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At the Global Leadership Summit in Gothenburg

At the Global Leadership Summit in Gothenburg © Mattias Tammet/VPK


First, thank you for inviting me. Estonia and Volvo are perfect partners, because globally you employ close to 100 000 people. Estonia on the other hand has 117 000 people working in industry – everybody else is in services. Therefore, we are a perfect match. However, there are other similarities. Your annual turnover is 5 billions bigger than Estonia’s GDP. So we are actually very well matched.

Estonia is globally the only digitally transformed society that has the full support of its state.

First, I would have to prove to you why I believe that we already have a digitally transformed society.

Up until last year, we thought that we can have a digital environment and if something goes wrong – because as you know in digital it always does, as you are always in Beta versions —there could be a paper alternative. Then last year it went wrong as a lot of digital chips were withdrawn from global market. One billion in fact.

Most of them opened doors in factories, but for us and some other countries it worked as a digital identity. In those other countries, these cards were simply closed down – nothing happened, nobody noticed.

Obviously, there were no services linked to digital identity. In Estonia, however, we almost had a riot. Not because we closed down the services – we did not–, but because some ID-cards would not get the patch online, so people had to go to the Police and Boarder Guards` office to get the patch.

You cannot imagine how long Estonian people were complaining about how they had to go to the public office or how long it took them to stand in line. It was when we realized that the digital transformation is complete. We now work on having digital with digital alternatives, so currently we have ID-card, MobileID and SmartID – our people refuse to go back to paper. They trust the systemic environment and are lazy like all of us. We can now prove in principle that the digital transformation in Estonia is complete.

What does it mean? It means that we save 2% of our GDP just by signing digitally. Of course, this is what we save in the private sector and for SME’s and for the people. This is particularly important for them, because small companies and people cannot manage big bureaucracies, whereas bigger companies probably can. We want to be from the public sector side the great equalizer in our society. Therefore, we feel that this 2% is well spent, well saved on the private sector and the government spends about 2%. Sometimes it is lower, sometimes it is higher, but we always know that it is for the benefit of our people.

It is a great equalizer in society also in the sense that people can now access the government wherever they want to. For example, I can declare my taxes while my children are asleep; I have been doing so since 1999. The digital tax board was in fact our first digital service in Estonia. I was there when we were creating it, as I was advising the prime minister on economic matters. We knew that everybody hated to see the taxman, so we thought that they do not need to. So, taxes went online. Nowadays we open our tax declaration form and just sign because it is very transparent from the other side. Everything is there, all visible immediately. The tax board knows who has paid me what, I just have to sign it, and it is done. That was the first service. Of course, for those who are trying to digitalize their public sector, the sad side is that since 1999 we have lost 60% of jobs in our tax board. Sorry about that, but people in Estonia have never suffered high unemployment because our job market is also very flexible.

One of the benefits of that transformation is that it stitched together our private and public sector. If you are looking at the information and data, on where our country stands in digitalisation, I honestly have to say that the only part where we are ahead of everybody else is the government services and public sector’s involvement, because for reasons not known to us, in other countries private sector invented alone. If you digitalized your systems, you run as big customer systems as Estonia’s ID-card and public services’ system. Maybe you can tell me why you excluded the governments? However, in our case in the 90-s our banks and other companies came to us and said “Let’s do it together!”. So we did. We have single platform and the single platform is open for everybody to create services. Banks can do it, people can do it. The main worry of the government while we were creating it, was that maybe people would not start using it, because we cannot put out enough services quickly enough. Then the private sector put its money and promise in: they helped to quickly create services and later they reaped benefits because you do not find bank branches in Estonia outside big towns for example. Huge savings. Of course they had to train people because we did train people as well.

The government put its reputation on the line by undertaking this kind of a start-up project. We have continued this way. Actually today, every single one of you can have a hand in, as you can become an Estonian e-resident. It is possible. Of course, we need to do a background check on you. I mean everybody does it for citizens, why not for e-citizens? However, if you pass, you can have an Estonian e-residency card and you can digitally sign all your documents. While you are connected to other people who use digital ID of Estonia, everything you do online is encrypted. So you see, you could be part of our environment. Why could it be useful for you and everybody else?

Up to last year, it was very difficult to explain, but when Facebook ran into trouble and had to run around the world in parliaments and globally apologize for something, which was not a crime because there was no law space. They had not committed any crimes, as they could not go against any rules. They still had to apologize. It became very apparent that we have done something different in Estonia. We are not the Wild West of digital, not at all. We have cleverly designed law space with tools, which government provides for people to actually apply. This law is digital identity. I can explain.

I sign with my ID card and somebody else that I want to connect through the same government platform, called the X-road (crossroads), joins me. The state guarantees the identity of both parties. It is a passport, nothing more. You have a passport in analogue world, do you? You would not go to the notary office to sign anything without showing your passport. Verifying identity. In the Estonian system you are legally obliged to make sure that if you have transacted online this is valid. You have to sign-in digitally to identify yourself. It is an obligation of our government to provide these verification tools. It can also create law space and force people to use these tools to make sure they are safe in the internet. If you offer a digital service in Estonia, to Estonian citizens using our tools, you cannot later be facing the parliament who says what did you do and then have to apologize even if the parliament had not created the law space. Estonia has created the law space for that. We have realized that this is our unique skill, because all the technology we use is not cutting edge. Not cutting edge at all, although it was very well tried and tested when we first started using the same private companies’ digital ecosystems. It cannot be cutting edge because it has to work millions of times a day.

You know that man who went to the moon and landed there never changed the world. No one’s life at home changed because of that. However, the washing machine has changed the life of at least half of the world’s population; I have to say – including mine. You do not need cutting edge technology in the hands of few to really change the societies and create great things. What you need is tried and tested technology in the hands of many.

Now back to the cooperation between private and public sector. There sometimes seems to be big misunderstandings between the public and private sectors and it is purely terminology related. We overcame it. We realized that when in public sector we say inclusiveness, everybody is on board. As for the public sector, it is the same thing. Just call it mass market. No difference in principle. So we gave everybody the digital ID and we automatically created a mass market for the private sector. You see it is very easy to overcome these differences in public and private sector.

The idea came to us while the Estonian government was getting new offices and we decided to do something that was very common among private companies at the turn of the century. We went paperless in our government meetings. The board meetings were paperless. We were simply astonished how many journalists came from everywhere. I mean the Financial Times, Economist, and so on, came and looked at our paperless government-room, and were interested in who pushes the buttons for ministers. We thought that why should the people from the public sector be somehow considered less capable than the people in the private sector? They are not. That gave us the business case to promote our digital services.

For the sceptical side among our public sector we could also demonstrate the number of articles in Financial Times, Economist, everywhere as paying for the system. As if we had just bought some kind of advertisement: “Come visit Estonia” or “Estonia positively transformed”, which ever slogan we would use. We had an immediate business case.

What we did not realize was that we were disrupting society. We realized that later, and last year it was proven that, it has already happened.

The key success factors in digital Estonia are nothing unique to digital. I do not know how many of you know the Estonian transformation after the Soviet Union collapse. We exited Soviet Union with an average salary of 30 dollars per month. It has now grown to almost 1300 in 26-years. With the 30 dollars per month, we were very poor. Though people demanded services of the government, which could be of a Scandinavian level, because Scandinavia is so close to us. So, we had to do something radically different.

We thought we would do a tax system that nobody else has. We did. Flat tax, same tax rate for personal income, rents, corporate income, everything the same. Later we abolished the corporate income tax and realized we are better off if we only tax dividends. Because that is the point when money leaves the enterprise. At that point, we were at the development phase where we needed massive capital investment to rise the productivity of Estonian industry and therefore get the salaries rising quickly. This worked. The capital flew in and we were the solution to everybody in Scandinavia when they were trying to save some costs. However, things started to change radically.

We realized that soon we were exiting that branch and the sewing factors in Estonia will be closing down. They are now closed down, I can assure you. We needed additional elements.

So we thought that okay, first we created a legally permissive environment for capital investment. What could be next? Here we have our answer—it is digital. We created a legally permissive environment for digital technologies at the same time making it safe so the people could trust it. Because as you know digital and trust is the big and major issue in Western and developed countries. However, it was not only digital, there were other areas in the development in the technology where you could create similar legally permissive environments.

We actually created another one, which is less known because this science has not developed as quickly as digital technology--genetic technology, genome analysis.

At that time, only Iceland and Estonia opened their legal space so that the populations’ genetic information could be gathered and analysed. This of course in a format, where peoples’ identities were not revealed and used for scientific development and business development. We opened that market as well, but there emerged a problem quite quickly. In five years’ time most governments realised that they need population level genetics in order to try to work ex ante with the health questions people were facing trying to understand for example who has potential diabetes risk. So they ruined the market for us. They invested good public money instead of creating a legally permissive space, which Iceland and we both had done. Both Iceland and us of course cannot compete--if public money is in then everybody’s ahead of us. So this seemed to be going nowhere. We were not too unhappy because the digital was flying off and we were the sandbox of all kinds of public-private relations in digital. It is now catching up because now it is dirt cheap to analyse human genome. And in 2 years’ time we will have 50% of our population analysed for most common genetic markers for diseases and family doctors would know these markers on these people. It now costs us only 25€ per person because we have done this legal space and created Estonian genome foundation on private investment, may I remind you at the turn of the century. So you see, it seems to be the trend or tendency national character of Estonia to create not technology. We cannot create technology we are 1.3 million people with an average income per capita 75% of EU average. We do not create technology. We just create legal space for this technology to come and thrive in the country.

