Rainer Kattel and I have written a paper that will be contributed to an edited book sometime next year about policy success stories. We have decided to publish a pre-print version to get the word out early. Our paper titled “Estonia’s digital transformation: Mission mystique and the hiding hand”.
The original blog post about the paper appeared on the Medium blog of @IIPP_UCL:
In 2017, The New Yorker published an article titled ‘Estonia, the digital republic’ and subtitled, ‘Its government is virtual, borderless, blockchained and secure. Has this tiny post-Soviet nation found the way of the future?’. This summarises the buzz around Estonia’s digital government: from the outside, at least, it is seen as a major success and has been lauded in mainstream media such as the Financial Times, New York Times and Forbes. Given this success, it is somewhat surprising that this narrative, and its main drivers, has not been actually properly documented in academic research. In our new working paper, we do exactly that using interviews with all key architects of Estonia’s digital government.
What were the main drivers behind its digital transformation? And perhaps most importantly, what does Estonia’s digital transformation tell us about the future of (digital) governance?
What does success look like?
The Estonian e-government infrastructure and its success rest on two main pillars, both introduced in 2001, which essentially create digital access to state and digital citizens: the data infrastructure x-road and a compulsory national digital ID. X-road is an interoperability platform for existing decentralised databases and a data exchange layer that can be used by public and private sector actors. It is independent of platforms and architectures and provides secure interoperability for data exchanges and identification of trusted actors in digital service delivery. The digital ID makes it possible for citizens to be identified digitally and to use digital signatures. Together, x-road and the digital ID make it possible to digitally sign any contract, access essentially any public service, order prescriptions, file taxes, vote and so forth.
More than 2,300 public and private services use x-road, and the digital signature has been used almost 350 million times by Estonia’s population of 1.3 million. The digital ID penetration is close to 100%; 30% of votes are cast digitally (in both local and national elections); almost all personal income tax declarations and medical prescriptions are done online, and most medical records held by hospital and family doctors are accessible online. The Estonian government claims that its digital infrastructure has led to annual savings of about 2% of GDP and more than 800 years in working time for the public and private sectors.
According to the EU’s Digital Economy and Society Index (DESI), in 2017 Estonia was the leading nation in Europe in digital public services, although in 2018 it dropped to second place. However, in most other e-government rankings Estonia‘s digital success is less evident. In DESI’s overall ranking, Estonia is in ninth position for 2018 and, according to the UN’s 2018 e-government survey, it is ranked only 16th globally. This cognitive dissonance — high praise and leadership position in global news outlets versus relatively middling rankings in overall digital transformation indexes (for more discussion, see Drechsler’s contribution in this new book) — reflects the nature of Estonia’s digital success: Estonia is ranked high for its digital public service infrastructure, which is universally available and mandatory, and an integral backbone of public service delivery. Estonia’s digital success, however, is not about other digital offerings such as digital democracy, citizen engagement or digitally transforming public services such as the welfare state.
The specific nature of Estonia’s digital achievement and at the same time disconnect between technological infrastructure and degree of digital penetration is often overlooked in international coverage. As Estonia’s digital government came to be focused on the x-road, Estonia has effectively created its own legacy system — a move that the initial thinkers wanted to avoid. Indeed, in the early 1990s, the focus was as much on secure digital infrastructure as it was on advancing societal goals through digital means. Yet, in particular throughout the 2000s as Estonia blazed through an economic boom that created increasing inequalities in its wake, the evolution of digital government seems to stalled.
In some ways, Estonia’s digital government has been caught up in its own success: in 2014 Estonian introduced e-residency programme that opens some digital public services (establishing a company, paying taxes) globally. While more than 40,000 e-residents have signed up — most recently, the pope was gifted e-residency — and more than 4,000 companies have been created by e-residents, the programme has also faced domestic criticism as a something of a show-off that enables money laundering. (Similarly to India’s Aadhar, Estonia’s digital infrastructure faced constitutional court challengesthat were related to e-voting; as in India, Estonian court ‘sided’ with digital solutions.)
While many digital services have brought efficiency gains to citizens and businesses in Estonia, citizen satisfaction with crucial services such as healthcare and education has remained low. As an example, according to OECD rankings in 2014, Estonia ranked fifth from bottom in satisfaction with health services (in 2007 it listed the lowest) and second from bottom in education system satisfaction (in 2007 it ranked third lowest). Further, Estonia performs poorly on some critical social indicators. For example, in 2016 it had the highest gender pay gap in Europe and a higher than EU average Gini index. While citizen satisfaction is not the only measure of the quality of public services — and digital infrastructure is only one component in the provision of sophisticated services such as health and education — it is indicative that there is a little-measured improvement in the provision of core public services.
