RACE TO THE BOTTOM: EXPLAINED

DISRUPTION IN THE LABOUR MARKET AND HOW IT AFFECTS THE LIVING

STANDARD

BY
[Ayush Pokharel]
UWE ID:18045015

Final Dissertation Submitted to

Faculty of Management, the British College
In partial fulfillment of the requirement for the degree of
Bachelor of Business Administration

At the
The British College
University of the West England

Thapathali, Kathmandu

April 22nd, 2021

STUDENT DECLARATION
This is to certify that I have completed the dissertation “RACE TO THE BOTTOM:
EXPLAINED” under the guidance of [MR. Shashi Raj Bajracharya] in partial fulfillment of the
requirements for the degree of Bachelor of Business Administration at The British College,
University of west England.

Date: 22nd April, 2021

-Ayush Pokharel
Acknowledgement
First of all, I would like to extend my gratitude towards my teachers, my friends and college
staffs for helping me complete this literature review and playing an important role as a
supervisor. This report would not have been possible without their guidance, support and
encouragement.
On a similar note, I would like to thank all my module leaders, MR. Saurav Satyal, MS. Nistha
raj Bhandari, MR. Gyan Tamang , MS.Kumuda Lamichaane and MR. Shashi raj Bajracharya for
supporting me throughout the process by providing me with the adequate resources and guidance
to complete the report. An in-depth understanding of the topic has helped me to conduct better
research and enable me to complete this review work.
Finally, I would like to thank my course leader, [MR. Saroj Gyawali] for being source of
encouragement and inspiration for this work and all my colleagues for supporting me in this
work.
Table of Contents

STUDENT DECLARATION..........................................................................................................2
Acknowledgement...........................................................................................................................3
Abstract............................................................................................................................................5
Chapter one: Introduction................................................................................................................6
Chapter two: Literature Review.......................................................................................................8
2.1 Deterioration in work and living standard of western countries............................................8
2.2 Disruption in western labour market.....................................................................................9
2.3 Extent of living standard deterioration in western countries...............................................10
2.4 Involvement of local governments to maintain their citizens living standard.....................11
Chapter three: Research Methodology..........................................................................................13
3.1 Research Ideas.....................................................................................................................13
3.2 Recommendation for future research...................................................................................15
Chapter four: Implication for practice...........................................................................................16
Chapter five: Conclusion and Recommendation...........................................................................17
5.1 Conclusion...........................................................................................................................17
5.2 Limitations and recommendation........................................................................................17
References......................................................................................................................................19
Abstract
This report investigates the concept of race to the bottom and how it affects the global labour
market and world economy. It is competitiveness between nations, companies, or states in order
to grab hold of market share by weakening the opposition’s price with the sacrifice of either
quality standards or defying regulations or reducing costs of labour. The report reviews about the
deterioration in work and living standard of countries which are in competition to reduce the
opposition’s price to get a strong hold of market share. This causes a deterioration of living
standard for the labour force and has a strong correlation with weakening the economy and
disrupting the global labour market. It is imperative for local government and concerned
authorities to step up and make policies and regulations such that the quality of living standard,
working conditions is not reduced all in while maintaining competitive advantage in the market.

