Race to the bottom is a socio-economic concept describing a scenario in which individuals or companies compete in a manner that incrementally reduces the utility of a product or service in response to perverse incentives.
The term has primarily been used to described either government deregulation of the business environment or reduction in corporate tax rates, in order to attract or retain economic activity in their jurisdictions.
[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.
In 1890, New Jersey enacted a liberal corporation charter, which charged low fees for company registration and lower franchise taxes than other states.
The concept received formal recognition by the US Supreme Court in a decision of Justice Louis Brandeis in the 1933 case Ligget Co. v. Lee (288 U.S. 517, 558–559).
He also argues in the book that "macroeconomic outcomes in the era of global markets have been as good or better in strong left-labour regimes ('social democratic corporatism') as in other industrial countries.
[21][22] Scholars such as Paul Pierson, Neil Fligstein and Robert Gilpin have argued that it is not globalization per se that has undermined the welfare state, but rather purposeful actions by conservative governments and interest groups that back them.
[23][24][25][26] Historical institutionalist scholarship by Pierson and Jacob Hacker has emphasized that once welfare states have been established, it is extremely difficult for governments to roll them back,[27][28] although not impossible.
[30] Studies covering earlier periods by David Cameron,[31] Dani Rodrik[32] and Peter Katzenstein[33] have found that greater trade openness has been associated with increases in government social spending.
[37] Hegemonic stability theorists, such as Stephen Krasner, Robert Gilpin, and Charles Kindleberger argued that globalization did not reduce state power.
[38][39][40] On 1 July 2021, when 130 countries backed an OECD plan to set a global minimum corporate tax rate, U.S. Treasury Secretary Janet Yellen called it a "historic day."
For example, in Wisconsin, Governor Scott Walker decreased state environmental staff's capacity in order to accelerate the approval time for a proposed development.
Gerlak notes that country and community desire for foreign investment in hydroelectric dams has created a race to the bottom in environmental regulations.
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.