How did the success come about?
Perhaps most surprisingly, Estonia has never had a central office for digital transformation, such as the UK’s Government Digital Service (GDS), even though such a central agency was initially envisioned to manage (among other things) vital public registries. Estonia’s digital transformation has been an extended and on-going process over three decades, starting in the early 1990s, when Estonia regained its independence and continuing to the present day. Much of this process has been ad hoc and informal. For example, many strategic policy documents for digital transformation have followed the rhythms of European (structural) funding periods rather than responding to domestic challenges and planning processes. Similarly, various overlapping and mostly self-managed public-private networks have provided the informal dynamic capacity and capability for change, few of which have been institutionalised or formalised. And above all, the process relied initially on what Albert Hirschman has called the principle of the hiding hand: policymakers push visionary changes without anticipating all the challenges and risks involved upfront, an approach that sometimes results in unexpected learning, creativity and — in this case — success.
The naiveté and enthusiasm of the hiding hand that propelled the initial ‘crazy ideas’ of the early 1990s became ingrained in Estonia’s digital policymaking culture. As Mart Laar, prime minister in 1992–1994, and 1999–2002, and perhaps the key politician in this story, once said: “I was 32, I was young and crazy, so I didn’t know what was possible and what’s not, so I did impossible things.” (As he told us, for him the e-residency programme is simply not crazy enough.) Estonian digital government came to rely heavily on such charisma and hacker mentality.
The hiding hand was propelled by another rather simple phenomenon: envy. The success of Finland and Nokia became one of the guiding political reference points in the 1990s: ‘What is our Nokia?’ asked Lennart Meri, Estonia’s first president after Estonia regained independence in 1991, a question that has remained a popular catchphrase. Importantly, the confluence of Soviet industrialisation with ethnic tensions (mass immigration in post WWII era was related to rapid industrialisation during this period) explains why Estonia, despite being one of the most economically and technologically advanced countries within the Soviet Union, chose not to upgrade the inherited economy and instead sought to do something completely different. As an emerging general-purpose technology, ICT offered an almost perfect solution, particularly given the availability of R&D skills in this sector. ‘The digital’ thus came to express Estonia’s — or more precisely, its elite’s — ambitions and explains why, to this day, the ‘digital elite’, with some rare exceptions, is almost all ethnically Estonian.
There were three further vital contextual factors:
- While the Soviet legacy had left Estonia with an outdated industrial structure and widespread aversion to industrialisation, it also left Estonia with a wealth of R&D talent in ICT through various Academy of Sciences institutes, such as the Institute of Cybernetics (established in 1960, its spin-off Cybernetica AS developed x-road and e-ID) and other similarly highly advanced academic institutions. As their funding collapsed in the early 1990s, much talent poured into emerging private companies, in particular, various joint ventures with Scandinavian telecoms and other companies.
- Estonia has geographical proximity to Scandinavia, and in the 1990s the Nordic countries had one of the fastest developing telecommunications sectors globally. Opening up both policy-making processes (through advice and joint ventures) and markets (through privatisation and regulations) to Scandinavian partners brought know-how and investment.
- Estonia is a small country with a high population concentration in its capital city: almost one-third of its 1.3 million inhabitants live in Tallinn. This clustering of population facilitated agile networks that were able to gain quick and lasting political support, and which required low initial infrastructure investment.
Within this ideational and historical context, three critical features of Estonia’s digital transformation, still dominant today, emerged:
- future-oriented and almost utopian solutions — the realm of ‘crazy ideas’;
- public digital architecture that is universal in nature; and
- decentralised digital agendas (including databases) of line ministries and agencies.
Silicon Valley of digital government?
Estonia’s focus on ICT as general-purpose technology has proved to be one of the critical success factors as it enabled Estonia to create a digital infrastructure that is universal in nature. Yet by relying on decentralised and mostly informal networks to build this infrastructure, Estonia now faces a challenge to develop capacities and capabilities within the public sector to take advantage of the public digital infrastructure.
Thus, perhaps the most significant question faced by Estonian digital government is whether the main reasons for its success — particularly its charismatic leadership-based informal networks and civic hacker culture — provide enough capacity to harness the potential of Estonia’s digital infrastructure for more inclusive public services and society.
