The current debates over economic globalization have produced a seemingly simple and intuitive conclusion: Unfettered globalization triggers an unavoidable "race to the bottom" in labor and environmental standards around the world. The reduction of restrictions on trade and cross-border investment frees corporations to scour the globe for the country or region where they can earn the highest return. National policies such as strict labor laws or rigorous environmental protections lower profits by raising the costs of production. Multinational corporations will therefore engage in regulatory arbitrage, moving to countries with lax standards. Fearing a loss of their tax base, nation-states have little choice but to loosen their regulations to encourage foreign investment and avoid capital flight.
President Bill Clinton signed into law last May. EPZs are areas established in order to attract foreign investment. The prospect of 1 billion consumers will cause that kind of behavior among chief executive officers. Already have an Bottom feeders daniel drezner Learn more Check out. The oft-cited Botto, of garment facilities based in poor nations and geared to consumers in advanced economies are the exception, not the rule. Even developing countries such as Malaysia, the Philippines, Thailand, Argentina, and Brazil have liberalized their foreign investment laws while simultaneously tightening environmental regulations. Sign up for free access to 1 article per month and weekly email updates from expert danuel analysts Sign Up. Arguments for and against globalization.
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Whether feederrs not this race to the bottom exists, which Drezner does not seem to have faith in, it is important to see that by depicting a world without choices, Bottom feeders daniel drezner race to the bottom taps into the primal fear of a loss of control. Unfortunately, bad economics is often the cornerstone of good politics. The belief in a race to the bottom has helped cement an unwieldy coalition of interests and has enhanced the influence of antiglobalization xrezner both inside the corridors of power and in the mind of public opinion. Bottom feeders daniel drezner an account? President Bill Clinton Wafer swing check valves into law last May. The result? Cancel Forgot your password? For example, Pacific Telesis now part of sbc Dxniel used globalization as an excuse for cutbacks and layoffs in its San Francisco offices and to lobby Washington for deregulation. Department of Commerce found that more fesders 60 percent of the production of U. Microcredit facilitates development v. This exception is largely due to the low capital investment and importance of labor costs in the textiles sector. Finding libraries that hold this item More from Foreign Policy.
The Regulation of Globalization.
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- The current debates over economic globalization have produced a seemingly simple and intuitive conclusion: Unfettered globalization triggers an unavoidable "race to the bottom" in labor and environmental standards around the world.
- Daniel W.
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The current debates over economic globalization have produced a seemingly simple and intuitive conclusion: Unfettered globalization triggers an unavoidable "race to the bottom" in labor and environmental standards around the world.
The reduction of restrictions on trade and cross-border investment frees corporations to scour the globe for the country or region where they can earn the highest return. National policies such as strict labor laws or rigorous environmental protections lower profits by raising the costs of production. Multinational corporations will therefore engage in regulatory arbitrage, moving to countries with lax standards.
Fearing a loss of their tax base, nation-states have little choice but to loosen their regulations to encourage foreign investment and avoid capital flight. The fear of such a race to the bottom has helped forge an unlikely coalition of union leaders, environmentalists, and consumer groups; together, they have spearheaded significant public resistance to several recent international economic initiatives.
President Bill Clinton signed into law last May. In each instance, protestors argued that unless globalization is reversed or at least slowed, a race to the bottom is inevitable. At the opposite end of the political spectrum, the rhetoric and goals may differ, but the underlying imagery remains the same. Pro-market politicians and multinational corporations also cultivate the idea of an unstoppable global race — except they do so in order to advance environmental deregulation and "flexible" labor legislation that otherwise would become ensnared in fractious political debates.
Multinational corporations argue that the pressures of the global marketplace force them to relocate or outsource their production to lower-cost facilities in poor nations. The race-to-the-bottom hypothesis appears logical. But it is wrong. Indeed, the lack of supporting evidence is startling.
Essayists usually mention an anecdote or two about firms moving from an advanced to a developing economy and then, depending on their political stripes, extrapolate visions of healthy international competition or impending environmental doom. However, there is no indication that the reduction of controls on trade and capital flows has forced a generalized downgrading in labor or environmental conditions. If anything, the opposite has occurred. Given this dearth of evidence, why does the race to the bottom persist in policy debates?
