A nation of 1.3 million people, Estonia built its government the way an engineer would build a product, and it shows: number one in Europe for education, for healthcare, for the efficiency of its tax system, and the home of e-Residency. But once the country hit its big national goals, a harder problem surfaced. How do you get a public sector to take on painful reforms that no politician wants to own, like shutting down a third of the country's schools?
Taavi Kotka, Estonia's first government CIO, makes the case for borrowing the logic of startup stock options for the state. Society publicly agrees on a hard, measurable goal, and the officials who actually deliver it share a pre-agreed reward pool, with nothing paid out if they fail. Drawing on how Estonia digitised itself and unlocked entrepreneurship for people far beyond its borders, he argues that giving civil servants real upside and recognition is the missing ingredient for the reforms everyone already knows are needed.
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So, hey everybody. My name is Thaviotkka. I am an engineer by a hobby, by education, by everything. I started as a programmer. We founded, as students, founded our own software development company in the year two thousand. That grew the largest one in the region, still is.
But after twelve years as CEO, I stepped down, wanted to do something different. I sold my shares. I was the second largest shareholder in the company. But when you sell your shares, you get this non competition thing. You cannot compete in private sector.
And Stirne is small. I mean land wise we are big. Land wise we are bigger than Switzerland or Netherlands, but people wise it's only one point three million people. So we are all relatives. We meet each other in funerals and weddings. And the government noticed that, Oh, this guy might be unemployed.
So they offered me a job to become the first nation first Chief Information Officer, CIO. Obviously, I said no because if you are thirty three and you are perfectly healthy, don't work for the government, at least not in Estonia. But they were quite persuasive.
And in the end of the day, there was one bank CEO who said that, Thavi, I mean, I'm the CEO of the largest bank in Estonia. But the way how much I can influence society, how much I can influence everyday procedures, like the way how we live, way smaller compared to any government servant.
So if you are a government servant, you actually have a huge impact on society, the things, how their policies are made, the way how the life is organized. And I mean in the background you can see a flavor of Estonia. I mean here in Scotland it feels quite the same, I understand, like grey and the cold.
So that's why Stellen is so good in IT. Like the weather is so bad, so we all stay inside and cold. And now with the help of AI, it's even better. But Stellen's story starts from the fact that the country is two months younger than Finland.
So if you consider Finland the country, then Estonia is two months younger. Our development stopped in nineteen forty when Estonia was occupied by the Soviet Union. In that time, Estonia was actually a richer country than Finland. So it's hard to imagine, but like I mean, we are the older brother and younger brother countries.
We speak almost the same language. And the nations are very close. But our development stopped. So in nineteen ninety one, when we broke apart from Soviet Union, there was a huge amount of motivation to get all the wealth back, to get all that position back and that thrived the nation.
So to get to the EU, to get to the NATO, to get to the Eurozone, everything was like driven because of the memories that like we actually were a rich country. And this also was a dream of an engineer because the way the government allowed engineers to develop the government solutions like basically we are politicians, we don't know anything about technology, do your stuff.
That's an engineering stream. So we were actually able to build up the government systems very close to the private sector solutions. So, I mean, you are engineers, most of you here in this room, you know that there is actually, from the engineering perspective, there is no difference between Chinese system, Swedish system, like a stainless system, the way how you build those systems.
I mean, yes, it's always like a person, unique identifier, name, surname, address, like service you provide. Basically all the systems, if you compare them, are the same. I mean, China might be one thousand times bigger than Estonia, but it cannot be that, let's say, in e banking system you can do all the different kind of transactions, but we as a small nation, we can only check our account balance.
Or in healthcare systems that, let's say, you are a huge country, you have all healthcare systems digitalized, but Estonia as a small country only has two steps: patient registration and next one is symmetry. I mean we are small. So it's interesting that like for bigger countries the cost per transaction is actually so much better compared with smaller countries.
So it's actually harder to do or justify digitalization in smaller country compared with the larger country. But we lived in engineering dream. And that's how a government system looks like now. The ones like who love because it looks like spaghetti, it's actually every green dot is a register and the black line is a connection point between those registers.
And that's how we protect our system. So Estonia built up the systems the same way like private sector. So you have population registry, you have car registry. If car registry gets hacked, the hackers will get information which cars are driving on the streets of Estonia.
But to understand who owns which car, they also have to attack population registry, which is different technology, different languages, etcetera, which is theoretically possible, but it's quite hard to do. Like it's very costly. And so we got it done. And we got it done in a very good way.
