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President of the Republic at the Business Europe Council Meeting in Tallinn

01.12.2017

On Brexit, I have to say that the Estonian Presidency is still hopeful that sufficient results will be achieved in the final General Affairs Council of this year. We are holding out hope that these three most important issues can be solved to a certain extent. In the beginning it seemed that the financial settlement is a complicated issue but in the reality, the most difficult issue to settle is the question of the Irish border. If our Irish colleagues and partners say that they are satisfied with what can be agreed still this year, then one of the final decisions of the Estonian Council Presidency could actually be that we might be able to move into the second phase of the negotiations. Estonians are very much hoping that this will happen because we realize that clarity is essential in this situation.

I would like to return to something Tiit Kuuli said about Estonia: he mentioned that in Estonia people like me fluctuate relatively freely between the public and private sector. This is a sign that we have a permissive legal environment for people moving and disseminating ideas between private and public sector. This is a big part of our society and also the foundation of the digital Estonia, which you had a chance to see yesterday. I happen to know that the paperless government of Estonia in 2000 was born because the technology expert and adviser at the Prime Minister's office came to the public sector from the private sector and was wondering why digital databases, which were used widely in the private sector, were not at all common in the public sector. The Prime Minister decided that, "let us go paperless as a government", and we did.

It was actually astonishing for that adviser—Linnar Viik, and me and all the others – we stood by and observed how people from really good newspapers like the Financial Times and Economist, they stood in awe, and said, "oh my God, here is a government where ministers push buttons". They asked: "Who is helping them to go through the system?" We knew that in the private sector, this had existed for 10 years. You could not imagine a big company's board meeting without some kind of online paper filing system. We noticed that in the public sector this is something that no one has done, and it seemed a competitive advantage.

We sold our paperless government internationally very successfully and with no technical innovation, it was quite old-fashioned already for the private sector. It actually earned the money spent on it back in a couple of months, just counting the pages we covered in the international media. This was still important for us. In 2000 Estonia was not a member of EU or NATO and was not so well known. We could have gone the traditional route and bought some ads with a message like "Estonia Positively Transforming". We did not do it. Instead we created a paperless government and got coverage for that. We found it worked very well. This was the beginning of the digital Estonia.

Then the ICT sector and banking sector came to the government and said: let us give everyone a digital identity. Let us pass by all these phases where you had simple printed codes for online banking. Let us do it together, public and private sector. Let us give everyone the possibility to develop digital services over the internet. The government had to trust the private sector quite a lot, because in these kinds of agreements governments put their reputation on the line, and the government could not be assured that the services would really be there. The government knew that it would not be able to create public services online quickly, even if it saw the perspective that it could be done. At that time Estonia was just exiting the IMF programme country status so it was far from being a country that could spend a lot of money on public services. The government saw that this opportunity would also mean that our public services would start sooner to look like the public services we all admire in Scandinavia and in more developed countries. Because we do them online, then actually they are actually more effective in reaching our people.

The government was tempted, but was reassured by the private sector, also in the form of concrete support for training programmes. By this stage, we had already started Tiger's Leap programme that taught children computer skills. This was traditional, this was very much like everybody else was thinking – "there are these computer things, we need children to learn how to use them". We realized that if we wanted to be inclusive in digital development, we also needed to expand this programme to village libraries, elderly people and reach out to everybody. Because that was something on which the government was adamant –it had to be inclusive, it had to include everyone. Frankly speaking, I do not know why the government and private sector do not often see eye-to-eye on this matter: what we call "inclusiveness" you call it mass-market – it is exactly the same thing. So of course, also the private sector side was interested that it would be as mass-market as possible. 1.3 million is not mass market for most of you, but here in Estonia it is a big thing. So finally, an agreement was reached in the government that the digital ID would be sneaked on everyone's identity card, the same piece of plastic, which we use to travel within the EU.

