only 18% of cities have a law that reduces bureaucracy

Three and a half years after the entry into force of the Economic Freedom Law (LLE), on September 20, 2019, there is still much to be done. The legislation is valid at the federal level, but implementation in states and municipalities – precisely where much of the bureaucracy that makes business difficult is concentrated – is moving at a slow pace.v

A survey carried out by the Liberal Institute of São Paulo (Ilisp), with data from March 16, shows that, of the 4,320 Brazilian municipalities with more than 5,000 inhabitants, only 799 approved a decree or law of economic freedom, just over 18% of the total. Those who did not approve are wasting an opportunity to encourage the opening of companies and the generation of wealth and income – a study shows that there was a significant increase in job creation after the approval of the law.

LLE aims to simplify and reduce bureaucracy in the country’s business environment, facilitating the opening and operation of companies. On average, in February, it took 26 hours to start a business in Brazil, according to the federal government’s Business Map. Four years ago, this average period was 114 hours.

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

For Paulo Uebel, former secretary of Debureaucratization, Management and Digital Government at the Ministry of Economy (2019-2020), a very important legacy of the legislation is to bring to public administration the concept that the citizen comes first.

“One should not create meaningless demands for those who want to undertake. Public management needs to be guided by ethical conduct and follow a risk matrix: the greater the risk for the citizen, the more the State needs to supervise”, she says. This, according to him, is reflected in gains for society: bureaucracy is reduced between 70% and 80%.

The waiver of licenses for low-risk activities has been seen as a measure to stimulate economic activity in the country, reducing costs and time required to open and maintain a business, points out Ilisp. And it can also help in the formalization of companies.

Adherence to the Economic Freedom Law was lower in the North and Northeast

One of the most important aspects of the Economic Freedom Act, the waiver of permits for low-risk activities, only occurs when equivalent legislation is approved in states and municipalities. This is a necessary step for the authorities involved – such as city halls, environmental agencies, Sanitary Surveillance, Fire Department – ​​to be able to dispense with the permit.

“There is a great disparity between the states of the federation”, points out Marcelo Faria, specialist at Instituto Millenium and president of Ilisp. Of the 27 federation units, 12 states have not approved economic freedom laws, of which 11 are from the North or Northeast, plus Goiás.

“There is a serious lack of interest in the cities and states of the North and Northeast in advancing the law, precisely the regions in which facilitating entrepreneurial activity is even more important”, highlights Faria.

Rio Grande do Sul is the state in which, proportionally, more municipalities approved the Economic Freedom Law – 58% of those mapped. Next comes Santa Catarina (54.2%), Espírito Santo (49.4%) and Minas Gerais (42.5%). In the states of the North and Northeast, this percentage is less than 10%, with the exception of Rondônia (10.9%).

Employment grew in municipalities that adhered to the Economic Freedom Act

Faria says that the approval of the Economic Freedom Law was fundamental, not only to raise the country’s evaluation in the criterion of business freedom in international rankings, but also to generate more jobs.

In the latest Heritage Foundation ranking, released at the beginning of March, Brazil appears in 127th position out of 176 countries. It is a gain of six positions compared to the survey released in 2022.

However, experts interviewed by the People’s Gazette point out that, with the measures adopted by the government at the beginning of its mandate, the prognosis for the coming years is not good.

“You have to be attentive. Any threat to economic freedom can have a heavy social impact, such as creating fewer jobs,” says Uebel.

According to a study carried out by Ilisp in partnership with the Millenium Institute, municipalities that adhered to the Economic Freedom Law had an average increase of about 40% in job creation after implementing the law.

“The cities that implemented the Economic Freedom Law had a higher rate of opening companies after the law, given that the waiver of permits mainly benefits micro and small entrepreneurs who can start their activity or formalize an existing one more quickly. , practical and with less regulatory risks”, says the study.

What are the obstacles to the dissemination of the Economic Freedom Act

Faria assesses that the lack of political will is the main obstacle to the implementation of the law: “There are mayors and municipal secretaries who refuse to lose a certain micro power by waiving permits for hundreds of low-risk activities”.

Another problem, according to Faria, is political disputes between mayors and governors. “In other locations, the law did not advance because there is a strong effort by the state government to advance the law, but the local mayor opposes the governor and did not want to approve it – harming hundreds of thousands of people – not to give a ‘victory policy’ to the governor.”

The Millenium Institute specialist points out that there is also some resistance from employees who would fail to analyze the release of permits in the face of the advancement of the Economic Freedom Law, even though the waiver of permits does not affect the subsequent inspection of companies. “When this resistance is overcome, which can take months of negotiations, the law ends up advancing”, he says.

Ignorance of the law and its effects also weighs heavily, Uebel highlights. To avoid this, according to him, it is necessary to work with education and involve entities that promote associativism, such as business associations.

Implementation of the Economic Freedom Act, by state

Percentage of municipalities with more than 5,000 inhabitants that implemented the Economic Freedom Law, according to Ilisp: