Race to the bottom
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| The [Neutral point of view>neutrality] of this article is [NPOV disputedisputed]. Please see the discussion on the [investment capital, for example) leads to the progressive dismantling of regulatory standards.
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Occurrence and limitationsThe occurrence of races to the bottom is mitigated by the costs of moving investment and production between countries, by persistence of comparative advantages (such as skilled workforces, infrastructure or proximity to natural resources), and by the presence of minimum standards, rules or conventions which prevent them. 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 intra-national races is limited by the power and inclination of central national governments to act against them. In practice, races to the bottom appear to be rarer than some critics of globalisation have feared. States are often willing to maintain regulatory regimes even if they lose certain investment or industries as a result. ImplicationsIn its early stages, a race to the bottom can be of immediate benefit to all parties, in situations where laws are genuinely and inefficiently burdensome. In general, however, these contests regularly work to undermine the ability of governments to enforce 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 between sovereign states can also undermine democratic accountability, since the elected governments are no longer economically capable of passing legislation which enforces environmental or labour protections that are more stringent than those current in neighbouring countries. Some economists believe, however, that "races to the bottom" can help ameliorate poverty, for if businesses can operate for less money, they can cut prices while maintaining their profit margins. Causes and responsesThe 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 International Monetary Fund, 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, to set satisfactory environmental and labor rules at a global level. Another 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 applying 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. Standards-based tariffs represent another way to halt a race to the bottom. While conventional tariffs are designed to protect jobs in a particular industry or sector of the economy, standards-based tariffs are designed to protect country-wide standards such as labour standards and environmental standards. With standards-based tariffs, a product imported from a country with low labour and environmental standards will face a high tariff, while a product imported from a country with labour and environmental standards equal to or higher than the domestic standards will face no tariff. For producers, such tariffs remove the incentive to move a factory to the country with the lowest wage rates and most permissive pollution laws. For governments, such tariffs provide an incentive to raise their standards upwards, in order to gain entry into new export markets. For workers, such tariffs prevent the wage rate from falling down to the wage rate of the lowest country in the trading group. For consumers, such tariffs would undoubtedly raise prices since cheap imported goods from low-labour-standard countries would be replaced with expensive domestically produced goods (this is the price of protecting domestic labour and environmental standards). Note that since standards-based tariffs only restrain exports from poorer countries to wealthier countries, global implementation would result in free trade between the world's wealthiest countries. Also note that such tariffs would result in free trade between newly-developing countries that had similar labour and environmental standards. Corporate LawIn the US legal academia, there is a longstanding debate whether US corporate law is subject to a race to the bottom or a race to the top. Given that it has always been possible to incorporate in one state and do business primarily elsewhere, US states have rarely been able or willing to use corporate law to protect the interests of shareholders, creditors, employees and other corporate constituencies. From the "race" to attract incorporations, Delaware has emerged as the winner, at least among publicly traded corporations. The corporate franchise tax accounts for between 15 and 20 % of the state's budget. At the heart of the debate lies the question whether the US states' corporate law is desirable in its present state or not. The most important proponents of the "race to the top" perspective have been Henry Winter, Roberta Romano, Frank Easterbrook and Daniel Fischel. The "race to the bottom" perspective started with an article by William Cary in 1974 and has been developed further most importantly by Lucian Bebchuk. However, according to a recent critical [appraisal] by Mark Roe, the debate is misconceived, since Delaware's law has less been shaped by competition with other states, but by pressure from the federal level. The empirical evidence does not conclusively support any of the theories. In Europe, regulatory competition has long been prevented by the real seat doctrine prevailing in private international law of many EU and EEA member countries, which essentially required companies to be incorporated in the state where their main office was located. However, in a series of cases between 1999 and 2003 (Centros, Überseering, Inspire Art), the European Court of Justice has forced member states to recognize companies chartered in other member states, which is likely to foster regulatory competition in European company law. RhetoricThe phrase race to the bottom is used sometimes in a pejorative context by those opposed to globalization and those supporting "fair trade" companies. An example: in response to reports that British supermarkets had cut the price of bananas, and by implication had squeezed revenues of banana-growing, developing, nations, Alistair Smith, international co-ordinator of Banana Link, said "The British supermarkets are leading a race to the bottom. Jobs are being lost and producers are having to pay less attention to social and environmental agreements." [1] NotesReferences
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