The Race to the Bottom

excerpted from the book

Global Village or Global Pillage

Economic Reconstruction from the Bottom Up

by Jeremy Brecher and Tim Costello

South End Press, 1994



The New World Economy

This system of nation-based economies is rapidly evolving toward a global economy. Computer, communication and transportation technologies have lessened distance as a barrier, making possible the coordination of production and commerce on a global scale. Lowered tariffs have reduced national frontiers as barriers to commerce, facilitating transnational production and distribution. Corporations are globalizing not only to reduce production costs, but also to expand markets, evade taxes, acquire knowledge and resources, and protect themselves against currency fluctuations and other risks. As Robert B. Reich, now US. Secretary of Labor, wrote in 1991, "As almost every factor of production - money, technology, factories, and equipment-moves effortlessly across borders, the very idea of an American economy is becoming meaningless, as are the notions of an American corporation, American capital, American products, and American technology. A similar transformation is affecting every other nation."

Three hundred companies now own an estimated one-quarter of the productive assets of the world. Of the top 100 economies in the world, 47 are corporations each with more wealth than 130 countries. Their interests are global as The New York Times noted in 1989, "Many American companies are shedding the banner of national identity and proclaiming themselves to be global enterprises whose fortunes are no longer so dependent on the economy of the United States.''


Capital and financial markets have become global and the foreign exchange market processes approximately $1 trillion per day. Since 1983, global foreign direct investment has grown at an average of 29 percent a year, three times faster than the growth of export trade and four times the growth of world output. According to one expert on world monetary systems, "Some individual currency speculators have as much money as some small countries.''


Downward Leveling

In a competitive market, sales generally go to the competitor who offers the lowest price. As a result, prices tend toward the level of the lowest cost producer. When this tendency lowers the price of goods and services through the improved efficiency touted by the advocates of free-market forces, the effect may be benign. But when corporations and governments lower costs by reducing environmental protection, wages, salaries, health care, and education, the result can be malignant-a "downward leveling" of environmental, labor, and social conditions.

Farmers, workers, consumers, and citizens threatened by downward leveling have long organized themselves locally and nationally to resist malignant effects of competition. They have encouraged governments to adopt environmental, labor, and social policies that block downward leveling. But corporations can now outflank the controls governments and organized citizens once placed on them by relocating their facilities around the world.


In the Third World the trends are similar but more severe. Almost one-third of the population of the developing countries, 1.3 billion people, live in absolute poverty-too poor to provide the minimum diet required for full human functioning. It is often argued that foreign investment will raise wages in poor countries. But a review of U.S. corporate behavior abroad by the Boston Globe found that "rather than raising standards of living, American firms are more likely to be paying no better than local minimum wages." A study sponsored by the International Labor Organization found that in Indonesia-now a favorite spot for companies like Nike and Reebok - 88 percent of women earning the Indonesian minimum wage were malnourished.

What about the "success stories" of the New World Economy-the "Newly Industrialized Countries" [NlCs], such as the East Asian "Tigers"? They have seen great economic growth, largely based on the exploitation of labor and the unsustainable destruction of the environment. The benefits have often, though not always, been restricted to a small elite. But even these countries are far from immune to the race to the bottom. T.C. Lee, a banker at Citibank in Taipei, noted that in Taiwan, "there are lots of labor-intensive industries garments, shoes, toys. All of them started to look outside to invest. They started to relocate initially to Thailand, Indonesia, Malaysia, and in the last two years, China, to enjoy cheap labor, cheap land, cheap living costs." Michael M.C. Lin, president of a conglomerate corporation in Taiwan, built a furniture factory in China. "Labor costs were the most important thing for us," he said.

The race to the bottom is contributing to environmental destruction worldwide. Global corporations' oil refineries, steel mills, chemical plants, and other factories, now located all over the world, are the main source of greenhouse gases, ozone-depleting chemicals, and toxic pollutants. Their packaging is a major source of solid waste. Overfishing of the world's waters, overcutting of forests, and the destructive use of land result both from the search for higher corporate profits and the increase in poverty, which leads to desperate overharvesting of natural resources.

