By Katie McAdam

Famed as the Silicon Valley of Europe and the most connected nation on earth, the digital world holds a huge grasp over Estonian society.  However, for the Baltic Tiger, the founding of its success arose from great unrest.

After gaining independence in 1991 from a crumbling USSR, it was vital for Estonia to transform its weakened economy.  Like many of the former Soviet states Estonia was subjected to “shock therapy” economics, in an attempt to quickly transition from a state controlled to a market led economy. Under the policy, former state businesses were privatised, taxes increased, and government budgets reduced.

However, after the initial emergency measures, Estonia needed to, in the words of its former Prime Minister Mart Laar, “give people new hope, new prospects and new opportunities”. In order to forge economic growth, Estonia had to first capture the national mindset. Under the communist system entrepreneurship was suppressed, forcing Estonia to inspire its citizens to create the enterprise that would generate wealth for the new nation. However, Estonia knew the path to prosperity was not one in which it could embark alone.  As the iron curtain was opened, Estonia looked to the possibilities offered by the international community. Indeed, Estonia was keen to stress its economic openness, determined to build its economy on a policy of “trade not aid.” By the mid-1990s, the policy had brought great success with the nation becoming the prime foreign investment destination in Europe. Thus, this climate of ambition would sow the seeds of Estonia’s entrepreneurial might.

Within several years, these promising start-ups would form established giants of the Estonian economy. Backed by its strong infrastructure, one area of particular success was in digital innovation. Indeed, Estonia’s economic miracle has brought with it the emergence of the elusive “unicorns”, a term applied to profitable corporations valued at over $1 billion. The nation is currently home to four of these unicorns: online casino company Playtech, the taxi app Bolt, money transfer app TransferWise and its most famous export, Skype.

However, if Estonia was to make a successful transition it was not only business that demanded ambitious planning. Estonia’s infrastructure called for radical reform. As part of Soviet bureaucratic might, Estonia was overseen by a highly centralised regime in Moscow. Quite simply, with no existing system Estonia had to set about mapping the nation from the ground up.

Investing in the Internet proved to be quite a lucrative starting point. ‘Tiigrihüpe’, Estonian for ‘Tiger Leap’ was Estonia’s extensive digital infrastructure project which would assert its technological might. The plan oversaw the development of Estonia’s computer network, with a particular focus on education. This allowed for the provision of computer suites in all schools creating a generation of highly skilled individuals who are supporting the nation with the latest forms of online solutions. The legacy of these early programmes has formed Estonia’s online education system, with all learning materials due to be digitised this year.

Access to online resources such as these is simplified through Estonia’s e-identity system. Each Estonian citizen has a unique e-Identity card acting as a digital passport to all governmental services. The service is claimed to be so efficient in busting bureaucracy that 5 days per year are saved with “digital signatures.”

From an administrative perspective, Estonia’s digital governance has greatly streamlined a complex social security system. This is aided by the nation’s “only once” policy whereby, when information is given to one government agency it is shared with all others, preventing the need for details to be administered multiple times. Additionally, many operations are completed on an automatic basis, for example registering a child’s birth enrolls them in family benefits.   As a result of practical technical solutions, Estonia’s system of e-governance allows for 99% of government functions to occur online.  

Estonia’s e-governance has had particular importance over the last few months with the ensuing COVID-19 pandemic. Indeed, this strategy has seen real impact during the pandemic with its current infrastructure enhancing a smooth transition to the digital world. Unlike its counterparts, Estonia solved many of the practical problems imposed by coronavirus restrictions almost instantly. Whilst many university campuses panicked, Estonia’s most prestigious university, the University of Tartu, managed to switch to online teaching within one day. Moreover, it further drew on its entrepreneurial spirit to create a government ‘hackathon’, inspiring people to develop inventive projects to face the crisis situations caused by coronavirus.  

The ambition of its early founders and their long-term investments have created the digital framework and institutional resilience which the nation enjoys today.  With technology embedded in its development, Estonia presents an effective model of reconstruction based on ambitious plans, long-term investment and practical low-cost solutions.

The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.