Worldview: ‘e-Estonia’ and the digitization of a nation

By all conventional interpretations, the geopolitical situation of the small Baltic nation of Estonia can be best described as tenuous.

The threat that Russia poses to its immediate neighbors becomes more significant by the day, and the growing unease in Europe toward the European Union threatens to undermine the union’s authority. Further, the noncommittal remarks by Trump toward NATO raises questions of the alliance’s future viability. Domestically, the country’s small population and lack of development poses major obstacles for growth. In order to resolve these difficulties, Estonia has resorted to an unconventional solution to bring economic growth and garner independent political power. They call it e-Estonia.

E-Estonia, as the name suggests, is a project that strives to digitize government functions in an effort to simplify bureaucratic processes. Bland as this may sound, the e-Estonia initiative, which began in 1997, has been extraordinarily transformative and has challenged the conventional notions of a state. All government related operations from filing taxes to voting can now be done online. According to official reports, Estonia “saves over 800 years of working time and two percent of GDP annually due to these programs.” Because two percent of Estonia’s GDP is pledged to NATO defense spending, former President Toomas Hendrik Ilves would joke that the country’s national security was free, according to an article from The New Yorker.

A crucial element of the e-Estonia project is the e-Residency program that was

introduced in 2014. The e-Estonia website calls e-Residency “Estonia’s gift to the world.” The idea behind the program is that any non-resident can apply online to gain government-issued digital residency, with the intent that these new residents will create companies that will benefit both the entrepreneur and Estonia. Coupled with the fact that Estonia has the lowest business-tax rates in the EU, this means that interest in investment in Estonia via e-Residency is skyhigh.

As of December 2017, almost 30,000 virtual residents from 143 countries have created nearly 3,000 companies. Estonia has so far brought in 14.4 million euros in net financial proceeds and indirect socio-economic net benefits, and by 2025 anticipates a return of 1.84 billion euros. Due to the inexpensiveness of the program, even with this modest returns, Estonia is earning 100 euros for every one euro invested in the program.  

However, the entrepreneurial success in Estonia is not solely attributed to e-Residency. Not long ago, the main industry of Estonia was logging. But now Estonia is a hotbed for tech startups, most famously of which is Skype — built mostly with Estonian engineers and currently houses nearly half of its employees in Tallinn and Tartu in Estonia. Estonia heavily incentivizes technological innovation, and sees it as pivotal aspect of the country’s economic future. As of 2011, high-tech industries accounted for 15 percent of the country’s GDP. Viljar Lubi, Estonia’s deputy secretary for economic development, remarked that “We believe that innovation happens anyway. If we close ourselves off, innovation happens somewhere else.”

Thus the e-Estonia project is central to Estonia’s technological ambitions. The goals go beyond the economy as well. In a way, e-Estonia is an evolving outline for how the state of the future will operate. Taavi Kotka, one of the leaders of the e-Estonia project, said “if everything is digital, and location-independent, you can run a borderless country.” The significance of the project is not lost on Kotka, who told The New Yorker, “Imagine that it’s your task to build the Golden Gate Bridge. You have to change the whole way of thinking about society.”

All this ideological talk is inspiring, however Estonia has yet to master the digital bureaucracy that they intend to create. The big concern with the idea of a fully digitized nation is the threat of the system being compromised. In 2017, there was public outcry after it was revealed that there was a security risk in Estonia’s identity cards which are used to access the state’s digital services. Subsequently, the government blocked 750,000 ID cards, preventing those cardowners from accessing necessary services. While the security risk turned out to be a minor and easily-resolvable hardware problem, the resulting crisis was cataclysmic and revealed a serious flaw in digital-based services.

For now, however, the benefits of digitization clearly outweigh the risks for Estonia. Through the e-Estonia program, the otherwise indistinctive little Baltic nation has put itself on the map for foreign entrepreneurs. Furthermore, previously irksome bureaucratic tasks have now been made far more efficient. Taxes, for example, now take only five minutes to complete online, and over 95 percent of Estonians choose to file their taxes online. For other small nations, a program like this is enticing because it presents an opportunity to streamline government services and attract foreign investors. Of course, aspects of Estonia itself — such as its preexisting corporate tax rates and technological capabilities — make the digital movement more successful than it could perhaps be in other nations. However, the value of government digitization seems extraordinarily promising and may in fact be the path of the future in an increasingly globalized and technological world.

Correction: A previous version of this article referenced Estonia as being a Balkan nation rather than a Baltic nation.