While the decentralised digital agendas of line ministries have provided needed agility, they have also created uneven digital capabilities across different departments and agencies. This reliance on bottom-up departmental initiatives seems to necessitate stronger and perhaps more formalised coordination structures than are currently present.
Furthermore, while e-voting is increasingly popular, other aspects of digital democracy, such as civic engagement, have remained weak (with the notable exception of the so-called Citizen Assembly of 2012–2014, which, however, failed to deliver any significant results).
Estonia’s digital success brings forth at least three lessons for the future of (digital) state:
- Economic efficiency gains are not enough as value frameworks for digital transformation. Digital agendas should be more comprehensive in focus and combine social justice and other pressing socio-political issues with economic efficiency.
- While digital infrastructure — from data registries to identification and payment systems — are sine qua non for digital governments, so are institutional innovations that would create, as John K Galbraith put it, “countervailing powers” to existing powers and routines within the bureaucracy and but also in the broader political landscape. Such examples would be public ownership option of private data.
- Public sector organisations need new forms of capabilities that centre on socially conscious design and software skills in order to harness the power digital technologies for greater common good.
Estonia is indeed in many ways Silicon Valley of digital government, in the good and in the bad. Its success is based highly decentralised and agile actors that are goal-focused but also with little regard to social outcomes.
Read the latest working paper from IIPP: Estonia’s digital transformation: Mission mystique and the hiding hand
National governments are creating digital service teams at an accelerated speed. I have written about their approaches, team compositions, and outcomes in a report published by IBM’s Center for the Business of Government last year and expanded on it in this interview. My report mostly focused on the U.S. Digital Service Team and 18F, and highlighted some of the practices of the Danish Agency for Digitisation and its Mindlab, as well as the UK’s Government Digital Service and Team Digitale in Italy.
Since I published the first report, additional service teams were created in 2017: the Canadian Digital Service, Finland’s D9 team, and New Zealand consolidated its IT operations into one new agency, Digital.Govt.NZ.
This semester I am teaching a new seminar that focuses on a relatively new topic: The challenges that public administrations are facing when they are aiming to digitize their analog services. Under the catchy term “digital transformation”, many are looking to not only move from analog to digital, also redesigning, automating, or abandoning outdated administrative acts and the corresponding services.
The term was adopted from the private sector, where digital transformation of products and business models started to occur with the use of the Internet as a distribution and communication channel. The tricky situation for public administrations however is that they can’t reinvent their business models, look for new customer segments, or abandon offline products/services. Unfortunately, public administrations are compared to those whose core business model was digital transformation of their own sectors, such as Apple’s iTunes platform, Skype replacing landline phones, Amazon transforming book/retail sector, Twitter as a newsfeed replacing traditional print newspapers, etc.
We have very limited literature on the topic, therefore the goal of this seminar is that students are deriving research questions from expert interviews and are adding necessary insights by conducting additional interviews. I will give a short introduction to the topic, plus train them in qualitative data collection and analysis – with the hope that they will be equipped to design an interview guideline, select interview subjects, analyze, and present the data.
I was able to cooperate with four external partners for this project: the City of Konstanz, the Initiative D21 (responsible for Germany’s annual e-Government monitor), the City of Ulm’s Verschwoerhaus (an innovation lab), and the Deutschen Städte- und Gemeindebund. They will join us in person or via Skype, present a short introduction of their main problems and findings and then we will open up the conversation for the student-led Q&A.
Finally, the students will design posters with their main findings – an alternative way of communicating research insights to an audience – and will discuss their findings in the Mayor’s office with civil servants who are interested in digitization.
The project is supported with an internal grant to increase the transfer between research, teaching, and practice. This is an initiative that was requested by the student body and in my opinion an applied topic like digitization fits extremely with this mission. I am also hoping that the students are gaining valuable methodological and communication skills, will be able to ‘translate’ their academic insights in plain language to a larger audience, and will be generally best prepared for their BA theses and the job market.
I have made good experiences including practitioners into my classes before, but never transferred the findings of the students from academia into practice – except for using a class blog to encourage the students to write for digital media outlets. It created a bit of press attention and was listed by FedTech magazine as one of the “50 must-read federal IT blogs” in the US. You can read about my experiences and download the syllabi here:
- Mergel, I. (2016): Big Data in Public Affairs Education, in: Journal of Public Affairs Education, 22(2), pp. 231-248.