Now to the next thing, which we think could be the next big thing - artificial intelligence. We started to realise that there will be driverless cars and robots walking on the street quite early and so we changed our traffic-law in Estonia. If for example a car runs over a delivery robot, you can solve this according to our traffic-law. It has been put to practice already, when we had an accident and the car driver was found guilty. So we started to regulate for equipment and machinery. Suddenly we realised that this is not going to take us very far because the technology-cycle nowadays changes so quickly. Our children do not recognize our mobile phones that are from 90’s as mobiles phones. We then realised we must do something radically different and now we are discussing how to regulate the relations between human beings and algorithms in a technology neutral way.

There is an algorithm, which decides something, while relationships to humans have to be regulated. I am quite sure this will happen after next general elections as we are quite forward thinking in our administrative side of the government, our permanent secretaries and vice-permanent secretaries have figured out how we could do it. There will be a separate legal entity for a machine or for an algorithm in Estonia. Moreover, why am I so sure that no matter who wins the elections, all parties would do it? It is because of the fact that our digital environment has become citizen-driven that Estonian citizens now ask questions like this.

You know I am entitled to get this social benefit, let us imagine I just had a baby and I am entitled to child support — you know I had a baby, you know my bank account number because I pay taxes and you sometime return the overpaid taxes ... Why on earth do I have to log on and digitally sign some demand — just deliver me what I am entitled to. Our citizens are now asking the state to be proactive. Even if it is not so spectacular, that state database does something to somebody, like a delivery machine walking on the street, it is still an autonomous or an automatic system, depending on the level of complexity. Which independently, with the human being off the loop, takes a decision. We have to regulate human algorithm relations in order to offer these kinds of services.

Currently we have a pilot service, which delivers additional financial support for single pensioners by just checking the data and then paying it out. It is illegal in principle, because we have not regulated it yet, but as a pilot, we can do it. Our people are asking for us to move in this direction. This shows you that when you past these transformative stages and the digital disruption in the society is complete, there is no turning back for the state. You have to continue to develop and innovate.

If you think of a larger organisation or a country, then in our mind, the size does not matter. Because first of all our system is able to carry infinite number of services. There is the crossroad’s platform through which two people, two services or two businesses can always connect, identify each other and the rest is already like in the analogue world. It does not matter what kind of service it is, it just runs through these identification models. It is not like a train where you have to enter through the first wagon and then walk until you reach the wagon you wanted to reach.

We are quite sure that also with this e-residency offer we are now creating a client base for the state if you so wish of e-residence. It is very much like a normal start-up in this sense that our start-up gathered lot of clients. Right now we have 40 000 e-residents, 1% of Estonian companies already accredit e-residents and we are now going to take a look how to turn that into moneymaking machine or benefits for the country – enlarging our economy, bringing in more tax money etc.

Globally it is not yet recognised that technology has made people free. You can work in Australia in the morning, in United States in the evening, you can sit in Sweden or Mediterranean I do not care. However, my government expects me to have an address and working address, so that the tax revenue can be collected. Now you need to be thinking very differently in the digital society. Your people are working everywhere, to whom are they going to pay taxes? Probably for those who offer them a safe harbour of services globally.

We are creating an Estonian language internet-school, we need full curricula, because our citizens may be everywhere. They are free citizens of European Union and they can work globally. We have to think how to offer all sort of social services wherever people are. Of course as soon as I start thinking that, OECD rules come to my mind and somehow we have to change that. We are trying. During our EU Council Presidency, we started it and this process will definitely continue.

You were right, Estonia is now bigger than it technically is, but in order to grow even bigger we need to radically change our thinking. Politicians in other countries need to change their thinking too, because people are anyway working this new way and if you do not offer them a way to stay connected to your state, they will disconnect. They will opt-out, they will use private services or only try to opt-in when they need your services, but you would lose huge amount of tax money. It is not about taxing Starbucks or Google or Facebook, you have to follow each individual and have a contract and agreement with them in order to have a fair social system, which is so valuable in other countries and in Estonia.

Because we are the digital society behind the first bend it is our job to continue to tell others what we see behind that bend. I can tell you, we are already in a hurry, because more and more independent working people are opting-out from our current social model. It is dead, it is gone. And if we do want the digital transformation to be famous for the society not like from agriculture to industry but much more supportive by the governments, we need to move really quickly globally in order to make sure the people can safely transform from industrial period to this technology period. There are many other things I would like to tell you, but my time is up so I will now answer your questions.