legislation facilitates formalization and employment

A study carried out by Instituto Millenium based on data from the Freedom to Work project, by the Liberal Institute of São Paulo (ILISP), shows an increase of 88.9% in the annual average of publicly traded companies after the approval of decrees or laws of economic freedom in municipalities.

The research also shows that there was an increase of 65.7% in the annual average of active companies in the municipalities analyzed after the approval of the law or decree of economic freedom.

Statistical analysis was performed using data from 2013 and 2022 for 781 cities with more than 5,000 inhabitants, which had some measure of incentive to economic freedom.

“The greater freedom to undertake generated by the dispensation of permits led to the creation of more companies and, possibly, to the formalization of businesses that until then had been informal”, says Marcelo Faria, president of Ilisp and specialist at Instituto Millenium.

The impact was also felt on employment. A study published by the Millenium Institute in October shows that there was a 40.3% increase in average admissions in the cities analyzed after the approval of the measures.

There was also an increase in the average number of dismissals (24.8%), but lower than the increase in admissions, which means that in net terms, cities created job opportunities with a formal contract.

Federal law came into effect in 2019

At the federal level, the Economic Freedom Law (LLE) came into effect on September 20, 2019, under the government of Jair Bolsonaro (PL), with the aim of simplifying and reducing bureaucracy in the country’s business environment, facilitating the opening and functioning of companies.

According to the Federal Government’s Business Map, in March the time to open a company in the country was 26 hours, on average. Four years ago, that number was 114 hours.

The main point of the Economic Freedom Law is the end of the requirement for operating, health and environmental permits for activities considered to be of low risk. The definition is taken by states and municipalities based on a risk matrix, considering the history of the activity.

The adhesion of municipalities to these measures, however, has been small, especially in the North and Northeast. With the exception of Rondônia, in all the states of these regions less than 10% of the municipalities implemented some type of decree or law encouraging economic freedom.

According to Ilisp, until April 18, 805 cities had established a measure of this type – equivalent to 18.6% of all cities with at least 5,000 inhabitants. There are more than 13.8 million people benefited.

The situation has changed little in a month. An Ilisp survey presented on March 16 shows that only 799 municipalities and 15 of the 27 states of the federation had laws or decrees to make life easier for entrepreneurs.

In addition, at least four cities with more than one million inhabitants do not have economic freedom laws or decrees: Belo Horizonte (MG), Goiânia (GO), Guarulhos (SP) and São Luís (MA).

Advancing economic freedom depends more on governors and mayors

Despite the government of Luiz Inácio Lula da Silva (PT) defending greater participation of the State in the economy, the expectation of Faria, from Ilisp, is that the current administration does not promote changes in legislation that reduce freedom to work and undertake.

“At the moment, the political will of rulers and legislators is much more important for the advancement or not of the law in each subnational entity [estados e municípios] than the performance of the federal government”, says Faria.