Race to the bottom
Based on Wikipedia: Race to the bottom
In 1890, New Jersey had an idea that would reshape American capitalism. The state decided to make it incredibly easy and cheap to register a corporation there—lower fees, friendlier rules, less red tape than anywhere else. It worked. Companies flocked to New Jersey.
Then Delaware noticed.
Delaware copied New Jersey's playbook and made it even more permissive. New Jersey responded by loosening its rules further. Delaware countered. Back and forth it went, each state stripping away corporate oversight to outbid the other, until Governor Woodrow Wilson finally called a halt to New Jersey's participation through a series of seven statutes.
This competition to attract business by dismantling regulations became known as the "race to the bottom"—a phrase coined by Supreme Court Justice Louis Brandeis. And while Brandeis was describing something happening between American states in the early twentieth century, the phenomenon he identified has become one of the defining features of our globalized economy.
What the Race to the Bottom Actually Means
The race to the bottom describes what happens when governments, companies, or individuals compete by progressively lowering standards rather than by improving what they offer. It's competition through subtraction.
Traditional competition works like this: you make a better product, I make an even better one, customers benefit from the escalating quality. The race to the bottom inverts this logic entirely. Instead of competing to be the best, participants compete to demand the least—the lowest taxes, the weakest labor protections, the most permissive environmental rules.
Think of it as a reverse auction. Normal auctions drive prices up as buyers compete. A race to the bottom drives standards down as jurisdictions compete to be the most accommodating place for businesses to operate.
The mechanism is straightforward. A company needs somewhere to manufacture its products. Country A has strong environmental regulations that make production expensive. Country B has weaker regulations, making production cheaper. The company moves to Country B. Country A, seeing jobs leave, weakens its own regulations to win the company back. Country B responds by loosening its standards further. And down they spiral together.
The Opposite of a Laboratory
There's an alternative vision of how political jurisdictions can compete, and understanding it helps clarify what makes the race to the bottom distinctive.
Justice Brandeis himself articulated this alternative in a different context. He famously described American states as "laboratories of democracy"—places that could experiment with different policies, with successful innovations spreading to other states. Under this model, competition between states drives standards up. One state figures out a better way to regulate banking or protect workers or educate children, and other states copy what works.
The race to the bottom is the laboratory of democracy's evil twin. Instead of innovation spreading upward, degradation spreads downward. Instead of good ideas being copied, the absence of standards becomes contagious.
As political scientist Sanford Schram explained in 2000, the race to the bottom metaphor "implies that the states compete with each other as each tries to underbid the others in lowering taxes, spending, regulation...so as to make itself more attractive to outside financial interests or unattractive to unwanted outsiders."
That last phrase—"unattractive to unwanted outsiders"—hints at something darker. The race to the bottom doesn't just apply to courting corporations. Some European states have competed to make themselves unappealing to refugees by allowing the seizure of asylum seekers' assets, each trying to be slightly more hostile than its neighbors.
Bananas, Cruise Ships, and the Corporate Version
Governments aren't the only ones racing downward. Corporations do it too.
In 2003, British supermarkets engaged in a fierce price war over bananas. On its surface, this looked like normal competition—stores cutting prices to attract customers. But someone was paying for those lower prices, and it wasn't the supermarkets.
"The British supermarkets are leading a race to the bottom," said Alistair Smith of Banana Link, an organization that monitors the global banana trade. "Jobs are being lost and producers are having to pay less attention to social and environmental agreements."
The supermarkets weren't competing on quality or service. They were competing on how aggressively they could squeeze their suppliers—banana farmers in developing countries who had little bargaining power against massive retail chains. The race was to see who could pay farmers the least while still getting their fruit to market.
The cruise industry offers an even starker example. Major cruise lines are headquartered in wealthy countries like the United States, but they register their ships in places like Panama, Liberia, and the Bahamas. These "flags of convenience" aren't chosen for their maritime expertise. They're chosen because they impose minimal environmental regulations, weak labor protections, and little to no corporate taxation.
A cruise ship registered in Liberia can dump waste that would be illegal under American rules. Its workers can be paid wages and subjected to working conditions that would violate United States labor law. The company captures the profits while offloading the costs onto workers and the environment.
The Textile Industry: A Case Study in Downward Competition
If you want to understand how the race to the bottom works in practice, the global textile industry provides a clarifying example.