Keywords: Race to the bottom, Global Market, Labour cost, Labour Standards, Labour Policies,
Living Standard, Competitive Advantage
Chapter one: Introduction
We can see the effects of globalization with the help of multinational corporations. Multinational
corporations are the visible entities of globalization as these corporations branch out to various
corners of the world to grab hold of the local market. The effect of these corporations is
everywhere as they expand in these markets in the form of foreign direct investment. This
investment is the main reason for which the corporations expand and can bring significant
growth to the country. From the period of 1980s to 1990s, the growth of foreign investment
across the world was 20-25 percent, during the late 1990s, the percentage grew to around 40
percent.[ CITATION Ekh04 \l 1033 ]
Multinational corporations offer numerous key advantages in developing countries as such as
their investment can help build the economic and productive capacity. It also helps developing
countries to buy imports with the capital inflow. They provide employment opportunities and can
also help to improve certain aspects of infrastructure in the economy. They help for economic
diversification and may also improve labour skills. The downside of multinational corporations
entering the developing countries is that they can exploit the environmental laws in their favour,
exploit the raw materials and make use of skill labour at low labour cost. Although these
corporations help bring capital to the country, the net flow is somewhat less than it seems.
[ CITATION Pet19 \l 1033 ]
For the economic development, foreign investment has always been a main driving factor. It
creates various types of jobs, modernizes processes and industries, and brings in new work
structure and management principles. These multinational corporations are mostly from wealthy
countries with developed economies and have to follow strong regulations. These corporations
have the power to relocate their enterprise to countries with lax regulations and lower costs of
production to improve on profit margins. This has become a new leverage to these corporations
and many economists are calling it as ‘race to the bottom’. This approach allows the countries
with wealthier economies to relax regulations so as to maintain competitiveness over the market
at the expense of labour standards and labour wages. [ CITATION OEC02 \l 1033 ]
Race to the bottom is the phrase used in terms of socio-economics which can be described as the
reducing the regulations of business protocols, or tax structures in order to retain or attract
various economic activities within their dominion or authority. The term has also been used to
describe corporation competition where there were reports about British supermarkets cutting
down the price of bananas in 2003. This implied that revenue costs were squeezed out in favour
of being competitive and not losing out their market share. [ CITATION Fis13 \l 1033 ]
The removing of restriction in capital and trade flows with the advent of technology has allowed
labour markets to become integrated with the global market. Countries like India, China have
been integrated into the system and with the help of globalization, the labour share in national
income has decreased in most of the well developed countries. Globalization is one of the several
causes that affect labour share obtained from data of 18 countries from 1982 to 2002. Labour
share market is mostly affected by technological development, which mostly affects unskilled
labour sectors. [ CITATION Jau07 \l 1033 ]
Recent examination of the labour supply market in the European Union shows that supply of
women, old people and immigration people have a tremendous impact on growth of employment
in the short term. In the long term, however, the expected labour supply will be in decline in for
all ages of population. It is imperative for policies to be established such that it supports growth
of employment as well as the labour force i.e., make sure that the long-term rate of
unemployment for the labour groups to remain low, and ensure that they have the necessary
