e-Estonia: A Model for Success

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Though much of Tallinn resembles a medieval city, the capital of Estonia has undergone rapid modernization to become the small Baltic state’s rendition of Silicon Valley. Source: Microsoft

At the outset of World War II, Adolf Hitler and Joseph Stalin approved the Molotov-Ribbentrop Pact, the famous non-aggression pact that divided Europe into German and Soviet spheres of influence. The treaty was predicated on the assumption that the two great powers would achieve preeminence on the European continent, and following the war, the Soviet Union retained control over several states that it had been formally awarded by the pact.

One of these states was Estonia, whose economy was subsequently destroyed by the mass nationalization of private industries and the collectivization of farmland. When Estonia gained its independence in 1991, the nation of 1.3 million faced a myriad of troubling issues, stemming from fifty years of underdevelopment at the hands of the Soviet regime. Yet, in just over twenty years, the small Baltic state has radically transformed into a modern, liberal society with exceptional living conditions. Such an abrupt shift can only be attributed to the emphasis that the young nation places on technological developments, creating a model for success that all small developing nations must consider.

Estonia’s declaration of independence coincided with the commercialization of the Internet, and since the nation’s inception, it has made an active effort to integrate Internet technology into the structure of civic life. The core driving force behind this decision was the nation’s relatively small workforce, its lack of any modern infrastructure, and finally, its limited natural resources. Estonian politicians recognized that investing money into Internet and communications technology, or ICT, would be the most efficient way to reduce government costs while simultaneously improving the quality of life for citizens. Therefore, as opposed to budgeting excessive resources towards defense spending following their independence from the Soviets, Estonia invested in ICT. In 2000, Estonia introduced a program known as e-Cabinet, allowing the Cabinet, the executive branch of government, to eliminate the use of paper documents and restructure meetings and save valuable time by using a multi-user database and scheduler. Other programs include e-Tax, i-Voting, Digital Signature, and e-Business Register, which respectively allow citizens to pay taxes, cast ballots, sign legally binding documents, and register new businesses quickly by using integrated ICT systems.

There are three crucial components that have facilitated Estonia’s reliance on the Internet: the Electronic ID card, X-road, and extensive public Wi-Fi. The Electronic ID card enable users to securely verify their identity and thus gain access to the online systems. Since e-ID cards are issued to every Estonian over the age of 15, 90% of citizens use this digital identification system on a constant basis. The X-road system integrates each online system, allowing databases to interact more efficiently by linking them via the Cloud. As a result, an entrepreneur would be able to register their new business using e-Business Register, verify their identity with their e-ID card, and use Digital Signature to sign the documents, using X-road to integrate these systems in real time in order to streamline the user’s experience. Finally, the existence of public Wi-Fi throughout Estonia, even in loosely populated areas, enables all citizens to have constant access to each of the nations’ online programs. These three mechanisms have enabled Estonia to develop extensive systems that have enhanced government operations by eliminating useless bureaucracy, improved the quality of life for all Estonians, and have created thousands of jobs in the ICT sector.

The governments of small nations must act quickly if they hope to apply Estonia’s model of success in their own countries. When Finland decided to upgrade its analog telephone network to a digital one, it offered Estonia its technology for free, but the newly independent nation declined the proposal. In the early 1990s, Estonia had limited infrastructure, but instead of following the traditional pattern of technological advancement, the nation invested in the production of its own digital systems. The key component of Estonia’s success that other nations must adopt is that the Baltic state skipped the stages of analog technology in favor of accepting modern ICT. Just as newly industrializing nations should avoid the environmentally hazardous methods that post-industrialized nations used over a century ago, small states should invest in digital technology as opposed to accepting cheaper, less efficient equipment that is unlikely to provide significant tangible benefits.

Unfortunately, it is unreasonable to suggest that the incorporation of Estonia’s advanced online systems into the fabric of all other nations is realistic. Countries are likely to take the path of least resistance in the pursuit of prosperity, and are often duped into relying on other methods in order to subsidize government expenditures. For instance, if states are able to rely on bountiful natural resources, primarily non-renewable energy sources, to fuel their economies, they often do. However, this decision often backfires, in what is generally known as resource curse theory. Often, small nations with extensive natural resources will neglect the other sectors of their economy, ultimately undermining the success of the nation as a whole while supporting the small minority group that controls the natural resources. Extensive income inequality ensues, with better living conditions for this minority and the expense of the vast majority, breeding instability and political turmoil. Despite clear evidence to suggest that such a resource curse does exist, most small nations with plentiful natural resources will ignore the benefits of investing in ICT, regardless of the Estonian success story. Moreover, states with large populations will be unable to effectively introduce e-Systems because of the extraordinarily high costs associated with the endeavor. Finally, states must refute high military expenditures in order to focus more resources on developing advanced ICT programs that replicate Estonia’s advances.

Throughout the world, there are many states that would instantly benefit from the adoption of the Estonian model of emphasizing the value of ICT. Small nations similar to Estonia would be able to achieve higher living conditions by investing in online services and expanding the ICT sector of their economies. While many small countries with vast natural resources will undoubtedly ignore the Estonian model, those that adopt similar measures will undoubtedly see resounding economic growth and increased prosperity throughout all income levels. In 1991, only half of Estonia had access to telephone lines, but in just twenty years, the small Baltic state has become a leader in technology, creating the prime conditions for entrepreneurship and startup culture. If a nation ravaged by ineffective Soviet policies can make a remarkable turnaround in two decades and develop the technology behind one of the world’s most successful startups, Skype, other nations can undoubtedly follow in Estonia’s footsteps. As proven by Estonia’s success story, investment in ICT will bring massive benefits to small developing nations, providing a higher quality of life to all citizens while stimulating efficiency in both the public and private sectors, ultimately generating long-term stability and economic growth.