Race to the bottom
Race to the bottom is a socio-economic phrase to describe either government deregulation of the business environment or reduction in corporate tax rates, in order to attract or retain economic activity in their jurisdictions. While this phenomenon can happen between countries as a result of globalization and free trade, it also can occur within individual countries between their sub-jurisdictions (states, localities, cities).[1][2] It may occur when competition increases between geographic areas over a particular sector of trade and production.[3] The effect and intent of these actions is to lower labor rates, cost of business, or other factors (pensions, environmental protection and other externalities) over which governments can exert control.
This deregulation lowers the cost of production for businesses. Countries/localities with higher labor, environmental standards, or taxes can lose business to countries/localities with less regulation, which in turn makes them want to lower regulations in order to keep firms' production in their jurisdiction, hence driving the race to the lowest regulatory standards.[4]
Environmental policy[edit]
The race to the bottom has been a tactic widely used among states within the United States of America. The race to the bottom in environmental policy involves both scaling back policies already in place and passing new policies that encourage less environmentally friendly behavior. Some states use this as an economic development strategy, especially in times of financial hardship. For example, in Wisconsin, Governor Scott Walker decreased state environmental staff's capacity in order to accelerate the approval time for a proposed development.[42] Pursuing a race to the bottom philosophy in environmental politics allows states to foster economic growth, but has great consequences for the environment of that state. Conversely, some states have begun to pursue a race to the top strategy, which stresses innovative environmental policies at the state level, with the hopes that these policies will later be adopted by other states.[42] When a state pursues either a race to the bottom or a race to the top strategy, it speaks to its overall environmental agenda.
Races to the bottom pose a threat to the environment globally. Thomas Oatley raises the example of toxic waste regulations. It is expensive to treat chemical waste, so corporations wanting to keep production costs low, may move to countries which do not require them to treat their waste before dumping it. A more concrete example is the hydroelectric dam industry in South America. Gerlak notes that country and community desire for foreign investment in hydroelectric dams has created a race to the bottom in environmental regulations. All dam proposals go through an Environmental Impact Assessment no matter which country or countries it will be implemented in. Each country has a different way of conducting these assessments and different standards the dams must meet for approval. The lack of standard Environmental Impact Assessment standards has caused countries to streamline their Environmental Impact Assessment processes in places like Brazil. In some cases, countries require the assessment only after a dam proposal has already been approved. Other countries allow private developers from foreign firms or foreign nations, such as China to submit the Environmental Impact Assessment, which has the potential to omit certain environmental concerns in order to receive project approval and casts doubt on the legitimacy of the Environmental Impact Assessment process. If Environmental Impact Assessments are not done right there is a risk of dams causing severe social and environmental harm. Environmental Impact Assessments are not the only form of government regulation and dams in South America are just one example of a global trend in deregulation by states in order to bring in more foreign direct investment.[43]