Keynote by Toomas Hendrik Ilves – Edge Institute Digital Governance Summit

Estonia was very poor after 50 years of Soviet and Nazi occupation, and we were quite miserable. I was the first ambassador in the United States after independence, and sometimes I wouldn’t get paid. It was pretty bad. I found this little graph — this is something Estonia has talked about — from the Cambridge Economic History of Europe.

What you see here is that in 1938 Estonia was ahead of Finland, which was quite amazing when we looked at the next graph. We had been ahead in 1938 before the war, but in 1992, the first year after independence, this was the difference in GDP between Finland and Estonia, which shows you the benefits of communist rule. They were eight times richer than we were.

This is basically what has happened since independence. The blue is Estonia, the orange is Romania. You can see where the financial crisis appears and so forth. I tend to attribute much of this to efficiency, reduced corruption, time saving from digitization, and also what we have seen in the last 15 years — the spillover into the private sector because of digitization.

So let me say: what are we based on here? This is basically what we have today. It is based on existing standards. We use open-source software. Since the very beginning in the mid-nineties, the private sector was heavily involved because they saw it was to their benefit.

The basic infrastructure, after a lot of trial and error, we set up in 2001. Everything we built afterward is based on this one and only infrastructure, and we set it up so it is easy to use.

So what do you need for effective digitization? First of all, the most important thing — and this is the basis of all digitization of anything, but especially in government services — is that you need a secure identity that is unique, yours, and cannot be broken.

Secondly, you want services that people like. If you just digitize your government so it makes your government internally work better, people are not going to use it.

Next, you need a secure architecture that makes sure everything is connected, and you need to guarantee data integrity, which I will get to in a moment.

So what do we do?

First of all, we rolled out our digital identity card. It is chip-based. We still carry it around, but we have gone far beyond it. The whole point is that you have a chip, and what you get out of this has to be unique. That is: only you. Everyone has their own unique identity.

You need it to be able to give you legal efficacy. What does that mean? It means that with your digital identity, which is chip-based and controlled, you can sign legal documents. Once you can do that, you can do everything. But without that — if you don’t have a digital-signature law that says a handwritten signature is equivalent to a digital signature and vice versa — you will not be able to get all of the efficiency.

In order to make sure that it is secure, you need at least two-factor authentication, also known as 2FA. What is two-factor authentication? I’ll explain that in a minute. Everything has to be end-to-end encrypted so that when you are talking to the bank, you know you are talking to your bank, and the bank knows that you are you, because otherwise you get all kinds of scams.

And what is politically difficult? This stuff. The first part is technical. What is important for things to work is that your digital identity must be mandatory. That is the tough part, because if it is not mandatory, then you don’t get enough people using it. And if you don’t have enough people using it, then it simply doesn’t work. So you must make it mandatory. That is one of the difficult political decisions you have to make if you are going to do digital governance.

Now, just to make clear why all of this is so important: this is a famous 1993 cartoon from The New Yorker. This is the whole essence of why you need a secure identity. It has two dogs; one is in front of a computer, the other is looking up, and it says: “On the internet, no one knows you are a dog.” This is precisely what digitization with secure identity is meant to overcome.

So, end-to-end encryption. This is for techies. It is a no-brainer, but basically it means that everything you put into your computer — once you have identified yourself — goes to where it is supposed to go, and nowhere along the line can it be decrypted. The encryption is based on two-factor authentication, which has two elements to it: something you know and something you have.

This guarantees that you are you. You have to know something — that is a PIN code — and you have to have something in your physical possession, which is a card or a chip. In later days, there are other mechanisms for doing this.

The point of these two fundamental aspects — and what Estonia did — is that the chip was invented in 1975, as we use it, and the encryption system was invented by two Stanford professors in 1979. One of the lessons of digitization I would give to Romania is that until we did this, no one ever thought about putting these systems together for governance. From 1975 to 2001 — a quarter of a century — the technology existed, but no one decided, “This is a cool thing to do, this would give us what we need, and we can build a digital system on it.”