It seems that if the data gets moving between the registries and information is shared, Esterwein became we are number one in education. If you measure the PISA test, number one education in Europe. We are number one in healthcare. We are number one in taxes like the least money spent to collect one tax dollar.
And the most efficient tax system. And we were able to serve like people not only in Estonia, but Estonia diaspora, which made us greedy. I worked like the CIO position is in the Ministry of Economy, it used to be. And the Ministry of Economy is, I think, the only minister who actually cares about how to get more money or more wealth to the people.
Like the other ministers are more how to spend the money, but like the Minister of Economy is always like how to get more money. So to make more profit for the government, like you can always cut the costs, but it's better like if you increase the revenues.
So working for the Minister of Economy, like I went to the minister and said like we are one point three million nation, one point three million. So if we want to grow our economy, we will have to become bigger. So how about we will get to ten million?
Like you ask me why ten million? Because Sweden is nine point six million. And we want to be number one in Nordics. Like we are in the same latitude with Stockholm. So we are Nordic country. But so we had to get ten. The administrator is like, yes, good luck to that.
So I went to my wife and said like, I have this new plan from one point three to ten. Luckily, I have a very smart wife. The wife said that like even if we invest today, this investment might pay us back after twenty five years.
So no go. I have to actually update this photo now. There is four of us. So we have four children now. But that's it. I mean, Estonia has together with immigration, the population level is the same like last ten, twenty years. So we don't lose people, but we also don't gain people.
But if you are able to serve people in your country digitally and you are able to serve Diaspora, the question is, should we only serve Estonians? So we invented a program that you can become an e Estonian, which means that you apply basically for, let's call it, digital citizenship.
It doesn't allow you to travel to Schengen because Estonia is Schengen country, but allows you to open up a business and do business from distance. And like if you do that, like you are like fully connected. We launched it slightly before Brexit. So thank you.
You. Thank you. Good job. Good job. Well voted. Well voted. So like you know the saying like something that is bad for someone is good for somebody else. Yes, so might be for you a sad story for us it was. I mean, we created this program, to be honest, for people outside of EU before like people from Turkey or India or Brazil can get access to the EU.
But currently, we get most of our customers from Germany, which was interesting because like we went to Germans and said like why you need Esterian digital citizenship? Like so you are inside the EU, you are inside Eurozone. By the way like you are German, like you are the EU.
If you don't decide anything, like nothing happens, like so why the hell do you need? And it seems to be that like people love the fact that if you are a one man company or if you are a solo entrepreneur and you do export, like you have customers let's say in Singapore, in China, in India, like why to run your company?
I mean running company in Germany costs for a solo entrepreneur as much as for BMW. Okay, I'm like putting slightly more like here, but the cost is like more than ten ks euro like per year compared with the Stivionen cost where everything is automated, everything moves and the cost is below one thousand per year.
And that's the reason why we get thousands and thousands of Germans like to be part of Steubenenk. I went to German tax and customs and said like, come on, like you see, like your people are staying in like in our country and then yes, they pay taxes in Estonia.
Are you okay with this or you want us to like pass this money to Germany? The lady looked at me and said like, okay, how many you have? I said like ten ks, ten thousand. Like come back when there is million. So they don't care.
And I understood their motivation because like they said like the money they earn is exports and they will spend that money mostly in Germany. So we anyway get the taxes. So the fact that Estonia has unlocked entrepreneurship for German solar entrepreneurs, no worry, no problem.
But this also like I mean, this kind of concept leads us to the next level. That was my PhD. It was first pushed back because like there were no wars in Europe. But after Ukraine, everything became extremely popular and now this is one of the like most interesting areas in cloud, I think, globally.
So we started to play with an idea that Estonia has been occupied every century. Every century, like I mean, Estonia is the original tribe in that location in Norf. But every century, somebody has came and laid with a cross and sword and tried to occupy this.
So for us, it's not a question if, it's a question when. And we started to play with an idea that if everything is digital, can we survive as a nation without land? This concept is not new. I mean, there is, let's say, Knights of Malta who are part of United Nations without land, Jews before country of Israel was born, like in nineteen forty eight, two thousand and seven, survived thousands of years.
So can we survive the same way? Still it's like, I mean, you can put your soul, like your registries, your operations in a different location. It's like here in Edinburgh, you understand this. It's like Lord Waldemort putting his soul in different places and surviving.
But in this story, we are the good guys. Yes, you understand this. But all this is extremely interesting, but I can't tell you more because I was asked to talk about this. So it was easy to unite the nation and also the government sector when we had very clear goals.