skillset to acquire jobs that match their skill in the market. [ CITATION Bod18 \l 1033 ]
Social corporatism and wage setting being eroded has been caused due to economic changes
which consequently weakened organized labour. This has also caused a significant impact in the
standardization of wages and deregulation of labour market. This has caused a significant impact
on America and Western Europe as the unions in these regions do not have the bargaining power
on capital as previously held after the post ware developments. Quality of jobs, share of wage,
income equality and wage setting power are all factors affected by globalization. [ CITATION
Pet08 \l 1033 ]
Chapter two: Literature Review
2.1 Deterioration in work and living standard of western countries
“Race to the bottom” hypothesis is based on developing countries entering the global market and
creating globalization. The main concept of this structure is that the world economy would turn
to carry out investment and trade deals with countries who offer low cost in terms of resources,
labour, etc. as these countries become more accessible and are better integrated to the world
economy. Different types of market open in these countries as they relax regulations and labour
laws. This relaxation is done at the cost of disrupting social policies, which causes “race to the
bottom”. This is done in order to grab market share which in turn leads to negative consequences
when competing. [ CITATION Eve15 \l 1033 ]
Race to the bottom has created fierce competition to acquire market share. Manufacturers are
attracted by the low-income countries by relaxing various labour standards, safety and working
conditions. In Bangladesh, the Rana Plaza building had collapse which caused the death of over
1000 workers due to lax regulatory laws. These laws also meant that Bangladesh became one of
the key manufacturing centers in the garment industry. Popular economists at the time of 1980s
did not consider the fact that wealthy countries would also trade with low wage countries which
would create race to the bottom. They believed that the manufacturing jobs would be replaced
with jobs in innovation and service sector. [CITATION Dav17 \l 1033 ]
Western labour markets have been disrupted by the increasing reliance of wealthy countries on
countries with relaxed and low wage barriers since the beginning of 1990s. Economists have
shifted their view and have understood that there was slow demise of employment in the
manufacturing sector in the US and European countries as the wealthy countries seek to trade
their goods with low wage countries. The effect of the increase in competition from the Chinese
import with the US labour market was analyzed by examining the cross-market variation
between the US and China. The import competition between the low wage and wealthy countries
explains about one fourth of cumulative contemporary decline in the manufacturing employment
sector. The results also show that there was increase in benefit payments for healthcare,
disability, unemployment, retirement for the labour markets which were exposed by the tradeoff.
[ CITATION Aut13 \l 1033 ]
A review of recent trends in wage inequality was carried out and new findings were found with
the help of dynamic effect of liberalization of trade on wage inequality. The study finds out from
the recent trends that in short term, the wage inequality is caused due to increase in inter sectoral
wage. For the long term, wage inequality is increased as a result of mismatch in skills i.e.,
premium skills are preferred. Due to this no sufficient high ends jobs are created as a result of
compensating for wage inequality and labour tradeoff. [ CITATION Mil13 \l 1033 ]
Economic growth in countries like China, India, Brazil, Turkey, etc. have played a huge role in
the restructure of the employment scenario. This has led to job losses in the Western labour
market in promise of better jobs as a result of pressure on labour and wage rights. Emphasis on
government roles is given to help firms survive and grow in the market, and address external
shocks such as wage inequality, etc. by providing social protection and building the necessary
infrastructure. [ CITATION Jan11 \l 1033 ]

