Start-up Nation Estonia – a Tale of the Land of Unicorns

A Public Lecture Delivered by the President of the Republic of Estonia Mr. Alar Karis
at the University of Texas - Austin on Friday, September 22, 2022

Great pleasure to be here!

I would like to tell you a story of my country, Estonia, of its ups and downs, and of the reason why - in service of my country - I have come to visit Texas.

long time ago - on the edges of a continent ravaged by the World War 1, revolutions and famine - my people created a peaceful oasis. For the first time in our centuries-long history we, Estonians had a country to call our own, even though we had lived on the shores of the Baltic sea for millennia.

We fought a successful War of Independence. Our republic prospered. It was a home to many minorities - Germans, Swedes, Russians. It was the first country in the world to guarantee self-rule to its Jewish citizens.

Our economy was stable, if modest. Estonian bacon and butter successfully competed against similar products from Denmark at the distinguished London households. The Farmer was King.

At the same time, trouble was brewing. Two tyrants had decided to divide and conquer. First Europe, later the entire world. In 1939, wolves came huffing and puffing at our borders. They demanded military bases be placed in Estonia. "For our protection". In no time, little green men overran our democracy.

Without allies or partners, World War 2 ravaged our country. The front passed through it two times. By 1950, Estonia had lost 10 per cent of its population through killings and forced deportations, while thousands had fled to the West.

The Iron Curtain had fallen, and we found ourselves at the wrong side of it. I myself grew up in an authoritarian society. I, like all my fellow Estonians, know firsthand the pain and suffering that authoritarian rule can bring.

The cracks in that Curtain - the Voice of America broadcasts, occasional copies of the National Geographic Magazine or the TV broadcasts from neighboring Finland - let us know, that not all was lost. Not all had agreed that might makes right. Not all had given up hope that Estonia might be free again. One day.

Over thirty years ago - when we started to rebuild our nation, after regaining our independence - we started out with a sobering realization. 50 years of Soviet occupation had ruined our country. Yet, it had not crushed our spirit. When the average annual salary is 200 dollars, you know that the only way is up.

With the exception of high quality timber and oil shale, our most valuable resource in Estonia are our people. All 1.3 million of them.

So we decided to invest in them. To create the kind of country where our people would like to live, work, and raise their families. To create the kind of country that other nations would like to trade with and have by their side as an Ally and Partner.

President Reagan used to tell jokes about the life in the Soviet Union. I believe that many people who lived under the rule of this evil empire recognized their own lives in these jokes.

Let me tell you a joke that describes the Soviet economy well.

A man walks into a shop.

He asks the clerk, "You don't happen to have any meat, do you?"

The clerk says, "No, here we don't have any fish.

The shop that doesn't have any meat is across the street."

We are glad that we have come a long way from this past.

However, this joke crystalizes an important truth. Businesses -- in order to flourish -- need democracy.

Today, Estonia is the most advanced digital democracy in the world. We have reached an unprecedented level of transparency in governance and built broad trust in governmental institutions. We have an open, free, transparent digital society.

Our simple tax-system, which OECD's International Tax Competitiveness Index has repeatedly ranked as the best in the world, our digital services and flexible business environment have created a perfect ecosystem for digital companies and startups.

The digital success and almost zero-bureaucracy experience has boosted our economy, but it has also had a broader impact on the society. Besides putting everything online and Estonia on the global map, the expansion of tech sector has transformed Tallinn and many other Estonian cities.

Estonia has seen a tremendous economic transformation in recent decades. Becoming a member of European Union and Eurozone have created a friendly, predictable business environment. On top of that, we are still the society full of business-minded people. Where others see problems we see opportunities.

In Estonia all public services are centered around the citizen, digital-first, and online.

The only two public services that you cannot get online is getting married and getting divorced. For this, you still need to show up in person.

Public services use over 100 AI tools to speed up the decision-making and to automatize the services.

Estonia has been an innovator in almost every aspect of public life.

We were the first country to hold a nationwide election online by using blockchain-based safe identification tools and strong cyber security.

We were the first to implement smart parking and sharing economy model in mobility, followed by the first nationwide electric vehicle fast-charging network.

