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Address by the President of the Republic of Estonia at the Annual Meeting of the German Association for Small and Medium-Sized Businesses in Berlin, on 13 February 2017

Address by the President of the Republic of Estonia at the Annual Meeting of the German Association for Small and Medium-Sized Businesses in Berlin, on 13 February 2017 © BVMW Oberlausitz (Facebook page)

13.02.2017

Ministers, Excellencies, Honourable Audience,


It is a great pleasure to be here this evening.

I was asked to talk about all things digital. And I will. Nevertheless, allow me to make a short trip into Estonia's e-history. It all started as a cost saving exercise. The 1999 confidence crisis on emerging markets, particularly in Eastern Europe, had sapped our national budget from tax revenues. Public spending for 1999 had to be reduced by 5% annually, but since the exercise of cutting spending to match expenditure started in the summer, the reduction was actually 10% of the second half year.

While doing this, the Prime Minister at the time, Mart Laar, came up with the idea of digitalising the government, just as every mid-sized or larger enterprise had already done. The government went paperless and the famous 'e-Estonia' was born. The technology that we used was in no way cutting edge. A year later, we launched a digital signature program. Once again, the technology was well-known and widely available.

Why did this happen in Estonia? Mainly because we realised that efficiency gains matter. Today, the efficiency gains from having an e-signature amount to 2% of GDP.

We pay for our defence out of these savings.

Did we know that it would happen? Definitely not.

I was there, working as an advisor to Prime Minister Laar, and I can tell you, we did not predict the exact impact that going digital would have. We didn't come anywhere close. What we did predict was that we will communicate differently with our people and businesses, saving public money, but also save time and money for people and businesses.

How did we sell it to our people? By its inclusiveness.

And here, I believe, is the point of contact with Germany. You have a high number of small and medium sized enterprises, in addition to your wonderful giants.

In an analogue world, size really matters. Your ability to communicate with your customers, your government and municipalities depend on how many people can afford to run around town, collect signatures, check databases, file applications and so on. On the other hand, in a digital world, you spend almost no time administering.

And so while big entities gain the same amount of time or resources as small ones, proportionately small ones gain more. Because there are a number of actions which all enterprises must undertake, whatever their size. Like filing tax declarations, to take the simplest example.

Or submitting customs declarations. Or presenting a social security application for the current month. So you see – if you are an SME, you get wings from digital treatment, especially if you can get the digital treatment from both your local administration as well as your business partners.

The catch, however, is that the change you need is not at all tech-related. It is entirely societal. I cannot say we understood this when we jumped, certainly we did not, but in hindsight I can see that Estonia succeeded in going digital because we put people and businesses, their needs for rapid data exchange and identity verification, into the centre of the change. We also offered the state's guarantee on safe storage of any data trusted to the government and a similar guarantee that if the state has verified someone's credentials, it can be trusted that the person really is who he or she claims to be. Add in to the mix that the state voluntarily limited its right to ask for any data from citizens and businesses more than once.

The once only rule made sure that all state managed databases need to talk to each other and that citizens know they do not need to keep reproofing what they have once said.

Again – small and medium sized companies gain more. Because their personal capacity of demanding proof from their customers and verifying it is limited.

How to help SMEs on their way to become fully digital, if they are too small to invest anything into changing their way of doing business? The only way to achieve this is by making sure that while you cannot publicly or in any way from outside influence the technology they are using in their production, you can streamline their administrative logistics. In Germany, I believe, most interaction with public sector takes place at the local government or lander level.

Remember – in Estonia, we save 2% of GDP at the macroeconomic level from zero bureaucracy initiatives and the savings on the private side are hugely skewed towards SMEs. There will be many gains for administrations as well, both on efficiency and at the level of information you will have, in an aggregated, not personal form, of course, of your enterprises.

I know that data protection is a sensitive issue here in Germany. There is no way that I can advise you on how to rapidly overcome any concerns that you might have over the safety of information in systems and databases. However, it might help to know that if something is in a computer and someone gets access to it, then you can later see and track who has been looking at your files. Paper files, on the other hand, can be read by many people so that no one even knows that they have been read, unless you start looking for fingerprints.

Estonians value convenience and have therefore adopted publicly offered services that simplify everyday life. Estonians are also smart enough to realize that these services save them time and money. I believe that Germans are no different from Estonians.

Zero bureaucracy is a public good, so no one needs to invest by themselves into it. Social change you gain is not only directly measureable in money, but it will also change the way people see modern technology. Soon people will realise there are technology gaps in their own enterprise's functional model and implement information technology into their own processes.

To not sound empty, let me give you a concrete example.

It comes from the wood sector, probably the best known Estonian export sector in Germany and also the Nordic countries. Yes, a lot of the module wooden houses in your country come from mine. All wood growing in Estonia, in state owned forests, a majority, is taken up by the wood information system. Every hectare is included, the system knows the age and all necessary characteristics.

When trees are harvested, the data about every tree gets logged into the system and the system follows the progression each log from the forest through to the customers. While trees are harvested, the quality and amount of the wood is in the system, so that transport can be organised according to the daily outcomes from harvesting activity. The wood registry interoperates with the road registry, land registry etc., all companies doing business in sector have access to the same system, but they can only of course check data concerning them or data that some of their partners has decided to make available to them. All checks into the system are digital, so system knows who did what in it. The system warns about environmental restrictions, like quiet periods for birds to nest or animals to breed etc. It is used in Estonia, Latvia, Finland, each independently, of course, but built on similar grounds.

The existence of it means that even the smallest, say transport providers, or wood users, can deal with much bigger enterprises and the state which owns the growing wood, on similar grounds. They can build their private information systems so that they logically continue from the state model, like a furniture company can provide customers with a photo of their table while it was still growing, if they so wish. There are probably less tree-hugging examples, but let's keep it simple.

Large companies have the capacity to independently develop technology based on large amounts of data.

That tends to make large companies more efficient and makes them grow faster, leaving SMEs behind. There is very little you can directly do about it, apart direct support to cover the cost SMEs can never afford themselves. But this does not seem to be the wise way to spend public money – after all, direct investment into enterprises should be profitable. But, I do not know whether luckily or unfortunately, lots of inefficiency is actually related to interactions between public bodies and enterprises.

There you can invest with a clear conscience, as gains exist on both public and private side, but you help more the small ones as I demonstrated.

Yes, there is the option of going co-operative, asking SMEs to form consortia and develop the technologies together, which might function in regional logistics digitalisation projects, for example, but cannot do too much for enterprises operating in various sectors and using varied technology.

By offering public digital goods and zero bureaucracy you would achieve serious spill-over effects in the private sector as well. The general ease of doing business goes up, the first ins will gain in competition, this starts the societal change you are looking for and will clear away any tech fear. I know that you have already started to offer public digital services. But you need to make people and businesses the heart of it and aim for really zero bureaucracy for everyone. Bits and pieces do not work, because every time you exit digital and go analogue, or paper, the whole process slows down to paper speed.

Since Germany is really big, I guess those who can offer to businesses the lowest level of necessary physical, on paper interactions with local county or land, will have competitive regional advantage. Then I guess you need to monitor that digital borders do not settle in, as it might at the first glace seem a good idea not to share data with other regional databases.

You need to have secure verifications in place, of course, both in one system and in between the systems, but as I said, the technology is old, tested, and reliable. I am sure your multinationals have loads of the systems of the size a Lander would need, the only difference being that a land owned platform would benefit Deutche mittlestand.

Thank you for attention and I hope to see you all in Estonia very soon!

Vielen Dank und Willkommen in Estland!