Race to the bottom
In 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.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 races is limited by the power and inclination of central national governments to act against them.
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.
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.
Global money laundering, terror finance, tax evasion and drug dealing also tend to gravitate to jurisdictions where local laws permit them to thrive.
One 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 applyying 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.
