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Home > Race to the bottom

1 Occurrence and limitations

The occurrence of races to the bottom mitigated by the costs of moving investment and production between countries, by persistence of comparative advantages (such as skilled workforces, infrastructure or proximity to natural resources), and by the presence of minimum standards, rules or conventions which prevent them.

Races to the bottom can also occur between the states or administrative regions within nations, which often seek to attract businesses and jobs on the basis of a favourable regulatory environment. The extent of such intra-national races is limited by the power and inclination of central national governments to act against them.

2 Implications

A race to the bottom can arguably be a force for good, in situations where laws are genuinely and inefficiently burdensome. At the same time, these contests regularly work to undermine the ability of governments to protect labor standards such as workers' compensation, or to raise taxation in order to fund social services and correct externalities (such as pollution and social degradation). Races to the bottom could conceivable even undermine democratic accountability.

3 Causes and responses

The dismantling of tariffs and other trade barriers, facilitated by the rules set within the World Trade Organization, and encouraged (in the South) by US influence through the World Bank and the IMF, may have removed an important constraint on races-to-the-bottom; without protected domestic industries, countries are more dependent on liquid investment capital. One solution to this problem is to employ international fora, such as the WTO itself, to set satisfactory environmental and labor rules at a global level. To date, however, the WTO has proved ineffective in addressing these problems.

Another suggested method for avoiding races to the bottom is moral purchasing. Moral purchasing can influence decisions at the level of individual buyers, or it can involve forbidding or applying heavy tax, tariff and trade sanctions to nations that permit the export of offensive goods, re-directing revenues raised from such tax or tariff to combating abuses.

4 Occurrence in international labor markets

The positive argument for free trade rests on the economic theory of comparative advantageIn economics, the theory of comparative advantage explains why it can be beneficial for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other. What matters is not the absolute cost of product, which in turn depends on the necessary condition of "capital immobility." If financial (or labor) resources can move between countries, then the comparative advantageIn economics, the theory of comparative advantage explains why it can be beneficial for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other. What matters is not the absolute cost of product theory erodes, and absolute advantage dominates. Given the liberalization of capital flows under free trade agreements of the 1990s, the necessary condition of capital immobility no longer holds. As a consequence, the economic theory of comparative advantageIn economics, the theory of comparative advantage explains why it can be beneficial for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other. What matters is not the absolute cost of product no longer supports free trade theory. Because labor is fairly immobile, finanical capital is moved across international borders seeking the least cost labor. Because a huge pool of labor exists in the world, this process is often cited as another example of the race to the bottomIn comparisons of regulation, a race to the bottom is said to occur when competition between nations (over investment capital, for example) leads to the rapid dismantling of regulatory standards. Occurrence and limitations The occurrence of races to the b.

Where these races to the bottom occur, it becomes unclear whether it is actually in nations' collective self-interest to support free trade.

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Topics: Race To The Bottom Trade Law Labor Capital Races Corporate...

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