Because the image is politically useful for both pro- and antiglobalization forces. Unfortunately, by perpetuating the belief in a nonexistent threat, all sides contribute to a misunderstanding of both the effects of globalization and how governments in developing and advanced economies should — or should not — respond.
If economic globalization really does trigger a race to the bottom in regulatory standards, two trends should be evident. First, countries that are more open to trade and investment should have fewer and less demanding regulations affecting corporate production costs. Once barriers to trade and investment are lowered, the logic goes, nation-states must eliminate burdensome regulations or risk massive capital flight. Over time, therefore, more open economies should display lower labor and environmental standards.
Second, multinational corporations should flock to countries with the lowest regulatory standards. The core of the race-to-the-bottom hypothesis is that profit-maximizing firms will locate to places where the production costs are relatively low. Since any regulatory standard presumably raises these costs, corporations will seek out countries with the weakest possible standards. These predicted trends are, in fact, nonexistent.
Consider labor standards. There is no real evidence that economic openness leads to the degradation of workers. In fact, some evidence suggests that openness actually improves worker standards. A comprehensive study by the Organisation for Economic Co-operation and Development OECD found that "successfully sustained trade reforms" were linked to improvements in core labor standards, defined as nondiscrimination in the workplace, the right to unionize, and the prohibition of forced labor and exploitative child labor.
This linkage occurs because multinationals often pay higher-than-average wages in developing countries in order to recruit better workers. Moreover, since corporations have learned to work efficiently under rigorous regulatory standards in their home countries, they favor improving standards in their foreign production sites in order to gain a competitive advantage over local competitors, who are not accustomed to operating under such conditions.
The case of export processing zones EPZs in developing economies underscores the spuriousness of the race-to-the-bottom argument. EPZs are areas established in order to attract foreign investment. Typically, governments entice investors into EPZs with infrastructure investment and duty-free imports and exports. If there is a race to the bottom in labor standards, it should be particularly evident in EPZs.
There are a few countries, such as Bangladesh and Zimbabwe, that have attempted to preempt competitive pressures by exempting their EPZs from regulations covering labor standards. However, contrary to the race-to-the-bottom hypothesis, such policies have not compelled other countries to relax labor standards in their own EPZs. Indeed, several nations, including the Dominican Republic and the Philippines, actually reversed course in the mids and established labor standards in their EPZs when none previously existed.
A International Labour Organization report found no evidence that countries with a strong trade-union presence suffered any loss of investment in their EPZs, while a World Bank study noted a strong positive correlation between higher occupational safety and health conditions and foreign investment in EPZs.
Analysts also have found that wages in EPZs actually tend to exceed average wages elsewhere in the host country. Similarly, openness to trade and investment does not lead to a race to the bottom in environmental conditions or regulations.
Countries most open to outside investment — OECD nations — also have the most stringent environmental regulations. Even developing countries such as Malaysia, the Philippines, Thailand, Argentina, and Brazil have liberalized their foreign investment laws while simultaneously tightening environmental regulations.
This finding is hardly surprising; the most protectionist economies in this century — the Warsaw Pact bloc — displayed the least concern for the environment. Privatization programs in these countries, which help attract foreign direct investment, have contributed to improved environmental performance as multinational corporations have transferred cleaner technologies from the developed world. In Brazil, for instance, the privatization of the petrochemicals sector in the early s led to a greater acceptance of environmentally safe practices.
Race-to-the-bottom critics counter that stringent labor and environmental standards in developing economies are backed by purely nominal enforcement capabilities. Although it is difficult to quantify compliance and enforcement in developing economies, the emergence of watchdog groups — analogous to election observers and human rights organizations — that scrutinize the enforcement of national labor and environmental legislation is a positive development.
The United States has recently pursued this strategy by bolstering the role of the International Labour Organization in monitoring core labor standards around the world. And even in the absence of uniform national enforcement, many multinational corporations have embraced self-monitoring programs for the environment — an effective complement to government regulations. Perhaps most damaging to the race-to-the-bottom proponents, there is no evidence that corporations direct their investment to developing countries with lower labor or environmental standards.
Indeed, the relationship between foreign direct investment FDI and labor standards is strongly positive. During the s, an overwhelming majority of global FDI was directed toward advanced economies which tend to have higher labor standards , not to poor nations.
A similar story can be told with environmental standards. Comparing data on U. FDI in developed and developing countries reveals that pollution-intensive U. Profit-maximizing corporations invest in countries with high labor and environmental standards not out of a sense of obligation, but for hard-nosed business reasons.
