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Tallinn, Estonia (2010)
Turning recession into opportunity
 
Published Saturday, April 24, 2010

 

Back to Top Seven by:  Year   Population   Region
Posted: April 2010

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For over 600 years, the Baltic seaport of Tallinn has attracted the unwanted attention of outsiders.  Blame the prevailing winds, which keep the port ice-free through much of the fierce Baltic winter.  The Danes were the first to conquer it, followed by the Germans and the Swedes.  After a war for independence that Estonia won in 1920, the country enjoyed a generation of freedom before being annexed by Russia, falling to invasion from Nazi Germany, and being occupied once again by the victorious Soviet Army at the end of the Second World War.  When Estonia gained its second independence in 1991, it was a nation largely accustomed to having its fate determined by others. 

It was also a nation facing daunting challenges.  The country's infrastructure was decrepit and its schools were literally falling apart through neglect.  When Russia entered a debt crisis in 1999, Estonia's industrial output collapsed as it lost its Russian markets. 

Yet by 2005, Estonia had been admitted to the European Union and The New York Times was calling it "a sort of Silicon Valley on the Baltic Sea."  As the nation's capital and economic center, Tallinn benefited from inspired national policy but also made its own unique contributions.  This combination has placed Tallinn among ICF's Top Seven Intelligent Communities for the fourth year in a row, despite the severe impact of the 2008-09 recession.

Indians Call It Jugaad

In India, business innovators speak of a national tradition of jugaad, which means making do creatively with what you have and never giving up.  The decade of growth in Tallinn that ended in 2008 was based on Estonia's own version of jugaad in both the public and private sectors. 

In 1995, Toomas Hendrik Ilves, then Estonian Ambassador to the US and now Estonia's President, began talking about the need to connect Estonia's schools to the Internet.  The national government adopted the idea and created a program called "Tiger Leap" to equip all schools with PCs and Internet connections by 1999.  That was only a small part of the government's response to the Russian debt crisis.  In 1999, the government sold 49% of its undercapitalized and underperforming state-owned telecom carrier to Telekom Finland and Telia of Sweden.  A Telecommunications Act, Digital Signature Act and Public Information Act were passed in quick succession in 2000 and 2001 to create a foundation for growth in all forms of telecommunications.  Policymakers and the government of Tallinn were equally welcoming to Finnish and Swedish banks, which grew to dominate the financial sector. 

But it was Tiger Leap that dominated the imagination of Estonians.  Suddenly, there were Tiger Leaps taking place everywhere.  The name was applied to e-banking services, online editions of newspapers and an NGO-funded program that put computers into vehicles to introduce ICT to the rural population.  Because few could afford computers at first, the National Library introduced the first public access Internet services in Tallinn with funding from UNDP.  The Soros Foundation began a program that invited enthusiasts to create public Internet access points all over the country, and in 2000, a private foundation called Look@World, funded by telecom, banking and computer companies, began spreading public access Internet even farther.

Meanwhile, time and enlightened policy had begun to heal the country's manufacturers.  After privatization and a painful restructuring, the surviving traditional businesses in machine building, metal processing, textiles, food and furniture found new markets in Western Europe and North America.  New foreign direct investment went into the manufacturing of electronics, automotive components and maritime services.  More investment went into rebuilding the Port of Tallinn and the Tallinn International Airport to bring them up to international standards.  The volume of goods moving through the airport jumped 120% from 2007 to 2008, and trade through the port outpaced Helsinki, Gdansk and Riga.

E-Government on Steroids

With 1.3 million people, Estonia has the population of a good-sized city, and is only 17,000 square miles (45000 km2) in size.  This leads to a certain fluidity in discussion of where Estonia ends and Tallinn (home to one-third of Estonians) begins. 

E-government, in which Estonia is a world leader, illustrates the point.  A national initiative, it is based on decisions made in Tallinn and engineered by companies based in the nation's capital.  And it is surely one of the most comprehensive such programs on the planet.

In 2002, the national government decided to introduce a national ID card containing a microchip, which held no personal data but encoded a digital certificate and authentication.  The card is now compulsory for all Estonians over the age of 15 and 1.1m cards have been issued.  Inserted into a low-cost card USB reader (about 3 Euro each), the card and PIN code are keys that unlock a huge array of online services: e-banking, e-health based on comprehensive electronic medical records, e-learning, licenses and registrations and information on every conceivable government service.  The card is so powerful in part because of an Estonian law that grants every citizen an official state email address and makes it the citizen's legal address.  A digital signature portal permits users to upload documents and request digital signatures from other users, and such signatures are legally binding.  Sixteen percent of all votes in the last national election were cast online.  Estonians can now purchase a special SIM card that allows all services to be accessed via mobile phone as well. 

Powering this complex system is a software platform developed by Tallinn IT companies for the government.  X-Road (winner of an ICF Founders Award in 2008) acts as "middleware" to connect legacy computer systems in agencies across national and local government to the Web.  It allows different systems to talk to each other securely and provides standard tools to speed development of new services.  It now takes from a few hours to a few days, at a cost of US$1,000 to $10,000, to develop a new service. 