For most Estonians the US electoral system and vote counting, compared to our own, seems like a rocket-science.

Estonia is amongst the top 10 innovators in the European Union, surpassing all Eastern-European and Mediterranean countries. As a New Nordic we are northern Europe's hub for digital business.

So how did we get here?

According to the legend, Estonian former Prime Minister Mart Laar had read only one economics book in his life. Luckily, this was not just any book, but "Free to Choose", one of the main works of Milton Friedman.

We put theory into practice and rebuilt our economy. Estonia is a great example of a country where market-friendly reforms and economic freedoms have created prosperity and happiness.

We also decided from a very early on, that we would only use the most innovative solutions available when implementing reforms. For example, we never had bank checks in Estonia. We went straight to online banking already three decades ago.

Opting for an efficient, digital administration was an innovation born out of necessity -- with a limited number of human resources we simply could not afford a Byzantine bureaucracy.

Our success has taught us that you need a good leadership, brave enough to make necessary reforms and hard decisions.

To illustrate how Estonia has transformed, we must go back to the early nineties, when Estonia had just restored its independence.

Our economy was still tied to the imperial supply chains and struggling. Our people were poor in every sense of the word. Although, in relative -- Soviet terms we had a relatively modern infrastructure and large industry, the products did not meet the market demands. The technology was outdated and productivity was low.

It is time for the second anecdote from the Soviet times.

A student wrote in her weekly essay:

"My cat just had seven kittens. They are all communist."

The following week, the student wrote:

"My cat's kittens are all capitalist."

The teacher called her up and asked to explain the sudden change.

"Last week, you said they were all communists!"

The student nodded.

"They were, but this week they all opened their eyes."

The best way to respond to market demand was to privatize the economy. This was also a way to engage foreign investors and find new export partners. The share of Russia in our exports began to diminish.

The economic importance of Russia for us has declined with every crises. It declined most after Russia sanctioned all Estonian goods by imposing double import duties on our products soon after the first bilateral political disagreements we had.

Then, after the Asian crises, and after Russia annexed Crimea, our economic ties decreased again. Turbulent times have shown that Russia is not a reliable partner and cannot be trusted.

Therefore, Estonia no longer has any Russia-related critical supply chain vulnerabilities, and our trade with Russia is in single digits.

When I said earlier that business success hinges upon democracy -- the opposite is also true. An authoritarian partner cannot be a reliable partner. They would not hesitate to use your economic dependencies on them against you.

A little side-lesson here is that economic interdependency will not necessarily help to transform an authoritarian country into a democracy.

In addition to the privatization in the beginning of 1990s, we reformed the whole economy, increased economic freedoms, developed government integrity, and the rule of law. We made it our priority to become a member of the European Union and NATO.

We succeeded in this in the early 2000s. Since then the focus has been on building the digital economy, where innovation comes first.

Our history has taught that it is wise NOT to depend on Russia. Therefore we have developed our economy based on the same wisdom. We do not have high dependence on Russian natural gas. We realized the risks involved a long time ago.

We lowered the gas dependence with locally produced biomass, biogas and oil-shale. We are also trying to set a world record now being the fastest in building a LNG terminal in Paldiski near Tallinn.

This terminal will become operational in the fourth quarter this year. So hopefully from idea to its realization it takes us more or less 6 months. This together with energy interlinkages with other European countries will ensure our energy.

We have also ambitious green energy plans. Today, one third of our total energy consumption comes from green energy. We have estimated that there is room for around seven gigawatts of off-shore wind farms.

This exceeds our own electricity consumption by several times, but there is a strong business case because of growing demand and export opportunities in the wider region.

These are long-term projects and will take time, but it is likely that we will have a boom in wind energy in seven to eight years and then we can become energy providers for our neighboring countries.

Our common goal in Europe is to decouple from Russian energy completely. Once we have achieved that, this will be permanent. Despite their boasts, Russia will find it difficult to sell their energy to China or other countries anywhere close to the price they were able to get until very recently.

There are many opportunities in the Estonian energy sector. Currently our government is in a discernment process concerning nuclear power in the future.