Since then, everybody has done it. But to give you an example of how slow things are: when we did this in 2001, it took the U.S. military until 2013 to implement this system that we had in former Soviet Republic Estonia in 2001.

So, using existing technology, if you know what is out there, you can get pretty far ahead. The next thing is: what do you do with this? And that is — it requires an architecture. An architecture which we invented. It is actually one of the things we did invent. We call it X-Road, and I’ll explain how it works. But it also must be secure.

And the whole idea is that there is no central database. This is important. It is distributed. When I say there is no central database, I mean we were forced to do this because we were too poor to build a big data center. But what we already had was that every ministry and every agency had their little server.

And on top of that — I don’t want to insult any ministerial or agency techies — but they all said, “No way, we’re not giving up our servers.” And so we ended up with this system, which is very clever and also very secure, which is that the only way you can access any database is by identifying yourself through this encrypted card or whatever, and then you can get into the server. No one else can get into the server. Only the people who use the system of an ID card with end-to-end encryption.

So even though the ministries and agencies said, “No way you’re going to get our server,” we said, “Fine — but no one will have any access to it except through our system,” which is kind of clever and nasty.

Now we’ve gone beyond that, and now we are in the cloud, and we have all kinds of arguments about clouds, but that is in the future. But the main thing is: there is no central database.

Now, the reason why this is important is that it means all data are kept separately. Come on, guys.

The idea of this — first conceptually — is: if you have a tanker, and you know, we have tankers that run around with oil in them, and there was a terrible disaster about 30 years ago where a huge tanker ran aground in Alaska and all the oil came out. It was an ecological disaster. Since then, the way a tanker works is that it has different holds. So if you have an accident, one will go, but the other ones are still secure.

And that is the principle of a distributed data-exchange layer.

But to give you a better visualization of how it works: you can think of this as a room. Imagine this whole room full of Christmas balls like these, and each one of these is one kind of data.

So this here could be my medical records — but that is all it is, only my medical records. This here could be your medical records. This here would be my tax records, and this one here would be your tax records.

The point of this is that you cannot — at worst case, if you break the system — you will only get one of these.

You don’t get all of them. You don’t get everybody’s tax records. You don’t get everybody’s medical records. You just get one person’s. That is the worst that can happen, and this is fundamental to security.

This was something that, unfortunately, the United States did not think of. In 2015 — fifteen years after we had the system, and ten years ago — they went through what is called the OPM hack. It is known as the Office of Personnel Management hack, in which somebody — we don’t know who, but usually they suspect the Chinese — sucked out all records of all federal employees: 23 million records.

All the records — CIA agents’ psychological profiles, their home addresses. Anyone who has ever worked for the federal government. Their records were all stored in one single database, and all someone had to do was crack whatever encryption there was. They got in, and in 2015 they realized all of it had been sucked out.

Okay. So that is what the security part is based on.

Now, what you will find is that ever since we introduced this — and even before — people say: “Well, what about privacy? What about privacy? What happens if the government goes in and gets our data?” That is something you have to safeguard legally, so that no one can really access anything.

We have a fairly clever little system for that. First of all, the obvious thing is that you need a court order to go into any kind of records. That is fairly standard in European countries.

But more important is an issue that gets very little coverage, and that is data integrity. To put it bluntly: if someone gets in and has my medical records — alright, they have my medical records, they find the problem with me. But data integrity is if someone can change your data.

To take the crudest case: if someone changes my blood type in my medical records, and then I end up in the hospital and get the wrong kind of blood, I can die.

More obviously, the issue is bank records. If someone goes into your bank records and sees how much money you have — well, in my case, it is kind of embarrassing to see how little I have. On the other hand, if someone goes into your bank account and takes the money out, that is pretty bad.

So what we have done since 2008 is put all of our critical data — bank records, healthcare records, and similar things — on a blockchain. However, it is a private blockchain. It is not Bitcoin. It is something which requires permission — a permissioned blockchain, to be precise. You cannot get into it to change anything unless you are authorized to do it.