The 7,000 Philippine islands, for example, were "lavishly endowed with rainforests, fish, fertile low-lands, and extensive mineral deposits" as recently as World War II. Today, "there are few places you can go in the Philippines without meeting some sort of ecological disaster." In one part of Mindanao, "the forests were thick, and the people few. Now, thanks to the greed of the big commercial logging companies and the need of the small agriculturalists (who move into the forests only after the loggers have built roads and chopped down the biggest trees), the mountains are almost bare." The proportion of the Philippines that is forested has decreased from 35 percent to 20 percent-less than half the amount needed to maintain a stable ecosystem-just since 1969.


Casual evidence from virtually every country confirms the deterioration of living standards and the widening inequality of the last decade.'' Africa's GNP fell by an average of 2.2 percent per year in the 1980s.54 In African countries with IMF-World Bank programs, spending on health decreased by 50 percent and on education by 25 percent during the 1980s. A United Nations advisory group reported that throughout Africa, "health systems are collapsing for lack of medicines, schools have no books, and universities suffer from a debilitating lack of library and laboratory facilities."

In rich and poor countries alike, economic insecurity, disruption, and poverty have undermined human relationships, traditional lifeways, and social values. A California lawyer recently wrote,

" I am a criminal defense lawyer, not an economist, but I wish to reinject into the discussion what strikes me as self-evident The lack of decent-paying work for our unskilled and semi-skilled workforce is a major cause of United States crime and social decay. The bulk of my clientele falls into the chronically unemployed and the newly laid off or chronically under-employed. The gainfully employed mostly do not commit crimes. The remaining, and growing, portion, who are not securely employed or decently paid need solid factory jobs to work their way out of poverty, and those jobs don't exist anymore. Why? Because they've been moved...Now we cannot employ all our people at a living wage, and as a result, our nation is suffering a catastrophic decline in living standards with an unraveling of our social fabric. "


The loss of democratic control is even greater in Third World debtor countries that have been subjected to structural adjustment programs. A recent series in The New York Times describes the World Bank and IMF as "the overlords of Africa." "For more than a decade the economies of Africa have been caught in a relentless downward spiral" As a result, African countries are finding themselves "more than ever under the thumb of outside powers." The IMF and the World Bank are "the purveyors of the new orthodoxy. They come in to bail out a country that is bankrupt. They do so by drawing up a 'structural adjustment program,' a tight package of economic prescriptions designed to bring about free market enterprise and minimum governmental interference." The Times concludes that through these programs, "the IMF and the bank now effectively oversee and supervise the economies of some 30 countries in sub-Saharan Africa."


Uncontrolled Global Corporations

Global corporations have become the world's most powerful economic actors, yet there are no international equivalents to the anti-trust, consumer protection, and other laws that provide a degree of corporate accountability at the national level. International capital mobility eliminates the long-term stake corporations once had in the well-being of their home nations. As Cyrill Siewert, a chief financial officer of Colgate-Palmolive, put it, '`The United States does not have an automatic call on our resources. There is no mind-set that puts this country first." The Bank of Commerce and Credit International scandals reveal just how much "freedom" global corporations have to engage in anti-social, not to say downright criminal, activity.

Unaccountable Global Institutions

The loss of national economic control has been accompanied by a growing concentration of power without accountability in international institutions like the IMF, the World Bank, and GATT. For poor countries, foreign control has been formalized in structural adjustment programs, but IMF decisions and GATT rules affect all countries. The decisions of these institutions also have an enormous impact on the global ecology-many environmentally destructive mega-projects in the Third World are financed by the World Bank' and GATT rules have been used to challenge such environmental measures as US. laws protecting dolphins. Yet these institutions represent a sphere of decision-making largely beyond the influence of citizens and citizen movements in poor and rich countries alike.


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Global Village or Global Pillage