Greening the economy is not only about green energy, it also needs new materials and production. Estonia is one of a few places outside China, which processes rare earth elements. The factory is located in the North-Eastern part of Estonia in a harbor town Sillamäe and this area has also a lot of potential for future industries.

One of the biggest investment projects in the near term is the Rail Baltic, which will create a high speed railway connection between Estonia and Germany.

What we have learned is -- when you start from scratch, you have very limited recourses. In a crisis, you have to find smart, innovative solutions to move forward.

Estonia is internationally known as an outstanding place for doing innovative business. Our excellent environment for digital start-ups has produced ten unicorns - you probably know some of them like Skype, Wise or ID.me - and we do hope to continue on this track. We aim to have 25 unicorns by 2025.

Now let me put this into a context. We are a compact (NOT a small!) country of 1.3 million people, about the size of the city of Dallas. We have ten companies worth more than a billion dollars. India, with a population a thousand times larger has 65 unicorns.

The startup sector is making Estonia bigger. While it is nearly impossible to scale a physical production in a country with a limited workforce and domestic consumer base, scaling a digital company is a different story.

This is our opportunity, and I believe we have used it well.

Dear friends,

The reason why I am here is also partly related to Estonian startups. Two companies are opening their offices in Texas, and I was asked to join them.

Clevon builds self-driving electric delivery vehicles, which can travel on public roads, reduce costs for companies and on top of that are environmentally benign. I am sure that these solutions are at least part of -- if not the future of -- transporting of goods and equipment.

This type of solutions will transform transport for a better and more efficient future. This future is very close as they are already transporting goods in Europe and the company is looking for new partners here in the US.

The other company is EyeVi Technologies, which uses artificial intelligence to capture high accuracy geo data. Their technology is currently used for more sustainable and cost-effective road management.

The system can discover at a very early stage that part of a road needs more maintenance. Thus, it makes easier for the road-maintenance company to proactively target the problem and use their resources more efficiently. However, such technology could have many other uses in the mobility sector in the future.

Taking companies like Clevon of EyeVi global helps to bring the merits of the digital economy of Estonia closer to the rest of the world.

Estonia is home to an entire galaxy of innovative autonomous-vehicle companies. Estonia is considered a nationwide testbed with a highly innovative and open society and is open to experimenting and testing what companies have to offer.

I believe Estonia might be the first country in a world where we witnessed an accident between the self-driving robot and a passenger car some years ago. The robot was at a pedestrian crossing and had followed all the traffic rules.

On a closer inspection it transpired that we did not have laws to govern the AI tools we use. Consequently, we established the world's first national AI/robot law.

As a result, Starship Technologies has operated level 4 autonomous delivery robots in public streets of Estonia for over four years and they have now by far taken the lead in that industry. Clevon is close next.

Similar technology is also used by companies that build military equipment. For example drones developed by Threod systems are actively used in combat in Ukraine, as well as unmanned ground vehicles developed by Milrem Robotics, which are transporting the wounded away from the battlefield.

Without a doubt the start-up and digital sector has been among the fastest growing areas of the economy and I believe that it is now time to bring the innovation that was born in the digital realm to the rest of the economy.

The start-up mindset and digitalization could benefit many fields of the society, for example in greening the economy or solving the current energy crisis.

We have also learned that to succeed you need to be bold (and beautiful) and you must make decisions fast.

The current high energy prices in Europe reflect the fact that we do not have enough cheap electricity production. However, there are start-ups, which produce construction materials that generate electricity at the same time, when these materials do their main job.

For example, the Estonian company SolarStone produces roof materials that produce solar power so that there is no need for extra solar panels. And in case you were wondering - yes, SolarStone got into the solar roofs business before Tesla did.

And when we are talking about the future of energy, then we can also think about the future of food. Estonian startup BugBox is developing a method to grow very delicious bugs for food efficiently. I have tried it in Tallinn at a tour organized by Cleantech Estonia.

It is remarkable that fintech technologies and solutions have not stopped with conventional financial sector, but could be used in various areas to create new markets and solve many problems faced by the society.

