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News & Press: News

Estonia’s Technology Revolution – from the poor house to a world technology leader

02 May 2017   (0 Comments)
Posted by: Heather Smith
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Samuel Harvey
Business Analyst at MDS Technologies

Published 17 April 2017

Estonia gained independence at the end of the Soviet Union, and promptly dropped into recession, with skyrocketing inflation, fuel costs, and plummeting production. In response, they started a series of reforms to open their country up to trade and investment, and modernised to make themselves one of the most technologically advanced nations in the world. Six years after they were rationing food and fuel, every school in Estonia was online; nowadays, school enrolment and literacy rates are 100%, and Estonia’s GDP per capita is way in excess of other ex-Soviet nations.

How did they modernise?

In addition to their reforms, Estonia invested heavily in up-to-date technology and telephony – refusing Finland’s offer of their old analogue telephone switching kit for their own digital kit. They also largely skipped the use of typewriters and paper, building all their Government services to be online from the outset.

This lack of legacy kit meant that Estonia could modernise quickly, without having to ensure compatibility for legacy systems like UK Plc must, which has been the source of numerous modernisation failures such as the £11bn NHS National Programme for IT.

Benefit to Citizens

Estonia’s focus on efficiency has resulted in many beneficial outcomes for their citizens.

Voting – can be done online, and you don’t have to be in the country to do so! Further, there is no evidence that their voting system has been tampered with which is amazing given the accusations in the US and UK, and the fear of interference in The Netherlands and France leading to them returning to paper voting only.

Tax Returns – this can be done online which is great, but the true benefit is the integration with other Governmental systems which enables them to pre-populate most, if not all, of the data. Their goal with this process is that you’ll only review your completed tax return for accuracy and then click send.

Health records – similarly to the tax returns, your health record would pull together all sources of information and be accessible to whoever you give permission to. This provides benefits such e-prescriptions, so you can renew prescriptions via an online consultation with your doctor, and then pick it up from any pharmacy you choose – they will be allowed access to the records.

Data security – this is of the highest concern to the Estonian Government, with the default position being that you own your data, and you give permission to Government or Industry to use and not abuse it (something EU General Data Protection Regulation will force other EU nations to catch up with).

Benefit to Business (and not just geographically local ones)

Many technology start-ups have been enabled due to Estonia’s extensive IT infrastructure and education policies including coding and skills for the future. However, their Government has recognised that they can only generate so much revenue from their 1.3m population, so they have devised a way to increase trade through their nation: Estonia has become so good at registering businesses, tracking taxes, providing banking, etc. that they decided to make a system where anyone can join in: anyone can apply for e-residency and register an EU-trading business in Estonia.

Where some countries introduce regimes which encourage businesses to domicile there, immorally but legally avoiding corporation tax in their own country, Estonia’s draw is the simplicity of running a business there, and the access to the EU trading block. Estonia’s Government and Banking systems will eventually be able to pay taxes back to UK HMRC where value was created in the UK. Where the value was created or services were used in Estonia, taxes will be paid in Estonia. Simple and fair!

What does this mean for the UK?

Often Government and Public services suffer the inertial ‘if it ain’t broke, don’t fix it’ effect. The approach should be the ‘creative destruction’ you read about in entrepreneurship textbooks; where an industry is disrupted and improved in pursuit of enhanced shareholder value (in this case shareholders = citizens). What long-term established governments lack is the ‘kick up the arse’ to get on and do this.

Estonia had the initial driver of being dirt poor, and had the political will to reform and improve that situation. The lure of further wealth generation has led them to more openness, so they can benefit from globalisation and those that need access to the EU trading block.

(From a security perspective Estonia are under the existential threat of Russian invasion. They respond to this with very strong cyber-security measures for infrastructure and citizens, meeting their NATO contribution (unlike most of Europe), running the NATO Cooperative Cyber Defence Centre of Excellence, and more. Estonia could probably run their Government and associated systems in exile if invaded. This threat, and their response of building up cyber security infrastructure and talent will lead to a competitive advantage in cyber security too).

The UK may find that Brexit provides the kick that forces Government to modernise, reduce friction, and make the country more competitive. Whatever the driver for change, they can largely copy Estonia’s approach, or pay Estonian companies to license and use their innovative services and platforms.