President Alar Karis at the University of Chicago: Hack the Miracle: Estonia’s Spirit of Digital Innovation and Startups

Good morning!
It is a great honor - and a deeply personal pleasure - to speak at a university that has profoundly shaped the rebuilding of modern Estonia.

Before the Second World War, Estonia was an independent democratic republic. Then we were absorbed by the Soviet empire.

When we regained our freedom in the early 1990s, we faced the enormous task of rebuilding our country from scratch. We had to learn how to govern ourselves, how to rebuild a functioning economy, and how to reconnect with the free world.

The intellectual foundation that guided us came, to a surprising extent, from here - from the University of Chicago. The ideas born in this university - rooted in classical liberalism, the belief in individual freedom, private property, and open markets - became a compass for our transformation.

Therefore, I believe that the spirit of Estonia's digital innovation and startups is deeply rooted in the ideals of economic liberalism and the reforms that originated here.

The Chicago School and the Ideology of Freedom

In the 1980s, among university students in Estonia, there was a song set to the tune of Yankee Doodle. But the lyrics were different - it praised NATO and the Western world, and mentioned figures like Margaret Thatcher and Ronald Reagan.

Ronald Reagan was, for some Estonians, almost a superstar. One future Estonian prime minister even named his son after him in the 1980s.

What united Reagan and Thatcher was not only political leadership, but the economic thinking behind their reforms - a thinking closely connected to this very university.

A significant number of young people who studied in Chicago in the 1970s and 1980s became advisors to various top politicians around the world in the 1980s. Among others, they became part of the circle of advisors to Thatcher and Reagan.

The influence of the University of Chicago on economic development was not evident solely through the young people who studied here, but also through its researchers and professors.

Thatcher was famously known to bring Friedrich Hayek's The Constitution of Liberty to Conservative Party meetings and say, "This is what we believe." And although Milton Friedman is the name most often mentioned in connection with Estonia's reforms, Hayek's influence was just as important - his defense of individual liberty and spontaneous order resonated deeply in a society emerging from totalitarian control.

Reform and Transformation in Estonia

The reforms inspired by Chicago economists - and implemented by Thatcher and Reagan - made the U.S. and the UK stronger. This also shifted the balance of the Cold War, helping to bring about the collapse of the Soviet Union. That, in turn, opened the door for us - to regain our freedom.

In Estonia, the transformation that followed was rapid and radical.

In early 1992, the average monthly salary in Estonia was roughly equivalent to the current average hourly wage. Prices were lower in the 1990s, but living standards were extremely modest. Our economy was distorted - built on industries and value chains created for Soviet needs, not global competition. Large part of our industrial capacity stood idle.

A 1993 survey found that about half of production facilities in active companies were unused. The solution came through privatization, which unleashed entrepreneurship. By 1995, Estonia's exports had nearly doubled compared to 1993. The turnaround was visible and real - a shift from stagnation to growth.

Liberalization and Institutional Simplicity

Following Chicago's pro-market logic, Estonia liberalized extensively.
We introduced a simple and transparent tax system - still ranked by the Tax Foundation as the most competitive in the world. Not because of low tax rates, but because of clarity and simplicity.

For years, Estonians have been able to file their taxes online or on a mobile phone in just a few clicks - a small example of how market logic and digital innovation can reinforce each other.

This commitment to openness extended beyond taxes. Our labor market, too, remains flexible. Wage negotiations happen mostly one-on-one rather than through trade-union bargaining. This flexibility has been key to our economy's adaptability - a principle deeply aligned with Hayek's idea that a functioning economy requires decentralized information and freedom of choice.

Resilience Through Crisis

One of the earliest tests for our new economic system came in the late 1990s. The Asian financial crisis and Russia's economic collapse hit our region hard. But instead of sinking, Estonia's economy reoriented itself rapidly toward Western markets.

Within just a few years, exports to Russia shrank sharply - but were replaced by exports to the EU. The flexibility of our labor market and openness of our trade policy allowed that shift to happen.

Today, our exports to the United States are three times larger than to Russia, and our imports from the U.S. are four times larger than from our eastern neighbor.

This was not inevitable. It was made possible by institutions and incentives inspired by market principles - the kind of ideas that were championed in Chicago.

