Wednesday, 20 December 2017

Real-time management - business tiger jump

At the beginning of January Finland and Estonia signed a letter of intent regarding the construction of a real-time economy. This is the first step towards creating a modern economic system.

Estonia and Finland are developing plans to modernize the foundations of their economies. By targeting the real time economy, they want to eliminate bureaucracy, automate financial transactions and stimulate innovation and development.
It is difficult to imagine the company's operations without accounting, the state's tax system without dozens of forms or economic forecasts without reservation about the "latest data" from a quarter or a year ago. The payment of invoices or receipts goes a long way. Data from the quarter before is not the best basis for determining investment risk or for planning the state budget. In times of online, business continues to operate based on foundations and principles created in offline times.
These delays in the economy want to be eliminated by Finns and Estonians. For several years, economists from the University of Aalto in Finland have been developing the concept of real-time economy (Real-Time Economy, RTE). Recently, Estonia also participates in the project, which thanks to the well-developed offer of digital services is the ideal incubator for the new system.

Business in the rhythm of the Spotify playlist

So what is real-time management? Simply put, it can be described as an economic system that eliminates time-consuming intermediate steps between sales and reporting. All elements of transactions known to us today - sales, bill or invoice, posting, tax payment and final reporting - will be done automatically, in a digital environment and in real time. In other words, everything that has so far lasted even months will be shortened to "here and now". Data will flow over time limited only by the performance of links and servers.
The revolutionary nature of such a solution consists in time savings, but also eliminating bureaucracy and costly accounting, which will be replaced by an audit or a simplified form of verification of completed transactions.
Anneli Heinsoo
Anneli Heinsoo
- The youngest generation lives in the times of Spotify. If you want to listen to music, you do not have to buy CDs, write your favorite songs on a piece of paper and carry them with you. It will also be with business. - expresses the vision of the modern economic system Anneli Heinsoo, the president of the Estonian Association of ICT Enterprises associating the 80 largest companies in the sector. - Just click to accept the transaction, and the rest will take place automatically, without unnecessary delays and difficulties.
While such a vision sounds quite futuristic, especially when confronted with the economic system and tax law known to us today, according to Heinsoo, this is not the melody of a distant future. - Estonia has an ICT infrastructure that will allow such a system to be introduced within a few years.

A state without a tax office and a gray area

The Estonian public sector offers several hundred different types of digital services, from the establishment of a company to the settlement of taxes, and the government actively participates in and supports innovation. - Cooperation with the government is very important. It is on the government side to adapt the legal framework so that innovation can be introduced. - says Anneli Heinsoo - without Real-Time Governance, there is no Real-Time Economy - he adds.
The Estonian public sector offers several hundred different types of digital services, from the establishment of a company to the settlement of taxes, and the government actively participates in and supports innovation.
Real-time management goes hand in hand with real-time administration. Estonia is a small country that has been introducing advanced digital services in public administration for years to reduce spending on state structures. Despite the obvious savings, the introduction of a new model of the economic system may raise concerns. The elimination of documentation, "hard evidence" of the conducted activity may give the impression of consent for the gray zone.
- From the beginning of this year, entrepreneurs are obliged to provide the tax office with periodic declarations containing information on transactions worth over EUR 1,000. This small step already brings results and entrepreneurs are more meticulous in reporting their turnover - Heinsoo notes. - The introduction of a real-time economy will bring even better results, because no transaction will disappear from the system, information about each will automatically reach all interested parties. The obligation to submit a report to the tax office will be eliminated - he explains.
Limiting the shadow economy is supposed to increase the state's income. Automation of tax collection and reporting is to lead to a reduction of bureaucracy and as a result is to reduce the costs of functioning of the state. In the long-term, the effects of modernization of the foundations of the economy are also expected to reduce taxes.

