At the end of last year, the country seemed to reach one of those ethereal consensuses (due to its inconsistency) that the referents of all political spaces repeated like a mantra: “we must change social plans for genuine work”. No one said, of course, that it was a desire as laudable as it was elusive because to achieve it, at least two major challenges had to be overcome. The first is that people who join the labor market offer competitive services. The second, even more unlikely, is that there is a demand for workers in the market. Each of these points deserves a separate article.
Job. Let us focus on the second obstacle, taking for granted, in an exercise that requires a lot of hopeful imagination: that the bulk of the beneficiaries of social plans have sufficient skills and knowledge to be included in the formal labor market. The question is… who would hire them? According to data from the Argentine Integrated Social Security System (SIPA), formal employment grows, fundamentally driven by the boom self-employment and work in the state. far from posture romantic entrepreneur, for the vast majority of people, independent work is equivalent to conditions of (self) employment without vacations, bonuses or contributions, in a context of irregular income, instability and uncertainty. At the other extreme, there is a state with poverty wages, eternal monotributo, low professionalization and, therefore, deepens the unsustainability of an exhausted model.
A shortcut. Given this scenario, the fastest and safest path seems to be to strongly increase the number of formal companies. But Argentina is going the other way: since 2011, the number of registered companies has stagnated at around 600,000, despite sustained population growth. Which means that the number of companies per capita steadily decreases. To make matters worse, during the pandemic, that number was reduced by approximately 10% according to the CLAVES study, based on the CUIT report.
According to data from the GPS of Companies of the Ministry of Production, in 2018 in Argentina there were only 14 companies per 1,000 inhabitants. In relative terms, Uruguay has three times as many companies, while Chile quadruples us. Post pandemic we are worse. Not only are they few, but they are poorly distributed since in CABA there are 42 per 1,000 but in the north there are only 7. Leaving the region, in countries like Australia the number of companies per 1,000 inhabitants is more than six times that of our country.
The question arises: why are there so few companies in Argentina? But looking at the data, the question should be the other way around: who would want to have a company in Argentina, honestly, blank and without special regimes or market conditions as exceptional as they are artificial created by the State?
Among the many things that threaten the creation of companies in Argentina, the first is macroeconomic instability, which is a mirror that reflects the variations that the demand for products and services of organizations will suffer. It is enough to compare the annual variation of the GDP of Argentina with that of Spain in the last 60 years, one of the favorite destinations of Argentines to undertake.
Instability prevents planning, since constant changes mean continuous adjustments to the structure. To make matters worse, the other side of a context of high uncertainty is a rigid and inflexible legal framework, which prevents companies from adapting quickly to changes and having to face extraordinary costs to adjust to reality -or go bankrupt-.
Argentine tradition. Continuing with “the macro”, the first tax appears: the extraordinarily high inflation of Argentina, only comparable with countries crossed by wars and natural catastrophes. The country has more inflation than 97% of the countries in the world. Since prices change every day, companies spend many hours of their day negotiating and renegotiating contracts (and much of their business is going to depend on their ability to get it right). Between trigger clauses and renegotiations, we reach the absurdity of having 3 or 4 annual joint ventures. Beyond transaction costs, a marginal error in the inflation calculation can not only kill profitability, but lead to closure.
But inflation is not the only tax… Although 11 taxes represent 90% of tax collection, the overlapping tangle of municipal, provincial and national rates, charges and taxes reaches the absurdity of practically 170. In some industries, a company has to pay more than 40 different taxes in order to operate. Not only are there many, but they are heavy, being Argentina one of the countries with the highest formal tax burden on the company worldwide, reaching the absurdity of having a total tax rate (a kind of sum of taxes calculated by the report doing businessof the World Bank), of 106%, which means that the taxes take an amount equivalent to all the profit and part of the capital. This value is so rude that it would invalidate article 17 of the National Constitution that guarantees private property – in practice, it does not apply to those who own the means of production. To compare: in Spain this would be somewhat higher than 45% and in Uruguay it is close to 40%. Where would you prefer to have a company, in Argentina or in Uruguay?
The bet. Assuming that someone still wants to start a business in the country, let’s talk about “genuine work”. According to the IDB, in the pre-pandemic, Argentina had the highest non-wage labor cost in Latin America. Then came the double compensation and the prohibition of dismissals. In the context of a chaotic macroeconomy (volatile, unstable and uncertain), a huge fiscal backpack, where a company pays income by activity, in addition to profitability (expected profit), there is also no flexibility to adjust the workforce. What can an entrepreneur do in Argentina? This, of course, without mentioning the labor lawsuit industry and the -increasingly common- extortive blockades of plants. Would you hire an employee to generate “genuine work” under these conditions?
As in the fable of the frogs that simmer, we have become accustomed to all this being “normal”, but it is so unlikely that it is practically inexplicable for foreigners who consult Argentina to decide to invest. How does a business woman or man navigate through this madness? What sustains the dreams and creative energy of Argentine entrepreneurs? It is not uncommon to hear of young businessmen and women having massive anxiety problems or cardiac events.
The future. How to increase the number of companies and generate conditions of labor demand? No more active policies or specific promotions are needed. Enough of Now 12 and the Pretrip. It’s so much easier: don’t constantly mistreat the company, let’s stop wanting to reinvent the economy with price controls, exchange controls and more useless regulations. Let’s stop trying to charge corporations with myriad, grossly overlapping, and distortive taxes. Let’s stop supporting labor laws developed for the second industrial revolution when we are in the middle of the fourth, and that only support the privileges of some trade unionists and some lawyers, leaving workers increasingly poorer. It is urgent to adjust the regulatory framework of an unviable country. There is nothing new under the sun, we must follow the path traveled by most of the countries in the world that have prospered in recent decades.
Roberto VassoloEconomist and Full Professor at IAE Business School, Universidad Austral
Santiago SenaBachelor of Philosophy, PhD in Business Administration and professor at the IEEM, Business School of the University of Montevideo.
by Roberto Vassolo and Santiago Sena
