Businesses around the world have found that complying with labyrinthine rules and procedures requires valuable man-hours that could be applied more productively to other tasks—like producing goods and services, improving distribution, or finding new markets. Inspired by Slovakia’s Institute of Economic and Social Studies, Atlas Network’s Center for Latin America recently teamed up with several regional partners to research, analyze, and quantify the costly burden of regulation and bureaucracy on small businesses and microenterprises in Spain, and five sample countries in Latin America. Fundación Libertad (Argentina), Instituto Liberal (Brazil), Instituto de Ciencia Política Hernán Echavarría Olózaga (Colombia), México Evalúa (Mexico), Fundación Civismo (Spain) and Cedice Libertad (Venezuela) each contributed to the project. Cedice Libertad was the project lead.
Many governments—including those in Latin America—have struggled to update their bureaucracies for 21st-century needs and technology. As businesses move faster and their operations become more complex, bureaucracies and regulatory agencies remain archaic, centralized, and slow. This discourages entrepreneurs, stunts economic growth, and holds back nations from the prosperity they could achieve. The Index of Bureaucracy in Latin America intends to address this.
After identifying the relative weight of primary, secondary, and tertiary sectors in a given country, researchers identified representative businesses in each sector of each country. They interviewed leaders from those representative businesses, as well as business law professionals to determine how much time is spent each year complying with regulatory requirements. These ranged from rules on hiring new employees to waste management regulations, and especially tax compliance. Using this data, researchers were able to determine how many hours a representative firm had to dedicate to fulfill legal obligations in each country studied.
Countries in the study broke down into three tiers. Thanks to a concerted effort to ease the regulatory burden, Brazil required by far the least number of hours. Spain came in second with nearly double Brazil’s time burden. Argentina and Venezuela came in last, requiring nearly 1,000 hours each in procedures. That burden becomes especially significant in light of the fact that a person works 1,363–2,255 in a year. This often necessitates outsourcing compliance work, which raises costs; or worse, choosing the extra-legal route of the informal economy, where bribes become a type of necessary tax to reduce exorbitant regulatory constraints to simply getting ahead.
The Index of Bureaucracy in Latin America calls into focus the negative effect that the massive expansion of government bureaucracy has on businesses—especially small businesses—and therefore the opportunities available to everyday people. It is of utmost importance that governments streamline, update, and reform regulations to empower individuals to achieve a more prosperous life and escape poverty.