2.2 Disruption in western labour market

Steady growth of employment was enjoyed by the EU before the 1990s as workers were
provided with an environment that their jobs were secure and had good relationships with the
employer. There was also government safety which provided workers ample opportunity to find
work and support to their families. As Europe emphasized more on competitiveness, this has
resulted in the workforce being downsized in many fields of industries, affecting all levels
including middle and upper management. Access to labour resources from all around the world
allowed the reduction of labour force in the market. This caused panic among the working class
with whom previously did not face this level of uncertainty in their employment and threat to
their security and well being. This caused chronic anxiety which has devastating impact on the
worker’s health as well as their families’ health. [ CITATION WHO99 \l 1033 ]
New roles in the labour market are emerging with the advent of technology but it is also a sign
that the overall workforce required would decrease in developed countries. On the contrary, by
2022, the workforce labour in the African continent expects to grow by 122 million. This
phenomenon describes about the impact of technological advancements on development and
creation of jobs. It also provides economic opportunities to the countries offering lower labour
market for various enterprises around the world. Role of government and development of
policies is also important in disrupting the labour force market and capitalizing on advancements
in technology, which includes ensuring growth and developing premium skills among workforce.
[ CITATION Bre18 \l 1033 ]
OECD Jobs strategy framework includes three key paramenters which include quanity, quality of
jobs and inclusiveness. A sharp decrease in the overall employment scenario seems unlikely over
the growing concern over job replacement by globalization and technological advancements.
There are also concerns over whether the quality of the new jobs match with the labour
workforce. The concern is that this disparity may cause large part of the workforce to not benefit
from the advent of new jobs available to the market. So, it is up to the policy makers to take a
stand and help ease the growing concern. The policies should be established in such a way that
these concerned disparities are reduced so that workforce can benefit from the new opportunities.
Failing in this regard will increase discontent and deepen worries among the workforce causing
negative impact on social well being, productivity and growth. [ CITATION OEC19 \l 1033 ]
Many concerns over globalization are that nations would relax labour laws to gain competitive
advantage in the market in order to lower their costs and attract investment from various
enterprises. Over 18 years of data from 1985 to 2002 was collected from 148 developing
countries. The results from the empirical investigation were that there was positive correlation
between the labour standards of one country with that of the country in question i.e., labour
standards reduced in one country affected the other. The data shows that the labour practices
were implemented more rather than the labour laws of the countries were affected by it.
Competition for reducing labour standards were fierce in already low labour standard countries. [
CITATION Dav11 \l 1033 ]
Countries with lower regulation standards are seen as an attraction point for multinational
companies to carry out their investments. So, the countries with lower regulation standards
compete with other countries’ standard for attracting foreign investment. Hypothesis was tested
and for the support of this hypothesis, the empirical data was collected and analyzed. The
prediction was that firstly, the increase in foreign direct investment is due to the reduction of
practices in protection rules for employees. The mobility of the investment largely impacts the
employment protection regulation. Secondly, countries compete by undercutting each other’s
labour standards. [ CITATION Oln13 \l 1033 ]
Relocation of foreign direct investment to low wage labour countries with abundant from higher
wage countries can have a negative impact on the world economics and this causes a downward
spiral of wage decline all over the world. This is one of the negative aspects of globalization
which can cause more harm than good to the world economy. There has been debate on the
labour right’s and standard issues on all political and economic platforms but the attention
required for the labour market economics is minimal. The developed countries are facing a
deteriorating position between the lower skill and higher skill workforce as they have to maintain
competitiveness to the low wage labour countries. [ CITATION Meh06 \l 1033 ]