Other countries have also similar identity cards, but ours came with a digital ID. What we needed to do then was to tell everyone to use it. Since people are lazy and want to save money, then soon everybody was online. People think often that Estonians sat down and considered what might help them leapfrog, and then came up with the digital ID – I can tell you we did not realize what we are initiating. We just wanted to do what most of the political class now understands with industry 4.0 and these other processes: to automatize processes. We removed people from the chain of providing service or delivering goods, and just had more machine-run processes. We did not understand that we were unleashing something different. We unleashed a real disruption in society and changed the society. Now our people count online as part of the everyday life.

Estonians care about online enough to make sure they are also well protected. They are by definition better protected than citizens of those governments who have not provided their citizens with safe identification online. The only thing the state does here is to provide a digital passport, a digital ID. Every government agrees that you need to show your passport to be safe in the analogue world, while transacting or communicating, Somebody looks at the photo, says it looks reasonably similar, and you are identified. For some reason, online many governments, force their citizens mostly to rely on Google identification tools, even if they at the same time say that the Internet behemoths are horrible things. They do not provide people with passports for the cyber sphere. In Estonia, we do. This makes our people safer online, but since it is a part of real life for them, they also keep themselves safe on the internet.

We had a really good test last year; it was called WannaCry. It was globally testing the systems in all countries. In Estonia, we did not see any WannaCry attacks because people know cyber hygiene is an important thing. If the system says "update", you update. WannaCry was successful because people were using software, which had not been updated, in the medical systems and elsewhere. We passed that test.

Because one generation of Estonians has already grown up in the digital society, we seem to be much more cyber hygienic than people elsewhere. Which is first the most important lesson for everyone: you need to learn how to be cyber hygienic. Public sectors need to provide safe identification means to their people and teach people to be cyber hygienic. People say it is a huge task and we cannot do it, therefore we stay on paper. Well, I have a parallel with normal hygiene. At the time, when our societies taught our people to wash their hands, our communications means were much worse than now, so we cannot say it cannot be done. It can be done. As our example demonstrates, it does happen if it is part of a normal life.

Another lesson which shows that digital society is quite different from the society, which has not gone past this transformation came just this year: Estonia was also a victim of the famous chip problem of one big international company, which provides chips for identity cards, not only in Estonia but in many other countries. Also for similar functional cards – some door cards use the same chip etc. Millions were affected, maybe a billion people were affected by this problem. It posed a serious risk only in Estonia, because in Estonia it affected at least half of our ID cards.

Some countries just closed their identity cards. It did not cause any problem in the society, which shows that they are not digitally changed societies, because nothing happenes if you close down your digital IDs. In Estonia, what we learned was that nowadays we need to have not the digital, which is a safe analogue alternative but we need to have a digital, which is a safe digital alternative. We do have a mobile ID, but its penetration is not the same as digital cards, where 100% have them. So our people got really angry with the government, you know for what? Because they– not everyone, but some of them – had to go to an office to update the certificates. Most of them could still do it online, but it did not function in the first 2 minutes; sometimes you had to do it nine times, because everyone was trying to update at the same time. No one could have such a wide channel open all the time so that 700,000 citizens could update at the same time. This taught us that we are on a different planet. We are on the planet Mars as far as digital societies go and we need to have a digital alternative to digital. Because just this one visit which people had to undertake and sometimes wait for maybe one hour in the offices – Estonian people cannot tolerate this kind of relaxed attitude by the public sector that forces them to come to the office and queue at the office. They will definitely not accept this anymore. It is done, over. This actually means that this effect is measurable – it is 2% of the GDP just by signing digitally. We pay for our defence budget just from the savings we get from the digital environment.

It is important once more to stress that at no time in this chain while we have disrupted our society digitally, have we actually created any cutting-edge technology. This has once more made very clear what we also know from the analogue world: we have always known that washing machines and cheap cars have changed our societies much more than the trip to the Moon did. It is much more important that we have a tried and tested old-fashioned tech in the hands of everybody rather than a really cutting-edge one at the hands of a few. This means that if you need to leapfrog into a new technological sphere and space, you do not necessarily need to be a rich country. What you need to do is to have a permissive legal environment. Our digital disruption happened because we were a permissive environment.

