Race to the bottom
Topic: Globalisation and MNCs · NCERT: Beyond NCERT
Meaning
Race to the bottom is when countries compete with each other by lowering taxes, labour standards or environmental standards to attract investment and trade. Each country fears losing MNCs to a rival that offers more. The result is that public revenue and worker protection shrink everywhere, while the MNC's choice of location barely changes.
Example
Indian governments set up Special Economic Zones (SEZs) with tax holidays to attract foreign firms, and let companies hire workers "flexibly" for short periods. Tax breaks like these reduce the money available for welfare spending. Foreign companies still keep asking for more flexibility.
Don't confuse with
- Competition: rivalry among firms on price, quality and innovation. A race to the bottom is rivalry among governments to offer the lowest standards.
- Counter-moves: steps such as the OECD/G20 global minimum corporate tax (Pillar Two) and ILO core labour standards try to set a floor that no country can go below.