2.3 Extent of living standard deterioration in western countries

Let’s look at the case of Europe as it has applied the monetary policy to be the same for all the
European nations. The EU has also put out tough constraints in relation to fiscal policy. This has
constrained the European countries to focus on labour market policies to remain in competition
with the global market and with each other. The EU has been using common currency and has
removed trade barriers, so for the countries in the European union to have better trade surplus
and be competitive in the market, they must either lower their cost of production or increase their
productivity in labour department. The policies developed by the EU have also encouraged
restraint in wage structure, flexibility in workforce and more reliance on part time workforce.
Cost of production is reduced at the expense of labours by reducing the wage payments and
social benefit payments such as retirement, insurance, etc. Productivity in labour department is
increased by making the labourers work for longer hours, reducing their vacations, postponing
the retirement, reducing the labour force, etc. This directly affects the working conditions of the
labourers and causes deterioration in the quality life of the workers. Various government policies
and regulations have also ensured that the spending is reduced which has long term effect on the
overall productivity and competitiveness of the market. [ CITATION Lap10 \l 1033 ]
EU countries have been pushed to adopt the Employment policy direction as a result of European
Employment Strategy which was developed by the Luxemburg European Council in 1997
followed by Lisbon Strategy in 2000 so as to develop competitiveness among the EU members.
The strategy was developed to leverage out more flexibility in the labour market and the initial
aims were to carry out development of full employment, raise the rates of employment, creation
of tax incentives for increase in labour force, develop workforce flexibility and to develop a
knowledge-based labour workforce. All these reforms have negatively impacted workers in
terms of working conditions being hectic and reduction in the payments. [ CITATION Eve15 \l
1033 ]
Wage growth is determined by the growth in labour productivity but there is also evidence that
shows that that is not the case. A data analysis of 19 OCED countries was done from 1960s to
2004 which showed that when there was a 1 percentage point change in real wages growth rate,
then that corresponded to about 0.28 to 0.39 percentage point change in the growth in labour
productivity for the European Labour markets. This finding shows that the labour productivity
growth is hindered even though the job growth is favoured in the labour market which poses a
serious problem for the Europe’s ageing population workforce. It can also be seen from the data
analysis that the labour markets offering flexible labour shares in the European market do not
hold a competitive advantage over the traditional labour market as proposed by many
economists. The benefit of reducing wage for competitive advantage in the labour market is less
than expected results. [ CITATION Ver06 \l 1033 ]
Northern most European countries lowered their labour regulations and their wages in the
beginning of the process because of their tight regulations and high wages. There was also a
stark difference between the labour movements in the Northern countries and Southern European
countries as the southern side had well established labour movements while their northern
counterparts have compromising culture. As the wage price and regulations were lowered in the
Northern European countries, Southern European countries also followed with it to increase
competitiveness during the period after 2008 as the world faced global economic crisis.
[ CITATION Eve15 \l 1033 ]
For the 23 OECD countries, corporate profit marginal tax rate decreased while labour income tax
rate increased in average. This suggested that the tax burden was shifted from capital to labour as
capital is more mobile than labour. Capital ventures can demand for lowering corporate taxes
because of open market and they can relocate anywhere in the world. Labour becomes expensive
and as a result, it affects the labour demands. [ CITATION ILO12 \l 1033 ]

