Race-to-the-Bottom Hypothesis Essay

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The Race -to-the- Bottom is a critique offered by those opposed to what they view as “corporate led” economic globalization. The central argument is that as capital is able to move more freely across national borders, states will be forced to compete for needed capital investment by lowering legal standards that infringe upon profitability such as environmental regulations and worker safety protections. Since states are forced to compete against one another in order to create a more business-friendly economic environment, each will seek to lower its standards below their competitors, thus setting off a downward spiral of weaker and weaker standards.

The race-to-the-bottom hypothesis gained prominence in the early 1990s as critics on the left analyzed the global implications of the rise of neoliberal policy, an economic policy approach that favors free market functioning and opposes most state intervention in economic activity. Up to the 1980s, Keynesianism was the dominant ideological basis for economic policy in the United States and in much of the industrialized world. Keynesian economic policy called for an active role for the state in managing the macro-economy and addressing certain social needs. Under President Ronald Reagan in the United States and Prime Minister Margaret Thatcher in Britain, the neo-liberal ideology of economic theorists such as Milton Friedman was embraced and used as a basis to shape economic policy. From this perspective, free market processes are most effective for generating wealth, which trickles down, thus benefiting everyone, including the poor. Government intervention in market processes through regulation and taxation are thought to undermine the optimal functioning of the capitalist system. Big business tended to support these conservative leaders and sought to benefit from neo-liberal policies.

During this time international economic institutions such as the International Monetary Fund and the World Bank were used to impose neo-liberal programs on less developed nations that were dependent on aid and in need of foreign investment. The General Agreement on Tariffs and Trade (later the World Trade Organization) was used as a means to eliminate taxes on imported goods and to reduce domestic regulations that impeded international trade and investment.

It was in this context that critics argued that private capital gained even greater power to influence state policy and that this influence would result in a global “race to the bottom” in terms of environmental standards, wages, workplace regulations and other social welfare policies. Given the private control of resources inherent to capitalist economies, citizens who do not own capital are always in need of private investment to provide the jobs and income necessary for survival. Democratic mechanisms can be used to impose restrictions on capital for the sake of the social good, and employers and investors are likely to concede to these restrictions only if it is necessary in order to market their goods to that population. But if investors and employers are able to easily relocate outside of that state in order to avoid those restrictions, and if they face no additional penalty to import their goods for sale to the domestic market, then they have an incentive to relocate where regulations are less restrictive.

According to the race-to-the-bottom hypothesis, citizens within each of the states competing for capital investment will be forced to lower their standards or see investment decline and their economy suffer. For this reason critics of corporate-led globalization call for “social clauses” to be included in trade agreements. This “fair trade” approach would restrict imports from nations that do not adhere to given standards in terms of environmental protection, child labor, minimum wages, and so on. It is believed that this would create upward pressure on standards globally as nations seek to meet the criteria necessary for them to join in international trade.

There is conflicting evidence regarding the raceto-the-bottom hypothesis. Some scholars point to evidence such as wage stagnation in the United States as proof of the effect of downward wage pressure resulting from capital mobility. The movement of the apparel industry from the United States to Mexico and then to China is also seen as evidence of capital’s search for lower wages and weaker standards. Yet others argue that regulatory standards are best understood as a product of domestic political considerations. Some even suggest that openness to trade can influence norms in nations with weak standards, thus creating improvement in practices and the strengthening of regulations.


  1. Scott J. Basinger and Mark Hallerberg, “Remodeling the Competition for Capital: How Domestic Politics Erases the Race to the Bottom,” American Political Science Review (v.98/2, May 2004);
  2. Jeremy Brecher and Tim Costello, Global Village or Global Pillage, 2nd (South End Press, 1998);
  3. Gareth Porter, “Trade Competition and Pollution Standards: ‘Race to the Bottom’ or ‘Stuck at the Bottom’?” Journal of Environment and Development (v.8/2, June 1999);
  4. Aseem Prakash and Matthew Potoski, “Racing to the Bottom? Trade, Environmental Governance, and ISO 14001,” American Journal of Political Science (v.50/2, April 2006);
  5. Alan Tonelson, Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade Are Sinking American Living Standards (Westview Press, 2000);
  6. David Wheeler, “Racing to the Bottom? Foreign Investment and Air Pollution in Developing Countries,” Journal of Environment and Development (v.10/3, September 2001);
  7. Neal D. Woods, “Interstate Competition and Environmental Regulation: A Test of the Race-to-the-Bottom Thesis,” Social Science Quarterly (87/1, March 2006).

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