The state created a law base, which allowed to develop more services on the same platform. The state promised that this platform will not create monopolies, that the platform is content neutral – everyone can provide the services they want over the same platform. The state promised something even more important, which is that since it also has lots of data in databases, it was necessary to make clear that this data still belongs to people. My address, my personal data does not belong to the Estonian state just because it is in the database; it belongs to me. I have the right to know and control this data, which means that if one state database needs to check my information, then it can be done with my permission, with my knowledge, and if someone sneaks into the database without our knowledge, it is a criminal offence. And it did not take much more than a couple of well publicised cases for people to realize that it is no joke – you do not go into the police database just because you have the access and check on your ex-boyfriend's new girlfriend. It is an offence and it should not be done. So our data is well protected, and our state promises this to our people with laws.

You can also see this elsewhere. For example, there are two countries – Iceland and Estonia – that started the national genome plan with private money simply by creating a legal environment which allowed the data to be analysed for scientific and also commercial purposes, and this way, they actually got their people's gene data, gathered in the system built up for the national genome foundations. Later other governments came in and messed the market up, so we actually had to stop to gather gene probes for 10 years. Bu the system is still there and in case there is need, we are able to analyse, to provide data for pharmacy companies, on co-morbidities and family trees and health records, in this way that it helps us to get access to medicines that otherwise our legal system would not be able to support.

Our digital disruption by legally permissive environment, which created a sandbox for companies to invest in, is nothing new in business. We have seen it before and of course we will see it also after that, because I am quite sure the next big disruption is not going to happen in Estonia. Sad as it is to say, but that is how life goes.

It has now been 17 years and a generation that we have been using our X-Road platform – we call it cross-roads because people and business meet on that platform. I also spoke of the savings. Mainly because we are already around the first bend, we are now seeing clearly the questions that will arise for digital societies once we are all digital. Of course, a lot remains to be done on the Digital Single Market during our Council Presidency. Right now, our services and trade freedom ends exactly at the borders, as soon as you go to digital, which is very weird, but this is how it is.

This is only what I think is inevitable for governments to cover really quickly. The next challenge is around the corner, and since most are still grappling with the first bend, they do not see it. Since we are already around the first bend, we are a digital society, we now have other questions. We tried also to deal with them to a certain extent during our Council Presidency. For example, the officials of the Ministries of Finance from the European Union countries came together to discuss taxation of companies in digital societies – where to tax if transactions happen completely or partially online, how this taxation system should be handled.

I would go even further. I would say that while we are grappling with taxing in the analogue world, companies like Starbucks etc. in the European Union, and we are already getting some fraction of the idea that company earnings based online that they will need to be taxed somehow differently. In Estonia we realize that the problem is much deeper, and this is something I like to call the Alice in Wonderland problem. You know, when the cat was disappearing and the grin lingered on. Because of the digital disruption, our social model is dead. Because our social model is based very much on the industrial understanding of how society works. You go to work in the morning, to the same company, you work 12 months a year and maybe get a few weeks off, and you do it for 30 years and then you retire. This all happens while you have a fixed address and your company has a fixed address. It was also a longstanding industrial understanding that people need to come together and form a company and work as a company to be effective and productive. This is gone. This will be gone. Yes, we know that industrialization processes and Industry 4.0 will lead us to a situation where maybe the proportion of people who work in industry will look similar to what we now have agriculture: three, four maybe five or seven per cent of the workforce.

At one point, the first industrialized countries had 45% employment in industry service, the late industrial has never passed 30%. There is a constant tendency of losing work in industry and services, which can be replaced by robots and machines. This is one side of it, the efficiency game. The other side of it is simply that people are more empowered to work independently: we see it in Estonia, we see it in the UK, we see it in the Netherlands. The transaction cost of offering your skills is much lower because you work in the digital society, and your market as a narrowly specialized individual is much bigger because you can offer your services globally. For example, a bookkeeper if they know the law base very well, they can sell their services in five countries, definitely in a much wider circle than previously, when you had to take a car and drive between different companies where you were a bookkeeper. So you can see that individuals can narrowly specialize and go independent, but more and more do so.

Now I ask you a very simple question: if I work in the morning here in Tallinn, probably in my own kitchen and offer services to someone in France and by lunchtime I will be working with someone in Iceland, and in the afternoon with someone in Australia, so in one EU country, one EEA country and one third country, how exactly will I be taxed?

