Getting It Right

With its 2-m-thick walls and squalid cells, the Patarei sea fortress on the edge of Tallinn, capital of the Baltic republic of Estonia, has long borne witness to the brutality of occupation. Built in 1840 by Russian Czar Nicholas I, it was used as a prison and execution site by the two powers that marched into Estonia in the 20th century, Nazi Germany and the Soviet Union. But Estonia is once again an independent country, the last prisoners have gone, and one Friday night last month, the fortress was literally pulsating with a new kind of energy as hundreds of Tallinn youngsters, some speaking Russian, others Estonian, packed into the place for an ear-splitting all-night techno rave. "It was an experiment, the first time we've done this," says Andrus Villem, the Patarei's project manager, who wants to exorcise the ghosts of the past by turning the fortress into an impromptu arts center.

The party is a tailor-made metaphor for Estonia itself: freed from the confines of a half-century of totalitarian rule, it's having a blast experimenting with unorthodox ideas as it races to make up for lost time. Estonia has been a frontier state throughout its history, bumping up against Russia to the east and facing Finland across a narrow gulf. Since the three Baltic republics regained their independence in 1991 with the collapse of the Soviet Union, the tiny nation (pop. 1.35 million) has managed to put itself on the edge of far more than just geography. It was the first former Soviet republic to introduce its own currency, and the first European country to adopt a flat tax system, now widely copied in the rest of Eastern Europe. It has also become one of the most technologically advanced places on the planet. You can use your mobile phone to pay for parking your car, buy bus tickets and check your children's school grades. More than 80% of taxpayers file their declarations online, wi-fi hot spots are ubiquitous — and free — and the nation's most famous start-up is Skype, the Internet phone titan, which was acquired last year by eBay for $2.6 billion. That amount is slightly more than the annual output of the entire Estonian economy 15 years ago.

The economy, once a basket case, is now one of Europe's most dynamic, racing along at a 12% growth clip — faster than China. Estonia is one of only two new European Union members to have a budget surplus, and its national debt will have all but disappeared by the end of the decade. Naturally, there are growing pains: the unemployment rate has fallen so sharply, from 14% in 2000 to about 4% today, that businesses are scrambling to find workers. But even if growth slows a little to a more sustainable rate, Estonia could catch up with Portugal and Greece on a per-capita basis in about a decade. "This is the best time in our history," says Sten Tamkivi, Skype's Estonian head of operations.

So much so that the country's tech employers are hugely grateful for the workers they have. "Every evening I'm almost standing at the door and asking everyone as they leave: Did you enjoy yourself and can I expect to see you tomorrow?" says Teet Jagomägi, not entirely joking. He runs a mapping software company in Tartu, the second largest city. It's doing good business in partnership with Swedish telecommunications giant Ericsson, and has 70 employees. Jagomägi says he would like it to grow to about 150, but he's already lost a few of his people to the two other big technology firms in the country, Skype and Playtech, which develops the software for online casinos. Skype has 250 people in Estonia and reckons it will have exhausted the local job market once it gets up to 350. Thanks to its hip reputation — and the package of eBay options offered to staff — it has managed to lure about 50 people from abroad. But other firms have a tougher time following suit.

Allan Martinson, who ran an IT firm and has now set up shop as a venture capitalist, reckons that Estonia's true innovative edge has more to do with the willingness of the public to use technology than with any particular national skill at developing it. "We're fast early adopters. We're very good at getting innovation to work," he says. For example, the whole financial system leapfrogged into electronic banking in the mid-1990s, bypassing all messy dealings with checks and other paper transactions. And the government has done its best to boost computer literacy, including running free two-day classes that have been attended by 100,000 people. It now issues national ID cards with a computer chip that contains the owner's digital signature. That enables Estonians to gain access to an ever growing range of electronic services, by networked computers and even mobile phones. Sitting in an Irish bar in Tartu, Jagomägi flicks at his phone and accesses the information provided by the school attended by his younger son Vootele, 10. It lists Vootele's schedule, his grades and his absences. Jagomägi scrolls down and clicks on homework. "Monday," it reads. "English: Page 14, Exercises 1 and 2."