So who is authorized to do it? My medical records — my doctor is authorized. No other doctor is authorized to do that. That is the basis of it.

And we have one more clever thing we do, which is that we have a lot of public records. In my country, all private-property land holdings are public.

You can go in there and look at it, and of course you can imagine — if there are any journalists here, and there certainly are politicians here — if your private property is publicly available to be seen, everyone is going to be looking at what you have. And of course that is what they do.

But the little trick is that we have something called what I call mutual reciprocal transparency. That means: if someone is looking at my data, that is very nice — but I get to see who is looking at my data.

I had this one experience once when I was in office. One of my staff said, “This guy is looking at all your data.” I said, “Oh, really? Okay.” And then, when I saw the journalist, I said: “Hi — so you’re looking at all my data.” He said, “How do you know?” I said, “Well, you don’t know this, but every time you log on to see what I have, I see who is logging on to see what I have.”

So mutual reciprocal transparency works well, I think, and it is the source of much fun. But more broadly, on the issue of privacy, everything is logged and we keep the logs.

When we talk about privacy and people say, “What happens? Things are not private and the government can come in and look at what you have,” I bring up the following case. I don’t know how many of you have heard of Michael Schumacher — who still is, he is alive — but he was the world’s greatest racing-car driver.

He had a horrible accident skiing in 2013. And of course, being someone who was so well known and popular, everyone wanted to know what was going on. And right after he was taken to the hospital, all of his medical records appeared in Bild, which is the largest yellow newspaper in Europe, in Germany. And he is German too, of course. And it had everything — skull X-rays and all that other stuff. Terrible.

Well, that can happen if you live in a paper world, because someone can go in there, take the record, make a photocopy on a Xerox machine, put it back in, and then send it off — and you can get a lot of money. Of course, you can’t do that in our system because every form of access is logged. So if anything ever leaks, you will find out who did it. Fundamental.

What makes all this work is another revolution. I’ll just mention this quickly. This is something that gives enormous power to you and to the government — to the government because it makes it much more efficient; to you because you don’t have to keep writing out your address and your phone number every time you fill out a form. Once you have your ID, all you do is log on with your ID and all that stuff is there. You don’t need to tell anyone.

Because you don’t have to keep writing out your address and your phone number every time you fill out a form. Once you have your ID, all you do is log on with your ID and all that information is there. You don’t need to tell anyone.

When I lived in the United States after I was in office, every day I had to fill out tax forms and write everything out. It was terrible.

Now, the reason why this works is the revolution in bureaucracy that you are able to do once you have a digitized form of governance. The once-only rule is really based on this.

To understand this: bureaucracy, ever since it started, was based on some physical medium. In the last 25 years, you can have a digital medium, but it is called a PDF — which is just paper, actually. When bureaucracy was invented 5,000 years ago, the whole idea of bureaucracy was that as long as it is based on a physical piece of paper, or a PDF, it is a serial process.

You go into a government office, you hand in a paper, someone stamps it, then it goes to the next office, someone looks at it, then it goes to another office, and eventually it comes back to you.

Digitization has made bureaucracy a parallel process, so all things happen at once.

An example of what this means for a human being — a citizen: the guy who designed our healthcare system, or at least part of it, I asked him, “How did you come to this idea to do it this way?” He said: “Before I was given this assignment, I had just had my first child — or my wife had my first child — and it was winter in Estonia. Winter in Estonia is not a place to really enjoy. And I had to go to the population registry, then I had to go to the place that gives the birth certificates, then I had to go to the health insurance company, then I had to go to my local government, because in Estonia local government revenue is based on how many people live there.”

So he designed the system so that the way it works is: when a child is born in a hospital, the hospital will say, “What is the child’s name?” And that is all you do. Because as soon as you tell the hospital the name of the child, the population registry gets the name and assigns a unique identity. The identity goes to the healthcare company, to the office issuing the birth certificates, it goes to the tax department (or finance ministry), because that means you suddenly have an automatic deduction, and it goes to your local government to tell them they have a new citizen.

All of this happens without you doing anything aside from the mother saying the name of the child.