2.4 Involvement of local governments to maintain their citizens living standard

Civil society must play important role in helping the local government to take action by
analyzing the responses from the local authorities. NGOs in Hungary participate in the planning
and implementing of programs and regulations in the municipalities according to the law. They
also analyze the conditions of the marginalized and disadvantaged groups in their respective
communities and help to promote equal opportunities for these groups. The local government
and concerned local authorities’ capacity must also be increased in order to carry out the
sustenance of these programs. There must also be an open dialogue between the civil society and
local public authorities. Local government must act as a moderator and must gather independent
information regarding various policies. [ CITATION Uni15 \l 1033 ]
Local government bodies should also act as an influencer and help the policies be defined; it
should not just be policy implementing body at local level. Many countries have carried out
decentralization of their central governments to give more autonomy and control to the local
government bodies. With proper implementation and competent management of local regulatory
bodies, they can help in developing policies. Local regulatory bodies must ensure that there is
proper environment for enterprises to establish themselves so that they can utilize the labour
force available in the area. Local government bodies are closest to the people and they have
immediate control of the assets, issues and discrepancies of their respective communities. They
can assemble with the stakeholders of the local economy and carry out development of economic
process. They can also engage with the stakeholders to carry out design of various strategies,
plan for the future and carry out implementation of economic development enterprises.
[ CITATION UCL16 \l 1033 ]
Local government bodies and policymakers should also establish a workers’ boards which bring
together public, businesses, workers and government for recommendation of wage standards,
paid time off, training and other workplace standard for various industries and occupations.
These boards can provide local minimum wage cap and also provide differential for workforce
with experience or premium skills. This would allow the board-based approach to set up
standards which would reduce the gaps based on race or gender and consequently reduce
economic inequality. Companies would compete with each other for workforce on the basis of
productivity and skills acquired by the labour force rather than on the basis of lower wage
demands. [ CITATION Dub18 \l 1033 ]
Social clause refers to compliance with labour standards recognized internationally with the link
of trade concessions. There is difference in labour movement between various countries which
creates race to the bottom. Workers are not able to enjoy the benefits of their labour as the
competitive advantage over the labour is enjoyed by the countries implementing labour
regulations and the employers utilizing the labour force. The race to the bottom can be prevented
if agreement is met between the countries, companies to honour and upheld labour standards.
[ CITATION Cha03 \l 1033 ]
Chapter three: Research Methodology
Research methodology can be defined as the systematic method used for solving the issue in
question. Study of how the research work is being done is the main theme of research
methodology. It is one of the vital procedures, with which the researcher proceeds about
describing their work, explain their work and predict various outcomes. For fulfilling the study
objective, the report has been developed on the basis of descriptive research design. The study of
the topics was carried out in a methodical way according to the set of objectives described.
The research on the topic is based on secondary source of data. The information and data
collected from various secondary sources such as journal, internet articles, books, magazines,
thesis and dissertation articles published in various scholarly websites, etc. The global scenario
regarding the race to the bottom has been collected from numerous articles describing the
impacts, effects on the global labour market. Statistical data on the labour market conditions can
be found in various documents published by the International Labour Organization and OCED.
3.1 Research Ideas
These are the key ideas and points related to the race to the bottom which can be found in the
following articles and research below. These ideas reflect on what the problems are and how
approaches could be used for solving the problem.
Table 1: Key Ideas of Research
Title of Research Key Ideas Representative Author
A Race to the Bottom in Race to the bottom created fierce [CITATION Dav17 \l
Labour Standards? An competition to acquire market 1033 ]
Empirical Investigation share. Labour laws and regulations
are relaxed such that even wealthy
countries are competing by
lowering regulations.
The China Syndrome: The import competition between [ CITATION Aut13 \l
Local Labor Market the low wage and wealthy 1033 ]
Effects of Import countries explains cumulative
Competition in the United contemporary decline in the
States manufacturing employment sector.
The Effects of In short term, the wage inequality [ CITATION Mil13 \l
Globalization on Wage is caused due to increase in inter 1033 ]
Inequality: New Insights sectoral wage. In long term, wage
from a Dynamic Trade inequality is increased as a result
Model with of mismatch in skills.
Heterogeneous Firms
Racing to the Bottom? Race to the bottom caused [ CITATION Pra06 \l
Trade, Environmental hindrance to the acceptance of 1033 ]
Governance, and ISO national environmental standards
14001 so as to remain competitive. Trade
linkages are studied to determine
whether the ISO 14001
 certification was adopted in these
countries.
Labour market changes Access to labour resources from [ CITATION WHO99 \l
and job insecurity: a all around the world allowed the 1033 ]
challenge for social reduction of labour force in the
welfare and health market. This caused chronic
promotion anxiety which has devastating
impact on the worker’s health as
well as their families’ health.
OECD Employment The policies should be established [ CITATION OEC19 \l
Outlook 2019: The Future in such a way that these concerned 1033 ]
of Work disparities are reduced so that
workforce can benefit from the
new opportunities.
A Race to the Bottom? The mobility of the investment [ CITATION Oln13 \l
Employment Protection largely impacts the employment 1033 ]
and Foreign Direct protection regulation and countries
Investment compete by undercutting each
other’s labour standards
Eurozone crisis: Beggar Productivity in labour department [ CITATION Lap10 \l
thyself and thy neighbour is increased by making the 1033 ]
labourers work for longer hours,
reducing their vacations, etc. This
directly affects the working
conditions of the labourers and
causes deterioration in the quality
life
Jobs versus Productivity? The benefit of reducing wage for [ CITATION Ver06 \l
The causal link from competitive advantage in the 1033 ]
wages to labour labour market is less than expected
productivity growth. results.
The Role of Local Local regulatory bodies must [ CITATION UCL16 \l
Governments in ensure that there is proper 1033 ]
Territorial Economic environment for enterprises,
Development. engage with the stakeholders to
carry out design of various
strategies, plan for the future and
carry out implementation of
economic development
Using wage boards to Local government bodies and [ CITATION Dub18 \l
raise pay. policymakers should also establish 1033 ]
a workers’ boards which would
allow the board-based approach to
set up standards. Companies
would compete with each other on
the basis of productivity and skills
 acquired by the labour force

