Globalization has helped improve people's lives in many regions of the world. The benefits of globalization are not universal, however. In some instances globalization has deepened income inequalities between economies and among people within an economy. As a result, some people grow more prosperous while others fall further behind. The main

Since 1919 the International Labor Organization, headquartered in Geneva, has supported worker rights in the global economy. (International Labour Organization)

challenge of globalization is to create a global economy in which all people have a fair chance to succeed.

Race to the Bottom Theory

The race to the bottom theory contends that globalization undermines the standard of living for workers, disrupts local economies and cultures, and threatens the integrity of the natural environment. The term “race to the bottom” came into common usage during the 1990s. It accompanied the liberalization of international trade, FDI, and other crossborder business and financial activity. The race to the bottom theory is hotly debated.

Race to the bottom theorists argue that international trade, FDI, and cross-border financial flows create uneven economic opportunities in the global economy. They contend that large corporations are able to pressure host governments to offer highly favorable labor and environmental concessions in exchange for trade and investment deals. The result is the exploitation of workers in sweatshops, depletion of natural resources, and deterioration of ecosystems. Harsh working conditions in Mexico's maquiladora companies and in China's emerging industrial sector are often used to illustrate this exploitation. Past excesses by foreign extractive industries, such as mining and lumbering, illustrate the pillage of the natural environment, especially in the world's poorer regions. Developing countries that are unwilling or unable to play by these rules are further marginalized and, in effect, are unplugged from any possible benefits of global connectivity. Some nongovernmental organizations (NGOs) and civil society organizations (CSOs) subscribe to this theory.

Other economists believe the race to the bottom theory is a myth and that the benefits of globalization far outweigh the costs. They note that globalization continues to create jobs that elevate millions of people into a growing global middle class.[1] They contend that

Strip mining degrades local ecosystems and is a type of unsustainable production

Strip mining degrades local ecosystems and is a type of unsustainable production. (David Davis)

corporate codes of conduct and internationally recognized labor standards such as the International Labor Organization's (ILO) Declaration on Fundamental Principles and Rights at Work protect workers' rights. In addition, they argue that FDI has spillover benefits for host economies such as technology transfers, the infusion of management skills, global connectivity, and the introduction of best practices in the world of business. They conclude that trade and investment decisions in the global economy are based mainly on the sophistication of an economy's infrastructure, the stability of its economic and political institutions, and its commitment to private property rights, rather than on the exploitation of low-cost human or natural resources. Supporters of globalization, such as multilateral organizations and most governments, argue that globalization has increased average incomes and reduced extreme poverty in the developing world.[2]

  • [1] IMF, World Economic Outlook: October 2012, xvi.
  • [2] United Nations, The Millennium Development Goals Report 2013 (New York: UN, 2013); United Nations, “Millennium Development Goals,”
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