That is where the savings come in from the citizen’s side. We calculate — given the amount of time it takes for the government to do things — that we save maybe 2% of GDP by cutting down on bureaucracy.

Much more important is what it does for the citizen, because you don’t have to do all that anymore.

And when we look at the political side of things, people say, “People don’t want to use this stuff. Why do they want to do this?”

I mean, why would they? Senator, come on. Well, that is true — but if you use tweaks and nudges to do things that people really like, then they start using it. The one thing that people liked the most in the beginning was doing your taxes.

Taxes — filling out tax forms — is probably the most awful thing in the world, especially if you do it by hand and on paper and you have to add everything up. And that is the U.S. model. And then you end up saying, “I can’t deal with this,” and you pay a huge amount of money to a tax company that will do it for you.

In Estonia, the system — the same sort of parallel processing I was talking about — everything, all money-related aspects, feed into one place. It has all of your salaries, it has your deductions automatically for your kids. If you make a donation to the church or the Boy Scouts or something like that, then that is also deducted automatically.

And then, when it comes to tax day — or tax month, you can do it any time — you log on as you, and there they present all of your data. If you bother to look — but it is never wrong. Then you look at it and you press Enter, and there go your taxes. It is done.

And we tweaked it a little more — it was kind of sneaky — but if you did your taxes online, you got your refund automatically, right to your bank. If you did it on paper, well, it would take a while for the tax board to get around to looking at it, and then you would get your refund. So people who want to get their money fast —

Other things that really work well, that people love, are the digital prescriptions. The digital prescription was something we introduced in 2007, so that your prescriptions are online. If you go to any pharmacy in my country — you go there, you identify yourself, and they say, “Oh, okay, you have this, this, and this,” and then you get it.

So this was going very smoothly. Everyone loved it.

And then the Finns created the same system. So in 2012 I took a visit to see my Finnish colleague across the Gulf of Finland, and I said: “Look, you have a digital prescription system. We have a digital prescription system. And every year, seven million Finns come and visit Estonia — and there are only five million Finns — so they make a lot of trips. Why don’t we make our digital prescriptions interoperable?”

And he said, “That is a good idea.”

Anyway, it took a long time to get this done, because the different ministries on both sides were saying, “How can we do this?” and so on. But we finally got it done. And that was the first ever, anywhere in the world, cross-border servicebetween two sovereign countries with their own medical systems and everything — but they work across borders. And now this has been extended after our initial attempt to do this.

These are all the countries that today, in the European Union, have interoperable digital prescriptions, which I think is the way we should be going in the European Union. Everybody should have this once we are at the right level of digitization.

And then I would argue even further that the big step is to create a medical Schengen, which is that — if I come to Romania and I get sick — I go to the doctor. The way it works now, I don’t know what happens if I go to my doctor here, but the way it should work is that if I go see a doctor in Romania, I will authorize him to look at my medical records. And once he is authorized to do that, he gets them.

And of course, with our contemporary technology, he will get my records not in Estonian — because the odds of a Romanian doctor being able to read a crazy language like ours is zero — but he will get them in Romanian. I can kind of understand Romanian because I studied Latin and speak Spanish, but there is no way you can understand Estonian or Finnish, trust me.

So anyway, that would be the ideal medical Schengen system — interoperable prescriptions, interoperable medical records that can be understood by any doctor.

So what are the benefits of all this? Well, economic benefits should be fairly clear. The private sector really took off with this. The private sector loves the system. Banks have been pushing and supporting this system and educational systems on why this is a good thing, for fairly obvious reasons.

If you don’t have to have brick-and-mortar banks, if you have far more secure transfers than you do in other systems elsewhere — well, they’re happy. The people in the private sector produce 7% of our GDP.

We have produced 10 unicorns. A unicorn is a billion-dollar company. We are number one in the world because we have a unicorn for every 135,000 people. Number two is Israel, and I think they are one per every 800,000. A huge boon to the private sector.