Let me bring some examples of fintech start-ups, which could change the future outside the financial sector and help us on the path of green transition.

Countries have promised to become carbon neutral, but declarations are not enough and we need concrete action. Fintech solutions could be essential for decarbonisation of the economy.

Two start-ups eAgronom and Single.Earth are developing methods for pricing greenhouse gas emissions in order to enhance the market of carbon emissions and neutralise their adverse effect on the climate. They exploit satellite images, artificial intelligence and block-chain to crack the climate issues and boost green transition.

There are start-ups like koos.io and Salto X, which make it easier to issue micro shares in order to facilitate sharing the ownership with wider range of stakeholders and thus creating new incentives for better co-operation and building of community-based services.

Such solutions could be used to get over the so-called Not-In-My-BackYard or "the BANANA" problem - build absolutely nothing anywhere near anything - which has got more binding at the era of wind farms and far away neighbors against them. Ownership will create incentives not to be against innovation.

Technology could transform the future by changing simple things. For example, when I lived in the Netherlands during my academic career, I rode a bike as everybody else. However, several of my bikes got stolen. Estonian start-up Bikeep has developed a public bicycle parking system, which makes it almost impossible to steal the bicycle.

Ladies and gentlemen,

Even while talking about business we cannot get past the geopolitics. The current geopolitical situation has prompted many people, primarily outside Estonia, to recall that we share a border with Russia. Sharing a border with Russia is not a threat in and of itself.

Sharing the border with Russia while being part of the most powerful security alliance in the world - NATO, people in Anchorage, Alaska can be just as much at peace as the folks over in Estonia. This privileged membership does, however, put on us a greater responsibility for securing peace in our wider region.

This is one of the reasons that my country has - per capita - donated a third of our total military budget to support Ukraine. We have also welcomed in Estonia those Ukrainians fleeing the fighting in their country. Since late February this year, the number of new arrivals amounts to over four per cent of our population.

Being a member of the European Union has boosted our economic growth. It has also cemented our political stability and social development. According to Heritage Foundation's 2022 Economic Freedom Index our economic institutions are among the Top 10 freest in the world, alongside Ireland and the Netherlands.

Our most important export markets are Finland and Sweden, although the United States and Germany are not far behind them. Our per-capita GDP is slightly higher than that of the Czech Republic, Portugal or Greece.

I do believe, that by and large -- we have reached the goal we set ourselves some 30 years ago. Our economy has been transformed. The living standard as measured in GDP per capita in real terms has more than tripled in the last thirty years. And our people are freer than at any period in the recent past.

We have fashioned Estonia into a country with a very flexible economy and high economic and political freedom.

Our people are happy with public governance and strong institutions.

Our high school students are some of the smartest in the world, as the OECD's global Pisa test rankings tell us.

This is all well and good, you might say. But what does it have to do with me?

And what about them unicorns?

As a person with an academic background, I know how important it is to confer with reference books. Let us look at some definitions.

Merriam-Webster defines a unicorn as:

"a mythical animal…" , "something unusual, rare, or unique".

The dictionary also suggest, a unicorn might be:

"a start-up that is valued at one billion dollars or more".

Friends,

Let us think for a moment about this. When I want to describe my country to someone who has never visited it - I would be hard pressed to find a better metaphor than this. A place that is almost magical. Rare. Unique. The land, the people, the nature.

In business terms, a start-up often begins with a unique idea. For the person who comes up with it, it may make perfect sense. If they can convince enough people to cooperate with them, to invest in their company - it may become a unicorn. Foreigners who have moved to Estonia to join our Unicorns have said there are many things to love about Estonia: the four seasons in the nature, sauna experience and of course Estonian BeerJ.

Our history, and our present have taught us to believe in ourselves. To come up with unique ideas and make them true. In truth, to be successful, we need to convince others to buy into them as well.

To my mind, this is what makes Estonia a start-up nation. When you come and visit us - you will have a chance to see the ten unicorns in their natural habitat. But together we can do more. In Europe. In the US. Something unusual. Something rare. Something that brings the greater good.

Thank you!

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