3.2 Recommendation for future research

Future research could be done more on analyzing the statistical data of the effects of race to the
bottom on the labour market conditions. The statistics related to labour wage structure of various
sectors in the labour market could be analyzed and determine the sectors which are most affected
by the regulations being laxed. Research on how the labour which has been displaced by this
phenomenon are able to find jobs in the short term and long term could also be established.
Another key factor that research must be focused on is the productivity levels of various sectors
and their growth. Parameters such as real wages, growth rate and productivity levels should be
closely evaluated for each sector and policies must be evaluated accordingly. [ CITATION Tay19 \l
1033 ]
Critical evaluation of the policies developed by the local government and the implementation of
these policies to reduce the long-term effects of race to the bottom should also be evaluated. Tax
competition is also one of the key factors in this phenomenon and the falling of the corporate tax
rates and tax compensation must also be studied to evaluate the clear actions that must be taken
by government and local authorities so that the labour force could be protected from the effects
of the resulting race to the bottom. [ CITATION OXF16 \l 1033 ]
The wage cost of labour for various countries competing for market must be evaluated not only
in terms of cost. It must be evaluated in terms of its effect on consumerism or its effect as a key
factor causing race to the bottom. Corporations search for market which have a good purchasing
power as they are limited by global sales in many low wage countries. Labour standards could be
revised so that the turnover of labour force in the low wage countries is reduced and countries
would reduce competing with each other by undercutting their labour force wages. [ CITATION
Jos17 \l 1033 ]
Chapter four: Implication for practice
This literature advances knowledge about the success of expatriation by utilizing the
aforementioned themes in the current context of strong bargaining leverage forcing national
governments and trade unions in developed economies to relax labor market regulation and
lower labor standards in order to protect jobs in domestic labor markets, i.e.; standards (pay,
working conditions, and employment). The concept has been used to describe a similar form of
corporate rivalry. The phrase has also been used in reference to a recent development in which
certain European countries capture the belongings of refugees. The race to the bottom principle
has raised concerns about the harmonization of labor and environmental laws across borders.
There is controversy about whether a sprint to the bottom is necessarily bad or even probable,
and whether companies or nations can take a larger role in the regulatory process.[ CITATION
Sen18 \l 1033 ]
The term has also been used to refer to a new trend in which some European countries have
taken refugee belongings. The sprint to the bottom theory has raised questions regarding cross-
border labor and environmental law harmonization. There is debate over whether a race to the
bottom is inherently poor or even likely, and whether corporations or nations should take
advantage of it. Alternatively, nations should play a greater part in the legislative process.
The details in this literature are not generalizable and are restricted to a small number of
countries. Managers and researchers, on the other hand, should use the knowledge from this
analysis to interpret and launch studies and find evidence from a variety of contexts, so that the
findings can be generalized and checked in all areas. As a result, such extensive analysis will
assist administrators in objectively understanding foreign assignments. Further studies would
need to concentrate on the mechanism of change of these three themes, as well as their
relationship. The study, therefore, should not only test hypotheses arising from these themes, but
it should also establish the theoretical basis behind the expectation of differential results.
Chapter five: Conclusion and Recommendation
5.1 Conclusion
In this report, we used a system of two countries and one multinational corporation (MNC) to
demonstrate that dramatic strategic undercutting of labor bargaining power is not an unavoidable
result of strategic competitiveness among policymakers from different countries. The emphasis
was on one aspect of an MNC's development organization, and it investigated the likelihood of
this function producing a counteracting effect to the "race to the bottom." We discover that the
incomplete substitutability of efficient inputs can, in effect, serve as a potential counteracting
mechanism to the “race to the bottom.” The issue of attracting multinational investment and, as a
result, the potential need for undercutting. To address the issue of attracting foreign investment
and, as a result, the potential need of undercutting labor standards, developing countries may
specialize in various styles of labor-skills.
It is imperative for reforms to be made and implemented at local level in order to protect the
labour forces from the effects of fierce competition. Tax reforms should also be made so that
multinational corporations do not have a stronghold on their bargaining chip i.e., relocating their
enterprise to a low cost market. Race to the bottom can be prevented by agreeing to adhere to
labour standards.

5.2 Limitations and recommendation

The study showed that informal links are important for global multinational corporation (MNC)
and their most visible manifestations of economic interconnectedness – globalization. Firm
globalization, big and small, has taken the form of foreign direct investment (FDI) in almost
every area of the world, with just a few countries remaining where MNCs are not major players.
Foreign direct investment has often been seen as a driving factor in economic growth, bringing
new workers, modernizing markets and distribution processes, and developing new work and
management practices.
The race to the bottom principle has raised concerns about the harmonization of labor and
environmental laws across borders. There is controversy over whether a sprint to the bottom is
necessarily bad or even feasible, and whether companies or nations can take a larger role in the
regulatory process. Scholars in International Political Economy Tufts University's Daniel
Drezner called the "race to the bottom" a fallacy. He contends that the study wrongly suggests
that states adapt solely answer to the needs of capital (rather than other constituencies such as
voters), that state regulations are so expensive for producers that they are likely to relocate
elsewhere, and that no state has a big enough market to give it a bargaining power advantage
over global capital.[ CITATION Dre00 \l 1033 ]
The race to the bottom of environmental policy entails both the repeal of existing regulations and
the enactment of new policies that promote less environmentally sustainable action. Some states
use this as an economic growth tool, especially during periods of financial difficulty. [ CITATION
Cue17 \l 1033 ]
Pursuing a race to the bottom ideology of environmental politics helps states to foster economic
prosperity without having serious implications for the state's climate [ CITATION Dre02 \l 1033 ] .
In contrast, many states had started to follow a race to the top policy, emphasizing ambitious
sustainability initiatives at the state and local level in the expectation that such initiatives would
be implemented by many other states later. Whenever a country pursues a race to the bottom or a
race to the top policy, it reflects on the overall environmental policy. Races to the bottom are a
global challenge to the world. Thomas Oatley considers hazardous waste laws as an example.
Since treating chemical waste is costly, companies that want to keep manufacturing costs down
may relocate to countries that do not need them to treat their waste until dumping it. [ CITATION
Kra18 \l 1033 ]
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