Then we created something called the e-Residency program, in which, once you are completely digital — you know, there are these old restrictions that you can only open a bank account if you are in the country, because that was how you would know who someone was. But once you have digital identities, you know who someone is even outside the country.

And so we have about 130,000 e-residents, and they basically use it to open companies. Largely, they are people from outside the European Union who want to be able to do business in the EU.

So they set up a company in Estonia. If you set up a company in Estonia, you pay taxes in Estonia. And we have, this year — the number for the first half year — we got €68 million in tax revenues. So it works. It works on the economic side.

Then there is corruption, which is something that plagues all countries. But one adage you can write down, if you are taking notes, is: you can’t bribe a computer.

Now, there are two kinds of corruption. One is called grand corruption, and that is when — for example — once there was a U.S. Vice President, Spiro Agnew, who as Vice President got what was then $75,000 a month — today that would be $4 million a month — for contracts.

Then there is petty corruption. Petty corruption is what is most noticed by the citizen. That is the traffic cop who says — you know, you get caught for speeding, and if you slip him some money, he will say, “Okay, forget about it.” Or when you go to an office and you want something done, or you want to see a doctor fast, you have to pay someone. That is petty corruption. That is where the citizen runs into corruption face to face.

Well, Estonia is now one of the least corrupt countries. We are number 13 out of 180 countries, and in Europe we are in the top third of the European Union in lack of corruption. And this, of course, benefits business. It is a virtuous circle.

Public services — any government — we are now moving into AI to make life easier, even from what we have. So you have a problem, you don’t know how to solve it, you have to deal with the government. We have these fairly low-level, at this point, assistants called Bürokratt. Kratt also means devil or something like that. It comes and it tells you how to get things done. And we are constantly working on developing this.

Education — we have an AI Leap. The program I started 30 years ago was called the Tiger Leap, which was to get all the schools online, which we did. By 1998 — started in 1996 — all schools had computers and were connected.

Now we are doing another leap, because basically what is next is AI, and that is a whole other world, and we are all learning how this works as we do it today. We have an education program. And I mentioned that one thing which is important is that we encourage AI use in the classroom, rather than ban it, which is the current trend.

And then we have a national strategy. We work together with AI companies.

A word on AI also is that our approach right now — we will see if it works — is that basically there are two powers in AI: the U.S. and China. And they are investing hundreds and hundreds of billions into data centers. We look at this and go: we will never be able to do that. We are a tiny country. We don’t have that kind of money. It is not going to work.

However, as with digitization, our hope is that we can be clever in using AI to do things that other people have not thought about. Just as we said, “Why don’t we take the chip, and why don’t we take this, this, and that, and put it together, and we can come up with a system,” which we did — which is now copied by lots of countries.

The X-Road platform I talked about before has been used by about 25 countries around the world. And since it is open source, we give it away.

There is now — since Finland uses the same system — a joint NGO called NIIS. You can look it up: NIIS.org, where various software developers collaborate, developing new forms of the open-source platform.

One last word, which is that when people say, “How did you do it?” — I explain what we did. But one of the things I would recommend, when you do this from the point of view of the government, is that it must be led in the government — whatever system you have, as long as you are a democracy — by someone who is a primus inter pares, which I don’t think I need to translate from Latin into Romanian: “first among equals.”

Why? Because if you just have a Digital Minister, then all of the other ministers will say: “Oh, digitization — that is his thing. That is not my thing. I don’t have to digitize. He has to do it.” If you are the Digital Minister, on the other hand, and you notice that the Agriculture Minister is not doing anything with digitization, and you want to go to him and say, “Look, come on, you have to digitize,” he will say: “Buzz off. You are the Digital Minister. I am the Agriculture Minister. You don’t tell me what to do.”

That is why you need someone over all of this — one way or another: a President, a Prime Minister, a Deputy Prime Minister — someone above the regular government, above the agencies, whom everyone has to listen to.

That is part of the sociology of governance. But since digitization is something that cuts across all fields — everybody, everything — you need someone who is the person with the whip, or the person with the carrot, however you want to do it. But you need someone on top.