The other side of the coin is, how exactly will my country provide social services to me? This is the question we should be dealing with, not where Starbucks is taxed. This is the idea that we need to be already thinking about. Here in Estonia, we are thinking – we do not have a good solution but we realize we need to be a dock. We need to be a dock to all of our independently working citizens who may or may not be at any particular moment here in Estonia or elsewhere, but we need to provide for them also when they are elsewhere. For example, we need to provide education in the Estonian language for children globally, because our people may not want to sit in Tallinn to do their work, they may want to sit somewhere in the Mediterranean. Who says they should not? So we should be thinking of these things. This is very important – that we do not miss this development. In Europe – because if we miss it we are out of the game; someone else will provide the safe dock. The safe dock idea in Estonia has been tested on companies and also people of other countries, because we offer e-residency, and this develops our understanding of the safe dock principle. Because our e-residents can of course establish companies here, pay taxes here, have an electronic EU company, but they may never visit Estonia; there is no requirement.

We see that slowly, much more slowly than we would like, the private sector is also starting to provide e-residents with additional services, as we see for Estonian e-citizens. You can open a bank account without coming here, by digital verification and video links and those tools, and this is a safe dock for people from elsewhere who want to operate economically in Europe. This will trickle down to the whole society: much more people will work independently. We think technology is a sophisticated thing, and we talk a lot about how to protect people who lose jobs. First of all, it is important to recognize that indeed there is a need to support our societies while we go through this transformation, that jobs are lost in the industrial sector, and this transformation otherwise will be as painful as it was when jobs were lost in agriculture. But this cannot be done by taxing problems and paying subsistence fees. Imagine if we had taxed tractors and paid subsistence fees to people who lost their jobs in agriculture! Yes, I am quite sure that poorer and middle class people pay a higher price through the industrialized process than they needed to pay had we then had the educational and social systems we now have, but as I just demonstrated, these education systems and social systems are not guaranteed. They are vulnerable to the same change. People can be helped, and we do not need a master's degree to be helped in this kind of change because a surprising number of jobs created by technological change are in principle very simple. You would not have thought they were jobs before, as a travelling YouTuber is a job. It brings income to people. You would not have thought it that shatting or Facebook could be jobs. All this now, which is coming already to the system, and the old jobs get enhanced.

As we discussed, everyone becomes more independent in delivering their goods and services. If you for example are a person working in the handicraft sector, you can think global nowadays. Two centuries ago, you had to go yourself on the markets to sell things. Last century, big efficiency gain already – you signed the agreement with a souvenir shop, it was much better. Now you just have a homepage, maybe you collaborate and cooperate with other handicraft people, a big network of handicraft people, for example which may involve people from Estonia, Africa, Australia, wherever - all independent, all enhanced by the digital possibilities. So it is actually much simpler, to see the trends we see on the market, to see that this change is not so frightening, if we look at new jobs are indeed being created. The important thing is that governments do not mess up this process by being too protective or proactive. They should be actually supporting people, not trying to kick the can down the road by offering subsistence fees.

So these are the things that we here in Estonia are thinking about – digital disruption and societal change. And we are also trying to disseminate all these idea to our partners in Europe, and if you want to learn more about it – we do not have time to cover it here – the different sectors, different aspects, and even if you look at my own humble speeches through this Presidency. They can be found on my homepage.

Sector after sector we have demonstrated to our partners that technology is changing our societies. It is changing so much that our normal ways of tackling how to analyse social processes and react to them are outdated. Above all we need to remember this simple thing: that technology in the 20th century did not change that quickly and governments could have 30-year plans if they so wished, or 10-year plans. The Marshall Plan would probably not work nowadays, because change is much quicker.

In the 20th century, what did we use in the 20th century? We used petrol and land. If you look at what is now in your pocket—probably the newest versions of the iPhone—it will be Stone Age by that time. We need to radically rethink how we plan for our society. If we know one thing, nothing will be the same in five or ten years' time, we need to help our people in this environment, and long-term planning is totally out of the window. On this optimistic note, I would like to close.