- Mergel, I. (2012): The Public Manager 2.0: Preparing the Social Media Generation for the Networked Workplace, in: Journal of Public Affairs Education (JPAE), 18:3, pp. 467-492.
Here is a poster we designed that provides a few insights (in German):
I gave an interview to Marquis Cabrera which is now online on HuffingtonPost:
– Dr. Mergel: You’ve had a most interesting academic career; the convergence of academia and industry (and tech!) in your published works is incredible! What made you decide to commission a report on global digital services?
We currently see all kinds of organizational arrangements emerge in government: innovation or policy labs, innovation offices, and digital service teams.
My goal with this report was to understand how the bureaucracy can absorb new organizational arrangements and approaches and scale them up in government. The report focuses mostly on 18F – a digital consultancy that provides services to clients at all levels of the U.S. government. I also included a brief overview of similar international initiatives, like the UK’s Government Digital Service that served as the role model for 18F’s creation.
– In your report, you mentioned global government digital service consultancies and agencies; 18F, GDS, and DTO. To level set with our readers, what are these organizations? What factors (specific or high-level) in aggregate lead to the rise of these organization types? And, how have they had a profound influence on society?
Expert hearing in the German Parliament on June 21, 2017
“Modern State – Opportunities Through Digitization”
Written statement provided by Prof. Dr. Ines Mergel, University of Konstanz, Germany
1. In the process of digitization, it is important that state and administration modernize their exercise of functions and fully utilize the opportunities of digitization. What, in your view, is the present state of administrative modernization and where is the potential of digitization being used in what manner? What are the success stories in Germany? What past successes can we build on?
The level of administrative modernization and digitization of the public administration in Germany is continuously declining in recent years. While legislative measures, such as the Digital Agenda, privacy policies, or investments in broadband services are being advanced, it is difficult for the German administration to improve in the e-government rankings. In a global comparison, Germany was placed at number 17 in 2011 and fell in the United Nations World e-Government Ranking four places to No. 21 in 2014. Compared to the rest of Europe, Germany occupies the 20th place in the field of digital service offerings according to the 2017 DESI ranking. In comparison, the leading e-government countries, such as Estonia and Denmark, began their digital transformation of the public administration 10 years ago.
Reasons for this are manifold. A McKinsey study to “E-Government in Germany – a Citizens’ Perspective” from 2015 shows, that the use of existing e-government services has stagnated since public administration digital services are not user friendly from a citizen’s perspective. According to the 2016 DESI study, only 19% of Germans use the online offerings of the public administration. This means that investment in e-government services fizzle out and bring no added value for citizens.
IBM – The Center for the Business of Government has published my report titled “Digital Service Teams – Challenges and Recommendations for Government“.
The report is part of a larger research project in which I work on understand how different countries are using start-up teams inside of government to move their public administrations toward digital transformation. I am currently working on three other country cases (Estonia, Denmark, and the UK) and will add more cases as funding becomes available.
Here is the executive summary of the report:
Digital service offices have emerged in governments around the world over the past six years as “tech surge teams” to respond to and repair urgent technology failures, or as an alternative structural approach to rethinking processes and implementation strategies in government digital transformation efforts.This report shares insights about three types of digital service teams:
- Centralized teams directly supporting national priorities, such as the U.S.Digital Service, or the United Kingdom’s Government Digital Service
- Enterprise teams supporting innovation in IT acquisition and internal consultancy services, such as 18F, an office within the Technology Transformation Service at the General Services Administration (GSA) that states it is a “services company and product incubator” with the goal of providing digital development and consulting services for other federal government agencies or programs
- Agency-level teams, such as those pioneered in the U.S.: the Digital Service at the Department of Veterans Affairs, the Environmental Protection Agency, and the Department of Defense
The insights provided in this report are based on a review of relevant literature and interviews with founding members, current directors, line managers of digital service teams, their counterparts in the offices of the Chief Information Officer (CIO) and Chief Technology Officer (CTO) at the agency level, and private-sector representatives aiming to collaborate with these new teams.The interviews focused on the structure of the teams, the use of agile and human-centered design processes, changes to human resource (HR) processes to attract information technology (IT) talent from the private sector, the incentives for IT professionals to join the U.S.federal government, and the changes made to federal IT acquisition processes.
