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At the 47th International St Gallen Symposium in Switzerland

At the 47th International St Gallen Symposium in Switzerland

03.05.2017

Honourable Chairman Peter Voser, honourable Federal Councillor Johann Schneider-Ammann, Your Excellencies, distinguished guests, and honourable members of the ISC Team! Thank you for making this symposium happen!

As president of Estonia, I represent the world’s only digital society that actually has a state: 1.3 million people, making up our entire population.

We have undergone a societal disruption to ensure our citizens and businesses have a completely digital environment to deal with both the state and with their private partners. It’s important to keep in mind, however, that at no point during this process has Estonia created any cutting-edge technology. Tech-wise, everything we use is pretty well-tried and tested by other actors, mostly private, around the world. This makes it cheaper and more reliable. Part of it is even open-source, namely our e-voting system, so anyone can try to hack it if they may. Still, no hacker has managed to do so in seven years’ time.

Estonians’ disruptive innovation is not technology, but something else: building bridges between enterprises and the state in order to help people, young and old alike, benefit from the digital services we offer. For already 17 years, Estonians have had a digital ID which they can use it to sign and time-stamp documents (including private contracts), utilise a broad range of public services, pay taxes and fines, make registry queries, change service packages, and simply send encrypted e-mails.

It wasn’t easy to get people from all generations to use it, but thanks to persistent coaching by the Tiger Leap programme, even older individuals quickly got the knack for it and realised why it was better, for instance, to communicate with the pension office via computer instead of taking a bus somewhere. Even if the nearest available computer was only found in the village library during the first few years, it still took notably less time than a trip to the city.

Digital ID has been an integral part of all Estonian ID cards since 2001. One’s digital identity is acquired at birth, automatically and with no effort: doctors simply enter the new-born’s data into the healthcare database, and that’s it. At that moment, they are performing the duties of a civil registry official without even noticing it! Afterward, using their ID cards, the parents can even use the system to name their child, who already has a digital identity. If they wish, they can then submit a social-services application, apply for a day care spot, and more, all right there from the maternity ward. A new digital citizen has been born.

Both private and public entities use the same platform, called crossroads, for safe identification purposes, thus making the number of services available unlimited. Nowadays, some of the services are even open to citizens of other countries: e-residents.

The transition to digital services is not done by force. Yet since these services are simple, cheap, and available, their implementation has become standard by today. And they indeed must be simple, cheap, and completely reliable; not too innovative or just in their testing phase. They are not. They are available for everyone to use, and they always function. This shows that high rates of technological penetration can, for society as a whole, even if the solutions are not cut and dried for the field, pay off much better than having truly innovative solutions at the disposal of a select few. You’ve all experienced it for yourselves: millions of peoples’ lives have been made better by affordable cars and washing machines, not expeditions to the Moon. It is important to keep this in mind while digitalising society.

The fact that we don’t need to physically go to visit state institutions helps us save 2% of GDP. There are relatively few bank offices left in Estonia, likewise. Post offices are being replaced by automatic delivery lockers. It’s common to receive a delivery announcement by SMS. You may have noticed that I’m no longer talking about public services. People’s demand for convenience and unwillingness to stand in a queue have helped businesses save huge costs by offering automatized services without having to worry about losing customers in the process.

Two percent of GDP is a massive amount of savings, which first and foremost benefits ordinary people as well as small- and mid-sized businesses that cannot allow themselves the big administrative burdens of checking their business partners’ identities, communicating with government institutions, or utilising state databases. It all also plays a part in the fact that Estonia graduated to the IMF’s table of high-income countries already in 2006. We Estonians still regard ourselves to be middle-income in comparison with the Nordic countries, but overall, we have done quite well given the fact that we emerged from Soviet occupation in 1991 as a poor nation.

Now, having explained how a society that has undergone digital disruption functions, I’d like to address other questions coming into focus on the horizon, which will cause new disruptions as technology is implemented.

I’ll touch upon two of these: firstly, the future of jobs, and secondly, one that I like to call the ‘Alice in Wonderland issue’.

So, future jobs. Industrial-sector jobs are indeed vanishing rapidly. I’ve heard strange opinions being voiced that we should therefore enact a universal wage and fund it by taxing robots. It sounds quite absurd. I doubt countries would have reaped the full benefit of the Industrial Revolution if we had taxed tractors and paid a sustenance wage to everyone who lost their agricultural jobs. Of course, the transition was socially painful and very costly for the majority of people, but it was because of a lack of education, healthcare, and the other social services we have available to us today. This time around, the change is no longer as frightening for the lower-middle-class and the poor now facing a decline of industrial-sector employment.

Instead of curbing people’s ability to act by talking about a basic income, we should be focused on the opportunities that modern technology offers for increasing society as a whole’s ability to earn a living. Technological development shouldn’t simply have to mean streamlined industrial processes and an accompanying loss of jobs. Rather, it represents comprehensive change that affects every single person.

In fact, a remarkable portion of the jobs that have been created by technological development are, by nature, surprisingly widely based in terms of job skills and education. One might even call them egalitarian opportunities. They are not reserved to the wise, well-educated, and tech-savvy. Yes, such labourers do stand out as creators of the technological infrastructure, but some of the fastest-growing businesses actually offer services that are unbelievably simple or which we’d never imagined existing before.