Battling Recession

The boom years came to an abrupt halt in 2008, when the global financial crisis struck Estonia's export industries with particular force.  As private-sector investment dried up, gross domestic product plunged 9.5% from 2008 to 2009. Employment, which held up well in 2008 despite recession, suffered a sharp reverse that raised the unemployment rate to 11.4% (7.2% in Tallinn) in the first quarter of 2009.     

In the spirit of jugaad, the city of Tallinn was determined to battle recession vigorously and use it as an opportunity to accelerate the positive changes of the previous decade.  The first priority was to secure and improve the city's entrepreneurial base, to preserve an economic engine that can rev up again as the recession draws to a close. 

Tallinn created a grant program to promote job creation by companies with up to 250 employees, and subsidies for businesses to combat the high cost of rent and heating.  An array of other grants for entrepreneurs was introduced to support start-up, training, job creation, trade fair attendance, patenting and cluster development.   The city opened a new incubator – the fourth one in Tallinn – focusing on design, media, fashion and architecture.   

In the midst of recession, Tallinn's government adopted a long-term innovation strategy covering from 2009 to 2013.  It aims to firmly integrate the city into the Scandinavian and European economies, and focuses on developing talent, increasing partnerships between the private and public sector, internationalization and branding Tallinn as a city of innovation.  Target industries include IT, mechatronics, biotechnology, creative services, maritime, logistics and financial services. 

Talent for Entrepreneurship

Tallinn introduced a series of events to promote its entrepreneurial sector to its future employees.  An employment and entrepreneurship fair attracted 10,000 attendees.  For students, there was a Tallinn Entrepreneurship Day, a Student Company Fair and a Brainstorm 2009 business plan competition.  Start_IT is a nonprofit collaboration among technology companies and universities to popularize IT education among secondary school students.  Its business technology event, Signpost 2009, drew 14,500 students last year.  In the 2009-2010 school year, Tallinn has also renovated 85% of its public schools. 

The university-business connection was firmly established before the recession and is likely to pay increasing dividends when it ends.  The Tallinn University of Technology was founded a decade ago to offer university-level instruction in a broad range of the technologies that power Tallinn's economy.  Within the university, an association of IT companies created the Estonia IT College to raise the qualifications of new graduates.  The College offers onsite instruction, e-learning, teacher training, corporate training and also manages the University's IT infrastructure.  Still new, it has graduated only 350 students to date but is enrolling 700 new students eachyear.  The College's E-Learning Development Center manages all content and licensing for vocational schools throughout Estonia.  It's e-Academy now offers over 2,000 courses online. 

Next to the College on the Technology University campus is the Tallinn Technology Park, which houses 150 knowledge-based, high-growth companies (including the world-famous Skype), as well as Estonia's biggest business incubator.  The proximity is no accident; many of the College's graduates have started companies now housed in the Tech Park.  A newer tech campus, Ulemiste City, provides an energy-efficient, environmentally-friendly home for IT companies. 

Internationalization has become a priority for the ICT industries.  They prospered in the previous decade principally by serving the apparently endless hunger of national government for e-services.  But it is clear that the future lies in exporting Tallinn's ICT expertise and products to the world.  A new ICT Demo Center opened in 2009, funded by Estonian companies as well as global leaders like Microsoft and Sun.  It showcases a broad range of ICT developed in Tallinn, from automated building control to mobile parking systems, and attracts hundreds of overseas visitors per year.  Leading-edge technology companies in Tallinn include Modesat Communications, creator of advanced wireless communications gear; SmartDust, which manufactures tiny self-powered sensors; United Dogs & Cats, a social network for pet owners; and Smartpost, which produces a self-service post office terminal.  Tallinn's government has also been actively marketing itself as an innovative financial services center, and in 2009 gained its first listing in the Global Financial Centers Index. 

Creating New Users

Estonia's first wave of ICT innovation brought prosperity, but it also left many Estonians out.  The Look@World Foundation is completing a project called "Come Along," which targets 300,000 non-Internet users.  The foundation has delivered training and mentoring and subsidized Internet connectivity for those who complete a training course.  Microsoft is leading an effort to gather up used PCs, refurbish them and provide them free or at a discount to new users.  Nearly 12,000 people have completed training so far, and the Microsoft program has distributed 500 computers to youth organizations.

By the last quarter of 2009, Estonia's economy began to recover, posting a 2.5% increase in gross domestic product. As the future brightened, Estonians looked forward to the target 2011 date for their country to join the Euro.  But it is safe to say that Tallinn and Estonia no longer look to others to determine their future.  As the European Union struggles to deal with the financial fallout of the recession, it may be glad to have a new member that knows how to make the most of what it has and to never give up.

 
Top 7 Conversation

Toomas Sepp, City Secretary, Tallin, Estonia, speaks with ICF Co-Founder Robert Bell

Tallinn Introduction Video

Top Seven Intelligent Community 2010, 2009, 2008 and 2007

Population
406,000

Labor Force
228,000

Top Industries
Manufacturing, wholesale and retrail trade, construction, transport, storage, communications, real estate, education.

Broadband Penetration
74% households, 89% business, 100% government, 100% education

Degrees Awarded Last Yr
Community college 2,845; undergrad 2,525; graduate 1,596

3-Year Job Creation
32,000, 1,300 depending on ICT

Key Leaders
Toomas Sepp, City Secretary

Urmas Kolli, Chairman and CEO, AS Datel

Andres Keevallik, Rector, Tallinn University of Technology

 


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