Conservative Macroeconomic Policy

Another important factor behind Estonia's success over the past two decades has been its conservative macroeconomic policy, guided by the principles of the Chicago School. We have sought to maintain small budget deficits, which has helped keep the national debt relatively low. Now, as European nations increase their defense spending, this past fiscal discipline has proven to be a great advantage.

Before joining the Eurozone, Estonia also maintained a stable currency under a currency board system, which ensured monetary stability and credibility. These policies provided the foundation for long-term trust and resilience in the Estonian economy.

Freedom as a Continuous Project

Today, according to the Heritage Foundation's Index of Economic Freedom, Estonia ranks 8th in the world. In Freedom House's overall freedom index, we are 12th.
In both, we rank ahead of the countries that once served as our role models.

That is not a sign of competition but a testament to how freely we have been able to apply and adapt liberal principles - without the institutional and political constraints that more established democracies sometimes face.

But freedom is never finished. It is not a static achievement. It requires continuous care, debate, and defense - especially in times of global uncertainty, populism, and renewed authoritarian pressure.

From Market Reform to Digital Transformation and Startups

The market reforms of the 1990s laid the foundation for what came next: Estonia's digital revolution.

At the turn of the millennium, we invested heavily in digital identity, electronic registries, and public information systems. At first, these were simply digital versions of paper processes. But soon, digitalization began to change the very nature of public services: some of the services could never exist in paper form.

Estonia is a digital society, where almost everything can be done online. This includes secure digital signatures, real-time business registries, and online voting. Many of Estonia's e-services are accessible worldwide through the e-Residency program, which provides access to Estonia's digital services and the opportunity to establish and run a company remotely without the need to travel to Estonia.

The government partnered with private companies to build these systems, so the knowledge and expertise are now in the private sector. Those same firms now export digital governance solutions around the world - from Europe to Africa and Asia.

Digitalization has done more than make bureaucracy efficient; it has also reduced corruption, increased transparency, and supported democratic development. It is now doing it all across the globe.

Estonia is small - but that makes us fast, adaptable, and unafraid to experiment. It is still difficult for us to bring about major change in the world. However, exporting digital technology helps us make the world a better place - by improving job opportunities in Africa, simplifying tax collection there, making infrastructure smarter, and reducing corruption, it strengthens the development of democracy, which is especially important in the emerging economies.

Information technology and telecommunications now account for about 10% of Estonia's value added, with many more companies in electronics, and other fields linked to the digital economy.

High entrepreneurial freedom and a well-developed digital sector played a major role in the startup boom of the past decade. Estonia has been the birthplace of many startups, some of which have grown into fairly large companies today. This is a valuable experience that should be used to drive future growth.

Estonia is a great place to test digital services. We have a pool of people with experience in building fast-growing companies and a strong community of digital businesses filled with like-minded individuals.

The Next Leap: Adapting to the Age of AI

The next great challenge - and opportunity - is to adapt to a world where artificial intelligence plays a much larger role.

We should not be paralyzed by fears that AI will take away jobs. Instead, we must learn to use it to increase productivity, to enhance human work, and to deepen the meaning of what we do.

Much like our "Tiger Leap" into digitalization two decades ago, Estonia has now set its sights on bringing AI into schools. Children are already using AI - our responsibility is to make sure they can use it wisely and to their long-term benefit.

We aim to nurture a generation that can use AI for empowerment, not dependence.

To achieve this, we have partnered with leading U.S. AI companies and trained teachers over the past summer. The program is now reaching schools across the country, helping teachers integrate AI tools into everyday learning and showing students how to use them creatively and responsibly.

AI, like every technological revolution before it, will reshape the economy. The question is not whether it replaces humans - but whether humans can learn to work better with it. Estonia intends to lead by example in that transformation.

Closing Reflections

When Estonia was still behind the Iron Curtain, students dreamed of joining the free world. They dreamed of living in a country where ideas mattered more than slogans, where individuals could build their own future.

When we finally got that chance, we borrowed ideas from those who had thought most deeply about freedom - people like Hayek, and Friedman - and from institutions like the University of Chicago.

And while Estonia has changed immensely, the core challenge remains the same everywhere: how to preserve freedom in a complex, uncertain world.

Freedom is what guided Estonia's transformation.
And that is what continues to guide us today - as we move from the age of digitalization into the age of artificial intelligence.

Freedom brought us here. Innovation will take us further. Thank you.