One of the catalysts that led to the creation of these various digital service units was the inability to deliver an operational HealthCare.gov website on time in late 2013, which was symptomatic of a broader federal challenge in delivering large-scale IT projects.A post-mortem assessment found that the government’s existing IT expertise did not reflect private-sector industry practices, and that there was a gap between the needs of program managers and the technical capacity available to implement large projects effectively.A key contributing factor was that over three-quarters of the current IT budget for the federal government is earmarked to maintain existing, outdated legacy IT systems, leaving little room to exploit the potential for adopting innovative, new technology approaches and capacities.
A near-term solution to this lack of technical capacity and innovation skills was the introduction of so-called “IT start-ups” within government, also known as “digital service teams.” These small teams typically operate outside existing agency IT organizational structures and recruit IT talent directly from the private sector.They are given a mandate to rapidly implement change initiatives using commercially-developed tools and processes such as human-centered design and agile innovation management techniques—which are standard practice in the private sector, but have been infrequently adopted in the public sector.
The report identifies six challenges that digital service teams face in their efforts to implement digital transformation projects in a government context:
- Embracing an agile development approach
- Attracting IT talent from the private sector
- Maintaining and scaling a start-up culture in government
- Improving the acquisition of innovative IT
- Funding digital service teams
- Addressing whether innovation should be “bought or built”
From these challenges, several recommendations emerge for agencies that are in the process of setting up their own digital service teams, or are considering doing so.These include:
- Understanding that digital transformation in government is not a “software problem,” but requires a holistic and strategic approach
- Using “outside-the-box” thinking to infuse innovation into acquisition strategies
- Phasing-in the use of new cost models to support digital services “start-up” teams
- Including non-technical government employees as part of digital services teams
- Challenging perceptions that “innovation can’t happen here,” given existing regulatory and cultural constraints
- Enlisting facilitative leaders to champion digital transformation
- Promoting greater collaboration among digital service teams and agency IT stakeholders
In addition, the author recommends that policy makers take steps to ensure longer-term sustainability of digital transformation through the use of digital service teams.These steps include:
- Aligning the priority of digital transformation with other mission-driven national and agency-level priorities
- Addressing the legacy IT problems of the federal government
- Scaling up digital service team activities where they demonstrate value
- Expanding agencies’ authority to use innovative personnel tools to bring IT talent into government
- Adopting a new approach towards third-party service providers that reduces procedural acquisition burdens in favor of demonstrated capacity to deliver results
- NextGov: Creating IT Start-Ups in Government, May 31, 2017.
- IBM The Center for the Business of Government: Creating IT Start-Ups in Government, May 31, 2017.
- FedScoop: Think Holistically about what digital services teams represent to government, June 1, 2017.
- GCN: When digital service teams hit innovation hurdles, June 1, 2017.
- Federal Times: Report looks at cause and effect of digital service teams in government, June 2, 2017.
- diginomica blog: IBM – ‘Government needs systemic change, not just digital projects’, June 26, 2017.
- Huffington Post: Distinguished Professor Dr. Ines Mergel Explains How Global Digital Services Teams are Modernizing Government Tech, August 5, 2017.
- Government Executive: How Agility is Driving Government Transformation, November 24, 2017
Mergel, I. (2017): Digital Service Teams – Challenges and Recommendations for Government, IBM – The Center for the Business of Government, Using Technologies Series, Washington, DC.
IBM – The Center for the Business of Government has announced a new round of winners of their research stipends. I won an award to write about my research on digital service transformation in the U.S. federal government.
Here is the announcement text:
The Center for The Business of Government continues to support research by recognized thought leaders on key public management issues facing government executives today.
The Center for The Business of Government continues to support reports by leading thinkers on key issues affecting government today. We are pleased to announce our latest round of awards for new reports on key public sector challenges, which respond to priorities identified in the Center’s research agenda. Our content is intended to stimulate and accelerate the production of practical research that benefits public sector leaders and managers.
My report will focus on the following topic: “Implementing Digital Services Teams Across the U.S. Federal Government”
In 2014, the White House created the U.S. Digital Service team and the General Services Administration’s 18F group. Both groups are using agile software development processes to design and implement high-profile software projects. The results of this report include lessons learned during the scaling up efforts of digital service teams across the departments of the U.S. federal government. These will focus on managerial design aspects, organizational challenges, motivations of digital swat teams and their department-level counterparts, as well as first outcomes in the form of digital service transformations in each department. This research report aims to support the presidential transition team’s efforts by outlining the current efforts of scaling-up digital service teams and their lessons learned, as well as observable outcomes of digital service teams across the U.S. federal government.