In 2001, China joined the World Trade Organization, commonly known as the WTO. Four years later, the Multifibre Arrangement expired. This agreement had placed quotas on textile imports from developing countries, protecting manufacturers in wealthier nations. Its end opened the floodgates.
Countries like China, India, and Pakistan dramatically increased their textile exports. China attracted massive foreign investment that had previously flowed to Taiwan, South Korea, and Japan. Millions of Chinese workers found employment in new textile factories.
But wages stayed low. They had to. That was the whole point.
China's competitive advantage wasn't superior technology or higher-quality products. It was the willingness to let workers toil for wages that would be illegal in the countries buying the finished clothes. Research by economist Anita Chan found that Chinese cities less connected to global trade actually paid higher wages than cities deeply integrated into international supply chains. The more a city participated in the global economy, the more downward pressure its workers faced.
This wasn't an accident or market failure. It was the system working exactly as designed. China became the world's textile supplier to the United States and European Union precisely because it won the race to the bottom.
Is the Race to the Bottom Real? The Debate Among Scholars
Not everyone agrees that the race to the bottom is actually happening, or that it's as destructive as critics claim.
Daniel Drezner, an international political economy scholar at Tufts University, has called the race to the bottom "a myth." His argument rests on three points that he believes the standard thesis gets wrong.
First, governments don't respond only to what corporations want. They also respond to voters, and voters often prefer strong regulations. A government that guts environmental protections to attract a factory may face backlash from citizens who have to breathe the polluted air.
Second, regulations aren't always expensive enough to justify moving. Relocating a factory costs money. Training new workers costs money. Navigating unfamiliar legal systems costs money. If the regulatory savings don't outweigh these costs, companies stay put.
Third, some economies are so large that the usual logic reverses. If you want to sell products in the European Union, you essentially have to comply with European Union regulations regardless of where you manufacture. The market is too valuable to abandon. This gives large economies bargaining power that can counteract the race to the bottom.
A 2022 study examined whether global trade competition had led to declining labor standards. It found no evidence of this effect. Other research by economist Geoffrey Garrett found that while countries with more trade had slower growth in government spending, they still had growing government spending—not the shrinkage the race to the bottom predicts.
The Case That It's Complicated
The most accurate picture probably lies between the extremes. The race to the bottom is real, but it's not universal or inevitable.
Researchers Layna Mosley and Saika Uno found evidence pointing in both directions simultaneously. When they measured collective bargaining rights—workers' ability to unionize and negotiate—they found that trade openness and global supply chains were associated with weaker protections. That looks like a race to the bottom.
But foreign direct investment, meaning when companies build factories or offices in other countries, was associated with stronger labor rights. Companies making long-term investments apparently brought higher standards with them. That looks like a race to the top.
Other scholars have found that the race to the bottom hits developing countries harder than wealthy ones. Economist Nita Rudra discovered evidence of downward pressure on standards in poorer nations but not in rich ones. Her explanation: workers in developed countries have more bargaining power. They can resist degraded conditions in ways that workers in developing countries cannot.
This suggests the race to the bottom isn't an iron law of economics. It's a tendency that can be countered by organized workers, democratic accountability, and governments willing to prioritize standards over pure cost competition.
Environmental Stakes: Dams, Toxic Waste, and Impact Assessments
The race to the bottom may have its most visible consequences in environmental policy.
Consider toxic waste. Treating chemical waste properly is expensive. Companies seeking to minimize costs face a choice: spend money on treatment or find somewhere that doesn't require it. Countries eager for foreign investment may compete to be that somewhere, accepting pollution in exchange for jobs and economic activity.
Political scientist Thomas Oatley uses this as a paradigm case. The company gets cheaper production. The host country gets economic development. But someone still pays the cost—in contaminated water, poisoned soil, and health problems that may not manifest for years.
The hydroelectric dam industry in South America illustrates how this plays out in practice. Every dam proposal must undergo an Environmental Impact Assessment, a study of how the project will affect the surrounding ecosystem and communities. But there's no international standard for these assessments. Each country conducts them differently, with different requirements and different thresholds for approval.
This variation creates opportunity for competition. Countries wanting to attract dam investment have streamlined their assessment processes, making them faster and less rigorous. Brazil has been particularly aggressive in this regard. Some countries now require environmental assessments only after projects have already been approved—turning a safeguard into a formality.
