How Estonia’s Government is Incentivized to be Effective

One of the concerns that Estonians have is: how to stay nimble, agile, and hungry so they continue to create an environment for innovation.

I think they have fully internalized the idea that big organizations are the anti-thesis of innovation. They aren’t designed for that function.

This is of particular concern as it relates to government. The believe that bureaucracy is the enemy of innovation and that the government, like the X-road system itself, should be a small thin layer that serves society—not a giant quagmire of regulation.

Sounds good.

So, how do they put that in practice?

One example we heard came from the tax office.

Many of us have seen situations where we work in companies or government and we have a “use it or lose it” budget.  This creates an incentive to waste and spend, just so we can prove that, “yes, we actually needed all the money you gave us and now we need more next year’ (since we can’t really measure the impact of our programs anyway).

Estonia does it differently.

If a government office is able to reduce waste and inefficiency, they actually get to KEEP a portion of the money they save for the future.  Almost like a bonus pool.

So, if you can eliminate 100 jobs by using technology, that agency gets to keep the equivalent of 10 of those salaries (instead of giving all 100 salaries back to the central coffers).

Now, this has obvious impact in terms of the 100 people who now need other jobs, but the Estonians recognize that the GREATER good is served by having those 100 people find other jobs and saving the Estonian taxpayers the money.

Even those who are laid off recognize it.

Yes, it’s a big cultural shift.

In fact, during the 2008 economic crisis, the Estonian government was forced to lay off a number of civil servants (the country is required by its constitution to not incur debt)….and that government was re-elected!