Innovation of real time

The real-time management is to bring to the entrepreneurs obvious benefits in the form of reducing the costs of running business and employee costs, as well as increasing productivity and innovation. - The elimination of cumbersome reporting, tax and accounting settlement is to enable the entrepreneur to devote himself above all to business operations, creation and implementation of innovations. - says Heinsoo - Entrepreneurs are the lion's share of their time and energy currently losing on formalities. It limits creativity! - he convinces.
Entrepreneurs are the lion's share of their time and energy currently losing on formalities. It limits creativity!
All mundane activities, such as collecting bills, reporting, accounting and entering into databases or books, will be eliminated or automated. The paper and even the electronic document will be imported to the entry in the database generated after acceptance of the transaction in a taxi or online store.
The new model of the economy is also to limit the risk and uncertainty of investment decisions made on the basis of historical data - the system will provide data on the potential partner at the time of their verification. Similarly, the bank will not require dozens of documents to assess the credit risk of the client applying for additional funds. The state, on the other hand, could estimate economic growth or budget expenditures based on data flowing to statistical databases in real time.

The digital cradle of the real-time economy

Real-time management is a vision that requires advanced digital technologies to be able to think about implementing it. Estonia is a country in which a thriving ICT sector is supported by the government also implementing its own e-services. Thanks to this, digital solutions are implemented quickly after their development. Estonia already has the first components of the real-time economy, including the ability to quickly set up a business, company registers and real estate online, electronic tax returns, commonly used digital signature.
Estonia already has the first components of the real-time economy, including the ability to quickly set up a business, company registers and real estate online, electronic tax returns, commonly used digital signature.
The RTE concept requires innovative digital solutions, so Estonia, which is the avant-garde in the field of e-administration, is a natural incubator for a new economic model. In order for the new model to be implemented, not only fast links and efficient servers are needed, but also electronic proofs and signatures as well as dozens of digital services that must be connected to each other. X-Road is the backbone of Estonian (and soon also Finnish) e-services, which combines databases and information into one system, which in the future will allow you to generate reports and analyzes, or send e-invoices.
While currently digital services are necessary for the implementation of the real-time management, in a few-dozen or so years the new system will be crucial for their development. RTE will allow digital business to be based on digital basics.

Business tiger jump

The Estonians, in order to perform this modernization stroke, cooperate with the Finns. At the beginning of this year, a letter of intent was signed between the Estonian Association of ICT Enterprises and the Finnish Federation of IT. Banks and the state are to be involved in the initiatives of the ICT sector. ICT companies have prepared a vision, product concept, are to analyze the impact of RTE on the economy and identify the necessary legal changes and prepare pilot projects and implementation plan. It will be up to you to prepare a legal framework.
- We want it to be a product that can be compared to extended online banking. - says Anneli Heinsoo - including banks in our project is to guarantee the trust of users, which is often lacking in relation to public platforms - he explains.
Despite the incredible advancement, the digital achievements of e-administration and the success of the ICT industry have not been successfully translated into the dynamic development of the entire economy. The reasons for this state of affairs can be seen in the relatively small implementation of modern solutions in other sectors of the economy. The remodeling of the existing economic system may become a stimulus for the entire economy to perform another, this time business "tiger jump" [1] .

[1] Tiger's jump is a program of the Estonian government implemented in the 1990s. Its aim was computerization and internetization as well as education of the society in the use of computers and the Internet.

The interview with Anneli Heinsoo was carried out by Kazimierz Popławski, on January 30, 2015, in Tallinn.
Contact: ,  on Twitter @kazpoplawski .

Photo:  Ken Teegardin  / Flickr.


  1. You forgot to mention that the reason for Estonia's record-breaking rate of recent progress is due to their taxation system. This is based on land values and not on earnings. The effect of this revolutionary changed concept is immediate because the speculation in land values, the corruption on where new developments are being planned and land sought for suddenly raised values, the waste of opportunity when land is held unused, poverty where work is scarce due to entrepreneurs finding highly priced unused etc are all thankfully eliminated.

    1. I was intrigued in your interest in macroeconomics. You may have come across Transfinancial Economics in which involves in part the literal uncloaking of the Invisible Hand...


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