Even more troublingly, some countries allow private developers, including foreign firms, to conduct their own environmental assessments. A Chinese company building a dam in Peru might submit an assessment that minimizes environmental concerns because the company has every incentive to get approval and no incentive to block its own project.
When environmental assessments fail, the consequences can be severe. Dams can displace communities, destroy fisheries, alter river ecosystems for hundreds of miles, and contribute to climate change through decomposing vegetation in reservoirs. But these costs don't appear on corporate balance sheets. They're externalities—economist-speak for "someone else's problem."
The Wisconsin Example: Racing Downward at the State Level
The race to the bottom isn't just an international phenomenon. It happens within countries too, just as it did between New Jersey and Delaware a century ago.
American states compete fiercely for business investment, and environmental regulations are often on the table. Wisconsin under Governor Scott Walker provides a telling example. Walker cut the capacity of state environmental staff specifically to speed up approval times for development projects. Less scrutiny meant faster approvals meant more attractive conditions for investors.
This wasn't a secret strategy or unintended consequence. It was an explicit policy choice, a feature rather than a bug. States in financial hardship are particularly susceptible to this logic. When budgets are tight and unemployment is high, the promise of new jobs can make environmental standards look like a luxury rather than a necessity.
But the consequences don't disappear just because they're not on the budget spreadsheet. Weakened oversight means more pollution, more habitat destruction, more health risks for residents. These costs are real even if they don't show up in quarterly reports.
The Global Minimum Tax: An Attempt to Stop the Race
On July 1st, 2021, one hundred thirty countries backed a plan to set a global minimum corporate tax rate. The goal was explicit: stop the race to the bottom in tax policy.
United States Treasury Secretary Janet Yellen called it "a historic day." Her statement captured decades of frustration with downward competition: "For decades, the United States has participated in a self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response. The result was a global race to the bottom: Who could lower their corporate rate further and faster?"
The logic of a global minimum is straightforward. If every country agrees to charge at least fifteen percent corporate tax, then no country can win business by charging less. The floor eliminates the downward spiral.
But international agreements are fragile things. In January 2025, the United States withdrew from the Organization for Economic Cooperation and Development Global Tax Deal following an executive order by President Donald Trump. The withdrawal demonstrated a core vulnerability in any attempt to halt the race: it only takes one major defector to restart the competition.
Why This Matters for Your Job
The race to the bottom might seem abstract—something that happens to factory workers overseas or manifests in corporate tax codes too complex to understand. But the same competitive logic that drives countries to weaken labor protections applies to workers competing against each other.
When artificial intelligence can do some of what a copywriter does, copywriters don't just compete against the technology. They compete against other copywriters willing to use the technology to work faster and cheaper. The standard falls to whoever will accept the worst conditions.
This is the race to the bottom at the individual level. It's not governments lowering regulations but workers lowering their expectations—accepting less money, worse conditions, or more precarious employment because the alternative is no employment at all.
The question isn't whether this dynamic exists. It clearly does. The question is whether it's inevitable or whether, like the race to the bottom in environmental and labor regulations, it can be resisted through collective action, legal protections, and simple refusal to participate in the downward spiral.
The Alternative: Racing to the Top
The race to the bottom has a counterpart. Some jurisdictions pursue what scholars call a "race to the top"—competing by having the best standards rather than the weakest.
California's environmental regulations work this way. Because California is such a large market, companies often design products to meet California standards rather than maintaining separate versions for different states. California's strict rules effectively become national rules, pulling other states upward rather than being dragged down by them.
The European Union plays a similar role globally. The General Data Protection Regulation, known as the GDPR, sets privacy standards that companies worldwide follow because excluding European customers isn't viable. The race goes upward because a large, wealthy market sets conditions that others must meet.
This suggests a strategy for escaping the race to the bottom: be big enough that others have to meet your standards, or organize with others to collectively resist the downward pressure. The one hundred thirty countries that agreed to the global minimum tax were attempting exactly this kind of collective action.
Whether such efforts can succeed in the long term remains an open question. The race to the bottom has powerful momentum—it offers immediate, tangible benefits to whoever defects, while the costs are diffuse, delayed, and often borne by people with little political power.
But the race isn't physics. It's politics. And politics can change.