Has Estonia found the answer to the high value / low footprint economy?

4 June 2014 | Author: Kirsten Morel

Few countries have embraced digital technology quite as enthusiastically as Estonia. The Baltic state has pioneered e-voting and e-government, offers digital rights and has entered into agreements with its neighbours for the international use of digital signatures.

Estonia has developed a functioning digital ecosystem which successfully develops skills, encourages startups and provides private and public sector funding for promising businesses. However, it has not all been plain sailing - Estonia's eager engagement with digital technology led to it becoming the target for arguably the world's most famous nation-on-nation cyber attack in 2007.

Today, Estonia shouts about its digital credentials and rarely shies from an opportunity to engage in a 'world first'. President Toomas Ilves is a keen supporter of the country's digital ambitions and only recently made an impassioned plea for the Internet to remain intact as one network rather than be broken down along national and regional lines. He has also argued for a single, European digital marketplace.

Like many smaller jurisdictions, one of the driving forces behind Estonia's willing adoption of all things digital is the promise of developing an economic sector that can deliver a great deal of value without needing a large physical footprint or placing enormous demands on resources. High value / low footprint is something of a mantra for economic development ministers these days and the virtual nature of the digital world makes it their ideal target. 

There is, however, just one small problem - most small jurisdictions do not have the skills to develop functioning digital industries without importing professionals who do. This may not be such an issue for countries but for small islands it is a critical problem. 

A Popular Paradox

You won't have to talk to many taxi drivers in Jersey or Guernsey to find one who will bemoan the impact of an increasing population and, as we move slowly out of recession, nations of all sizes are finding their xenophobic streak. You need look no further than the success of far-right and anti-european parties in the recent EU elections for proof of that. 

The paradox of populations that want economic growth without growing the population is testing politicians of all persuasions but few have any real answers beyond the hope of finding the holy grail of high value / low footprint industries.

Never a country afraid to think the unthinkable, Estonia may well have found at least part of the answer.

Announced by the government last month, the nation's E-citizenship initiative will give non-Estonians who live outside of the country, the opportunity to gain virtual Estonian citizenship. This means they will receive an electronic ID card and be able to operate within Estonia's infrastructure, for example being able to open a bank account, without actually having to reside in the country.

Championed by Estonia's Chief Information Officer, Taavi Kotka, the idea is seen as a way to massively increase Estonia's global footprint without having any discernible impact on the physical nation itself.

"10 million e-residents is an aim that shows the size of our ambition," said Kotka. "Our idea is to create via services, an infrastructure which would enable companies, and not just Estonian companies, to use that infrastructure and thus make Estonia bigger. There are 80,000 companies in Estonia now, if we could double that number with the help of e-residence, it would be a great thing."

The aim is to entice 10 million non-Estonians to sign up by 2025. This effectively means increasing the population more than seven times without placing any greater demands on the country's physical infrastructure. Estonia however, would benefit enormously from a doubling of the number of companies registered there. Equally, the initiative could see knowledge and skills being transferred without needing the immigration that populations seem so wary of today.

Raising Questions

Kotka hopes to have the project up and running by the end of this year. Embassies and consulates will issue the e-ID cards once certain background checks have been completed. Of course, the issue of crime has been raised but Kotka is clear that he thinks any potential for criminal use should not derail the idea.

"Criminals are going to be always there," he told ZDNet. "The question is, are we going to abandon a truly innovative idea because of that? If there are 100,000 companies created and 4,000 of them are scams… that's a problem that we will deal with, but it shouldn't stop us.

"We have to keep in mind that these people are not going to live here [in Estonia], but they use Estonian e-identity to get access to certain services in order to invest and do business in [the] European Union, while living somewhere else."

Is it possible that Mr Kotka has finally found the answer to those awkward and contradictory demands for economic growth without immigration? Only time will tell but economic development ministers around the world should take note and keep an eye on the Estonian e-citizenship experiment.

If successful, the implications could be tremendous. Not only could the idea bring economic benefits but it could raise fundamental questions about the role of governments, nations and their citizens. These are all questions for the future - but what future for the nation state should Estonia's grand idea take off? 

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