you are signing documents with your partners or contractors in this country, paper does not come into play. You do not necessarily have to go somewhere. Obviously, we still have business lunches with our partners and friends but still, you do not need to move. The environment surrounding you and your developments is digital.

For seventeen years, Estonians have been using digital signatures to sign contracts and apply for public services, pay taxes and make requests to our government. What does this mean? That means that by having a digital signature they are protected in the internet, as they are able to identify each other safely. While using technology you all know that safety is all-important. Our government provides our people this safety in cybersphere because we have a passport function, which operates in cybersphere.

For some reason it has taken most other governments too long to recognize that safe identification, a passport, is also necessary in the digital era in the internet to allow people to communicate and transact safely.

I wish that we could all have the same for Europe as a whole. However, to this day, many people in Europe have to rely on Google for safe identification needs. The irony of course is that we very often blame Google and other internet behemoths for being too monopolistic and grasping too much of the power in this sphere. Yet, frankly speaking, governments have left their people without this important service of identification in the 21st century. People have no other option.

Even the people in Estonia, Latvia, Luxembourg, Denmark, Finland and some other smaller EU nations must use identification provided by internet companies' for cross-border transactions because digital signatures do not interact in Europe. Yes, some countries recognize them bi-laterally but they cannot be used to sign a cloud-located document from two different countries with two different digital IDs, for example. This must change. When we have thus made our people safer in cybersphere, we can proceed to common services and digital single market.

Then I would not see the following situations in the interesting companies I visit. I often see that an otherwise perfectly well organized and logistically well-developed company in Estonia will complete its work and package the goods, which it is intending to send to its partners. They keep track of everything online. However, suddenly they print out the document, sign it and send it to their partner in the other country in PDF format. It is so ridiculous, but it is part of the industrial processes. We are talking 4.0. We know that nowadays we do not send our partners goods in boxes, which come through with different ships so that our partners need to see how they need to start aggregating them. Everything is logically packaged. Every element comes out so that you know that this is indeed the next step of the montage. Because the governments have not yet done everywhere what they have to do, we cannot sign it digitally, the other side cannot sign it digitally. We cannot yet accept that indeed the quality control on both sides shows that it functions, it has been assembled, and it was properly delivered without doing some Stone Age moves. We here even if locally we have gone through a societal disruption. That is how we see that there are still problems, which persist across borders. We know that we must make a completely digital business environment for all European citizens and businesses, for the state and business partners. Because otherwise you can only automatize your processes in the company, but you will not change the society without the societal disruption. We all know that the bottleneck is the slowest part of the system.

It is the same environment here in Estonia for all, private and public. This is important. Both have worked to make sure that it is inclusive – banks have offered free online services for retired people, so they do not have to take the bus to the bank. The digital environment is by its nature inclusive – it works very well for small enterprises and simple people, for those who are from weaker social groups actually gain from e-services.

SME's cannot manage big bureaucracies. Mothers with small kids, people with heavy homework burden, they cannot manage big bureaucracies. People with tricky work schedules, benefit most as well, because state offices are open 24/7, and they demand no travel. Small businesses, mothers working from home, creating their company—in Estonia they but their babies in bed and then go to talk to the tax office.

It may not seem important comparing to your processes on company level, but in fact, it is not. If you think about it, quite a big part of resources is spent in administration.

It is encouraging that nothing we have done in Estonia has been created any cutting-edge technology. Tech-wise, all we use is pretty well tried and tested by other actors, mostly private, in the world. It makes it cheaper, and more reliable. The disruptive innovation from Estonians is thus not technology itself, the innovation lies elsewhere – in the process of bringing businesses and government and people together to help all people, young and old, to benefit from the digital services options available.

Having tried to explain to you how digitally disrupted society in Estonia works and how it could benefit industry in other countries, I would come to the questions I see on the horizon, which will disrupt our societies furthermore through technology implementation.

Manufacturing is currently the largest economic activity in Estonia and almost everywhere in EU and the biggest sector by employment, providing a job to nearly a fourth of the persons employed in enterprises. Late industrializers like for example this country here, never saw the amount of employment in industry as the earlier industrialized countries (for example UK or Germany). Which shows that already jobs are moving elsewhere or at least becoming more and more independent of the companies themselves. Then they normally refer to the parts of the enterprise as part of the industrial enterprise, but freelancers offer them. We see that the number of self-employed people in the UK or the Netherlands or Estonia is growing very quickly. People are working more independently of companies, because the processes of companies can be clearly separated into the active physical part and the services around them. These services can be often be offered by specialized persons independently: logistics, bookkeeping etc.

It is a key challenge for Estonia and other member states to realise Europe's industrial potential and move up the value chain by allowing more of this specialisation to take place. New technologies, particularly digital ones, are helping all companies, and helping people to specialize and become independent. We need to accept that this transfer is changing industrial demographics considerably. There is a good reason to think that automation in industry in 10-15 years' time will mean that greater output than today is reached with employment levels, which will be similar that we currently see in agriculture, maybe 3-5% of our workforce.

Industrial area jobs are indeed vanishing fast, they stay somewhere in the society, but often they can be offered differently, in more specialised ways. When this happened in agriculture, transition was socially painful and costly for majority of people, but that was because of lack of education, medical treatment and other social services we offer to people nowadays. It is not so scary for lower middle class and poor, facing this time around the deterioration of industrial employment.