Take for example online conversation: on Facebook in longer form or concisely on Twitter. Or consider Uber and Airbnb, which enable people to make their spare resources available to others in the form of services. These are the biggest successes, of course, but other examples can be found among SMEs. An accountant can work for ten companies situated in various corners of the world. This person’s labour market is not globe-spanning, I must admit, because they must be familiar with every country’s individual laws, but it is certainly greater than a physical environment to which one must commute by car, bus, or train. In handicrafts, which has been an age-old career option for those who haven’t wished to acquire an academic education, the ability to make a profit used to depend on the rate to which one was able to offer their goods at a local market, and then later, in the 20th century, on signing sales contracts with souvenir shops. But what about today? I’ll give you the example of a South African I know who lives in an area of Estonia with a population of about 1,500 people and crafts world-class bows. He finds buyers for his goods from billions of people around the world, and all of them are more likely than not farther than 200 kilometres away.

These examples emphasise how technology helps to boost opportunities for earning profits in traditional fields of activity while reducing marketing costs. Additionally, technology use and the fact that many people are gaining free time thanks to increased efficiency are constantly creating new jobs we haven’t even heard of yet. Right now, one hot area is traveling around and earning money off of YouTube videos, but no one knows what kinds of new ‘jobs’ like this we might hear of next.

In summary, we can confidently state that new job creation will not cease with the end of the industrial era, just as was the case with the fading out of agrarian society. This transition should be easier thanks to our current social-protection systems and the change’s democratic nature, which will create new opportunities for all of society.

This brings me to the Alice in Wonderland issue: the third topic tied to the societal disruption that is underway. You certainly remember how when the Cheshire Cat vanished, his grin was left lingering. When we talk about the current disruption affecting the labour market and people’s work habits, we must determine whether our governance models are capable of handling the situation. Or will our tax base – the social-tax base, for example – vanish into thin air together with industrial-sector jobs? If we aren’t sure that the grin will linger on even after the cat has disappeared, then we must assume that the social-security system left over from the industrial era will not last after the industrial labour model is gone.

Indeed, new jobs and ways of earning income (whether even by making YouTube videos, which many have a hard time calling a real job), are not connected to any particular location, and therefore neither to any particular state. This makes them harder to classify in terms of employer, employee, earnings made from assets, etc. Complicating this situation even further is the fact that people are working for more than one customer in several different areas. Lone individuals and their creation of added value lie more at the centre of the economy than enterprises. Add to that the fact that such activities are not constant, but intermittent; that people take long breaks in their work if it is at all possible – and this is becoming ever more common – to simply enjoy life for as long as the money lasts. Working eight hours a day, 12 months a year, 30 years in a row, and then retiring is not the younger generation’s desire.

Nevertheless, we offer them social support if they do. And what is the result? Many people aren’t tying their careers to the social-insurance model in their early years, but deciding to join it only later and once they have a need for certain services such as medical assistance, children’s schooling, etc. The pension system is the only one that does not allow full benefits when it is joined later, because the persons have lost the chance to maximally invest in the pension pillars. Yet all the other systems – healthcare and education, for instance – are entirely vulnerable in this sense. Yes, we can say that anyone who doesn’t want to work the old-fashioned way will simply have to go uninsured, but this will not deter them. They’ll simply forego having social guarantees. We will lose the greatest part of tax revenue accrued from value creation made throughout the person’s life cycle: the years between 20–35 and perhaps even a little later when they don’t need to send kids to school. These persons will only join the system sometime later. It is neither sustainable nor tolerable for states, any more than it is sustainable to be one of the last states forcing people to physically show up somewhere to use services.

Governments must start considering how to direct new springs into the tax stream going into current models, which are fed by life-long activity as an employer, employee, entrepreneur, independent worker, or landlord. The flow from these springs is not constant, but may be an intermittent trickle that sometimes comes from one source, sometimes another. It may, in fact, no longer be able to be tied to any one specific country. We are striving to get large corporations to pay their fair share of taxes in every country. Can you imagine us trying to reach an agreement with every digital nomad on where they should pay taxes? Nevertheless, it is our intention for them to pay taxes and contribute to the state social insurance system in some manner. They want the same, but staying in one place and working at one job (be it permanently or with breaks so as not to lose the guarantees it provides) simply does not suit their views on work and living. If we do not offer them flexible opportunities to opt in, we will only drive them away with the system’s rigidity. I do not know how to resolve the situation and manage it, but in my opinion, something should be done about it as quickly as possible. Those who act the fastest will win, because nomads, digital and otherwise, tie themselves only to the places where they are given more flexible conditions for paying taxes and using social guarantees.

This will be the next social breaking point: we must revamp the notion of working as well as social models based on earlier understandings. This disruption is already happening at the same time as states are still wrestling with the previous one: the transition to providing digital services. As an Estonian, I am relieved that we are able to face on the new tasks ahead of us, because we have nicely managed the previous one. Thank you for listening!