Consumption has gone global along with production; many firms base their investment decisions not just on likely production costs but also on access to sizable markets.
A survey by the U. Department of Commerce found that more than 60 percent of the production of U. In Mexico, which provides an ideal platform for reexporting to the United States, only 28 percent of production by U. The great fear of the race-to-the-bottom crowd — that U. In fact, that type of activity characterizes less than 4 percent of total U. The oft-cited cases of garment facilities based in poor nations and geared to consumers in advanced economies are the exception, not the rule.
This exception is largely due to the low capital investment and importance of labor costs in the textiles sector. Since corporations invest overseas to tap into new, large markets, host countries actually wield considerable power.
They can use that power to resist deregulatory pressures. Multinational corporations have invested large sums in China despite formidable regulatory hurdles, a blatant disregard for copyright laws, high levels of corruption, and strict requirements for technology transfers.
The prospect of 1 billion consumers will cause that kind of behavior among chief executive officers. Mexico has enhanced its environmental protection efforts while trying to attract investment. The result? Foreign direct investment around Mexico City has exploded, while the air quality has actually improved.
Multinational firms are also well aware of the growing link between public opinion and profits. Thus, foreign investors in Costa Rican bananas or Asian lumber insist on higher standards than the local government in order to cater to environmentally savvy European consumers.
But in general, corporations understand that it is smart business to stay in the good graces of their customers. The lack of evidence for a race to the bottom is not surprising when put in historical perspective. In the late 19th century, there was an enormous increase in flows of capital, goods, and labor among countries in the Atlantic basin. On several dimensions, such as labor mobility and investment flows, the degree of market integration years ago is much greater than today.
Despite claims made at the time that these trends would lead to a world ruled by social Darwinism, the United States and Europe created national regulatory standards for consumer safety, labor, and the environment and developed regional institutions including a predecessor to the European Central Bank to cope with the vicissitudes of financial markets. Indeed, globalization does not eliminate the ability of sovereign states to make independent regulatory decisions.
Nor does globalization render governments impervious to the preferences of their own citizens. Even authoritarian countries are not immune to public pressure; the beginning of the end of the Soviet bloc saw environmental protests against rising levels of pollution. Governments, particularly in democratic countries, must respond not only to domestic and foreign firms but also to the wishes of citizens who prefer stricter regulatory standards.
But the evidence thus far indicates that globalization itself does not cause or aggravate this disparity. If anything, the opposite is true. So why do so many people seem to believe in a hypothesis that has yet to attract any evidence? Because the myth is politically convenient for all sides. Nongovernmental organizations NGOs , corporations, politicians, and academics use the race to the bottom as an excuse to peddle their policy wares.
Opponents of globalization — including environmentalists, labor unions, and a multitude of NGOs — advance the myth of a race to the bottom to oppose further global market integration. The race to the bottom is a wonderful rallying tool for fundraising and coalition building and also serves as the perfect bogeyman, allowing these groups to use scare tactics derived from previous domestic policy campaigns against nuclear power and acid rain.
Such strategies are consistent with a pattern of exaggerating dangers to capture the attention of the press and the public: Only by crying that the sky is falling can antiglobalization forces rouse complacent citizens. For example, Public Citizen, one of the most vocal NGOs on trade issues, has argued that steps toward economic liberalization will have devastating social effects. The race to the bottom also provides a useful scapegoat for larger trends that adversely affect specific interest groups, such as labor unions.
A recent statement by Philip Jennings, general secretary of the Geneva-based Union Network International, which represents more than unions in countries, provides an apt example. Such simplistic views disregard other key factors — particularly advances in technology and the subsequent demand for high-skilled labor — affecting wage and employment levels. If, as race-to-the-bottom proponents suggest, U.
The current debates over economic globalization have produced a seemingly simple and intuitive conclusion: Unfettered globalization triggers an unavoidable "race to the bottom" in labor and environmental standards around the world. International business enterprises. Even developing countries such as Malaysia, the Philippines, Thailand, Argentina, and Brazil have liberalized their foreign investment laws while simultaneously tightening environmental regulations. Because the myth is politically convenient for all sides. They can use that power to resist deregulatory pressures.
Bottom feeders daniel drezner. A companion website to the Pluto Press book by Martin Mowforth
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