Instead of curbing people's ability to adapt by talking sustenance fees, we should focus on the ability of modern technology to rise the earning capacity of the society as a whole. We must not take technological development simply as something limited to the better industrial processes and therefore to job losses. It is not, it is a much more comprehensive change, which reaches out to every single person.

In fact, remarkable amount of jobs created by technology development are surprisingly neutral to the occupations or educations in their nature. One might call them egalitarian opportunities even. They are not reserved to wise, well-educated and tech-savvy. Yes, those do very well by creating tech infrastructure, but some of the quickest growing companies sell actually strikingly simple services or services we did not think existed at all.

To sum up, job creation will continue beyond the industrial age as it did beyond the agricultural period, the transition should be more tolerable to vulnerable classes of poor and uneducated due to existing social systems and the democratic nature of this transition, which will create opportunities for all social classes.

This is important for manufacturing 4.0. because very often we talk about job loss, people who will have no other option than to stay on state offered benefits, because efficiency means job loss. We need to keep in mind that even if from your viewpoint or your company's viewpoint these may be externalities but these externalities support actually your development of your business model. Because you know that these externalities are opportunities for those people, you are firing. I sometimes hear people say that we have in the same business for 30 years now and by staying put in our own sector and in our own business we have gone very efficient and active and this has done great things to us and indeed. 30 years ago, you would have employed 2000 people now you have 20. These 1980 needed to find a new job, which would help them in the future in a different way than working in your companies.

You need to think about these elements because you are faced with these questions daily. However, there are solutions. Because indeed new jobs are created: around manufacturing, around simply people's lives, because they have more free time to spend on using services which you would not have called a service previously. Who would have thought chatting a service? Or travelling youtubers? They are jobs nowadays, because people pay for these things. Keep this in mind when you develop, because you will be faced with these questions. What about these people who will lose their jobs?

Nevertheless, the world does not only have a bright future. The silver lining has a cloud as well. However, maybe it is not a cloud, I will let you decide

This brings me to the Alice in Wonderland issue. You remember, when the cat vanished, the grin just lingered on? If we talk about the disruption to current jobs and indeed, working habits of people, we need to test whether our governance models are sustainable through these disruptions. Or will our tax base, let's take a simple example, social tax base, simply vanish together with industrial jobs? If we do not believe that the grin stays on without the cat, we need to assume that the social security model built on an industrial model of work cannot survive if the industrial model itself is changing rapidly.

New jobs and income methods – if you are not able to call youtubing a job, call it an income method– are free from physical location, therefore they are geographically not attributable to one state, and they are not easy to define as being employer, employee, benefits from assets etc. Worse, everybody is doing more than one thing to more than one customer; the economy is much more centred on each individual and his or her creation of added value than on enterprise as such. Add to this the fact that people do all these varied things intermittently and take long breaks if they can afford – and we see more and more they can – to simply live their lives until money runs out. Working 12 months a year, 8 hours per day and 30 years, then retiring, is not an option the younger generation wants.

We offer them societal support if they agree to work the old-fashioned way. What is the result? Many people opt out at early years of their career of our social models, only to plan to opt back in once they need these services – medical ones, putting kids through school, etc. Pension systems are the only ones, which do not allow full benefits opt-in later in your career, as some of the potential to put money into your pension pillars – is lost. However, medical, educational, all other systems are 100% vulnerable. Of course, we can tell people to work the old-fashioned way or go uninsured. It will not deter them, they will go uninsured. We lose the best part of the tax income from the life cycle value creation of each individual, who decides to be independent and work in five countries at one time. They will then later opt in. It is not sustainable.

Governments need to start thinking how they will replace the current models' tax river flowing in from lifetime of careers defined as employee, employer, enterprise, independent worker– with new streams. They will not be a river, rather an intermittent trickle from varied streams. It may not be any more linkable with any geographical state at all. Imagine trying to come to terms with every digital job nomad on where they need to pay their taxes? In addition, which taxes they need to pay? Yet we want them to pay, and be somehow connected to our society's social security network. They want to pay too, but the effort to stay in one place, one job, permanently or with certain allowed gaps in order not to lose benefits – simply does not fit their understanding of work and life.

We force them out with inflexibility, unless we offer them easy flexible opt-ins. I have no answer to this disruptive development and on how to come to terms with it, but I see we need to tackle this as quickly as possible. Maybe we see it better here in Estonia, because we are already around the first bend. We already have a digital society. We already accept perfectly well that my warehouse maybe guarded from somewhere close to the Mediterranean Sea, if people so wish. Indeed, they maybe guarding simultaneously the humidity and temperature of my warehouse and somebody else's warehouse—maybe outside of the European Union, in Australia. They may want to live three months a year in the Mediterranean, three months a year in the Arctic, three months a year wherever. They are ready to pay taxes, to guarantee their social and educational needs, but they want to do it globally.

I think we need to think about this also in the context of manufacturing and what it will do to our manufacturing processes. The positive thing is the more you can make the jobs geographically neutral, monitoring jobs can be made geographically neutral. You will have machinery and equipment, which actually is monitored and often repaired from a far. Then indeed, what will become of our social models?

We are worrying about what will become of our department meetings if people are not there. At the state level it is a much bigger problem, the Alice in Wonderland problem. I will leave you with this and I hope you will have fruitful discussions regarding moving up the value chain in manufacturing and you can also spare a thought or two to the side effects of gaining efficiency. There is no need to try to postpone the future, but to be able to understand its challenges better, not walking into it eyes wide shut. Hope you will also find time to enjoy the beauty of old and modern parts of Tallinn, and Estonia as a whole.

Thank you for listening.