Let's say, get to the EU. I mean, if to get to the EU, you have a list of things that needs to be put in place. To get to the NATO, like you have to like put these kind of things into place so the government office will, okay, we need this is fixed, this is done, like okay, oh, fuck, we have to remove death penalty.
Okay, we can remove that. I mean, like that was easy. But when everything is like you have achieved the goals, like what's next? So Estonia suffers in the same way that like how you motivate government sector, like how you make people to do hard reforms.
For example, you have a school system, but people move. People move from the small cities to the largest cities, so you should close down the small schools in smaller cities. So show me a politician who actually wants to do that suicide. Close down a school in a small city or village.
Or let's say, like let's build some windmill parks. Or I mean the whole Nimbe thing, not in my backyard. So show me a politician who would like to do that. So on one hand, as taxpayers, we understand those hard reforms need to be done.
Like in Estonia, I don't know how much about here, but we have a growing obesity problem, like children are becoming more fat. So we see a problem, but we don't see a solution. Nobody is with that. Or like my family took a challenge that we don't have enough women in IT in Estonia.
So we started to tackle that problem in twenty eighteen. And currently, we are in a position where in the age of eight to twelve in Estonia, there are more girls studying robotics and engineering compared with boys. But that's another talk, not today. But just like to give you a sense that like certain things, certain hard things can be handled, can be managed, but politicians they don't want to do that because they care about boats.
And let's say, if you do nippy stuff or if you close down schools, like you don't get votes. And votes is money for the politicians. So what we have done here in Esterhne is that there are certain problems that we debate publicly. For example, we still have very good tax system, but for private companies, there is still some manual work.
Like sometimes they have to do manual work, sometimes it's not one hundred percent machine to machine. But we love to achieve that. So for ten years in a we have told the tax and customs that like fix it. Like the companies are losing tens of millions of euros every year.
Fix it. Make it machine to machine, like fully machine to machine. Change legislation, change systems. Officials, they have responded that, Oh, but we have that legislation is changed. But we cannot see the results. The public now have debated and we have agreed publicly in society that tax and custom, together with the Ministry of Finance and Ministry of Justice, if you fix that problem, if we fix that taxation and if you fix that, I mean, we truly can measure it that like everything is now machine to machine, we will pay you millions.
I mean, those people who are participating in those processes, you will get bonuses. And it's pre agreed. It's very important. So we are basically, if somebody says out in the public newspaper that we have a plan to pay millions to the tax and custom employees, but only if they achieve a clearly measurable goal.
So basically what we set up is a system like this. So Wicklund model comes actually from the States. So you have a government institution or NGO as a problem owner. You have a problem and you have like different teams like dealing with this problem.
And it can be hundreds of people. It can be like many people. If it's just on one organization you don't need that. But if you need the contribution for different organizations, for example, if you are Minister of Finance, you don't have budget to motivate Ministry of Justice. You can't do that.
You can motivate your own people. You can pay them bonuses, but you can't motivate like to the sites. Or you can't motivate private sector to do certain things like. So the idea here is that like there is always high risk sponsors and low risk sponsors.
The high risk sponsors are people who are willing to accept the challenge and they are willing to give like budget to operate problem. So for example, in Estonia, my family pays for the girls' technology studies. So we cover the cost. It's free of charge for the girls, but we actually accepted this challenge.
So we pay. We are the high risk sponsors. And if we change the history of Estonia, it's good. If we don't, I mean, it was it was our money. So it was just nobody else money was spent. But like here in a tax and custom case, the taxpayers are putting a war pool and say that, let's say, here are the like goals, these are official goals.
If they reach machine to machine declarations and the end deadline is thirty first of December, twenty twenty seven, those people will share zero point five million plus taxes. And if they reach a year later to seventy percent, they get another zero five million plus taxes.
So all the people who are in the systems, they contribution is followed or like remembered like the system works very similar to the option schemes in private sector. If you join the startup, like you get a certain amount of options and those options start to vest.
Here also like the people who are working with the problem every day, like they reward units vest and if they have like one time contribution, it's just one time bonus. That is registered in the system. And if they achieve, like the moment they achieve that goal, this fifty one percent, instantly the payout will happen to those people who were participating.
So and there is a like right corner, is a steering committee. The steering committee acts the same way like supervisory board in private sector companies. So for example in private sector if I am the CEO and I want to give options to my people usually the council or supervisory board needs to approve that.
So here is the same way like so if you are a program manager, let's say you are the owner of the problem like you should get twenty, twenty, fifty, twenty, fifty, fifty, fifty and that's like now I get approved, goes to the system.
And it will be unlocked if we achieve the goal. And the people are actually motivated to deliver with less resources because the end amount is understandable. Like you will get a million. It's million to share. So if you do it with less people, everybody gets more.
And from the taxpayers' perspective, it's good because we understand we need this. This was publicly debated before we set it up. We need this. And if they don't deliver, nobody gets hurt. So we don't pay anything. So it's like upside down startup. It's basically set the goal for the public sector that like we have a tough problem, like you haven't been able to solve that problem by ten years.
We have a tough problem and the people who actually solve it will share certain amount of money. This is a small example. It's a small project. But Estonia needs to close down one third of our gymnasiums. Like more than fifty schools we have to shut down.
No politician likes that. It costs us seventy million euros per year minimum. Like, if you think it from the private sector perspective, you are losing seventy million euros every year. Are you willing to give away ten million euros just one time to get rid of that problem?
Now you get me, right? And you bet ten million there, you can put let's say sub goals like something in advance that let's say, okay, like fifty million, fifty schools in the end game, after every ten schools, you get something. And it's transparent. So everything is traceable.
Everything is measurable. Everything is auditable. The steering committee will look after that the project manager doesn't like grab everything to him or herself. So and the model is actually proven in private sector. It works. Options work in private sector, we know. But options work in the same way.
Options have value only if there is success. If there is no success, options are worthless. So hey, model here. And you have to manage that and handle that. And there is a beauty you actually can build on top of that. You can also build a marketplace.
And if the private sector, let's say people from the street taxpayers are start to buying those reward units from the government officers, it becomes like a polo market. Do I believe that this change will in the end of the day happen or not?
So the market can actually provide liquidity for the government officers like I mean, you can sell your if you earn your reward units, I can buy them up like with a discount. So you actually can have a proper marketplace. But obviously, this only happens when the topic is large enough in society.
But Polo market works. I mean, you see Polo market working, so the same here. So you can have like, let's say, the reward unit is zero in the beginning, but closer to the end game, it has a real value. So might be actual reasonable use case for blockchain.
Yes, funny. Anyways, I can't do a Q and A afterwards because I live in the age of Europe. So to get from Edinburgh back to Estonia, yes, you have to take many flights. So if you have any questions, I'm happy to answer them. Thank you.
Hi. This is amazing. Super, super inspiring. My question is, so obviously folks get the bonus structure at the end who are participating in the project's delivery. This might be a simple question, but are they paid in the interim throughout the, you know, a base salary?
And if so, who pays that salary and if so, then who who shoulders the risk on behalf of the cost of the salaries going through? Yeah. So, the salaries are paid by high risk sponsor. So, for example, in my girls' schools, I pay the logistics everyday salary.
Like so or in this case, tax and custom covers their own employees' salaries, the Ministry of Finance covers their own employees' salaries. So, in a government, it's actually even more simpler because the idea here is that the society defines a goal to the people who can influence that outcome.
That doesn't exist at the moment. Let's say, the sad part when I worked as a government officer, I mean, I invented a residence. What I got in return? Like, government gets, like, tens of millions every year. Like, for me, bonus, like, okay, I got the medal.
Like, I was decorated. So, I mean, medal. But, like, for a government officer, like like, there is no upside. Like, if you succeed, you might get the medal or handshake. I was CIO, so I was high position, so I was, like, I was visible. But my team, I had tens of people in my team.
None of them, like, get any recognition from the public perspective. So you don't get recognized, but if you fail, you get fired. So why should you do anything new? And that's what keeps the public sector back. I don't want to change the status quo because there's no upside.
There is thank you or fired. They should they should be like, high bonus. Thank you or fired. And like they like money. I mean, in the when we set up those first models, like like, for example, the tax and custom example, half a million plus taxes, I was, fuck.
This is small. I mean, this is not like big money. I mean, there should be, like like, significantly bigger up upside. But they stopped me and said said, like, Davy, like, don't be rich and arrogant. Like, so, like, if we can get couple of salaries for this to achieve this, couple of months of salaries extra, plus recognition that society asked and we delivered.
And you have this feeling that society actually asked this, and we delivered, and we got money, and we got recognition. That's enough for us because currently, there is no recognition and there is no money. So, I think it answered you. But the cost is covered by the, like, institutions of themselves.
Thank you very much, Tavy. That was fantastic. Unfortunately, we're out of time for questions right now. But yes, that was absolutely wonderful. Thank you.
