GLOBALIZATION AS A RACE TO THE BOTTOM

 GLOBALIZATION AS A RACE TO THE BOTTOM

            Some few years ago, Rodrik emphasized the impacts of globalization. According to him, its negative impacts had gone to the extent of outweighing the positive impacts. His major concern in the context was that foreign direct investment could relocate the inferior and low waged job opportunities from developed countries to abundant labour countries and force a competitive decline in wage rates all around which he termed as a race to the bottom. Race to the bottom issue has placed the labor market dynamics in the forefront debates of globalization. But surprisingly, the labor market economics has been accorded very little attention up to today, although, in the wake of Asian currency degradation, the subject is slowly becoming more important.

The general idea behind the race to the bottom is that it has been less destructive especially between the countries which have more comparable economies. But how true is that? Is there any evidence for a race to the bottom in Eurozone? Bearing in mind that single monetary policy was put into use across the Eurozone, and given the tough constraints enacted on the fiscal policy, labor market policy became one among the few stabilizers available to different states aiming at improving external competitiveness (Du & Ewert, 2012). As such, this can be clarified because all individuals from the Eurozone have expelled exchange and capital boundaries and embraced typical cash and, along these lines, the point of these nations to expand their exchange surpluses and aggressiveness can be accomplished just by bringing down expenses and expanding work profitability. Expenses are cut by cutting wages and social advantage installments; profitability is expanded by working representatives harder (scaling down the work compels, longer hours, shorter excursions, and put off retirement). Then, governments are cutting spending, which has an impact in those territories that could help increase efficiency and upgrade intensity in the long haul, in particular, open foundation venture and training (Du & Ewert, 2012).  

One of the myths which surrounded the globalization launch according to John Hillary and his co-researchers was that it could lead to a massive leveling up among all people in the labour market. All the people across the world would, therefore, have a share in the rising tide. The common and the believed phrase was that the rising tide would lift all the boats concerning globalization. But what has happened is the opposite, although some countries have recorded high benefits, the vast majority, especially from third world countries, have been left behind. Instead of the expected gradual convergence to exist between the poorest and richest countries, what has been realized is a wider polarization (Du & Ewert, 2012).

It is, therefore, a fact beyond doubt that one or two countries have succeeded at the expense of many countries which are languishing in extreme poverty situations. China is one among the few countries which can easily testify the fruits of globalization as it has recorded hundreds of millions of its people uplifted out of dire poverty. Globalization is truly not what it was thought to be. Instead, it has made a small number of people rich while a huge number is very poor. Certain countries have benefited at the expense of many developing countries (Sweeney, 2014).

Outsourcing and the reality of global competition constitute a race to the bottom. Because forces of free trade are the fueling factors behind capitalists to exploit and outsource labour from developing countries, it has come out clearly that it has led to “race to the bottom” as far as environmental standards, work safety and wages are concerned (Sweeney, 2014). As John Stossel once said, “What we all know isn’t necessarily so.” But what is the reality of the matter? We can also leave the neo-Marxist rhetoric’s behind and have an eye at the facts:  Americans for instance, compared to the whole of South America, it invests its capital twice in Canada. America’s direct foreign investment in Hong Kong surpasses that in all of the mainland China (Yimprasert & Hveem, 2015). It outsources three times its capital in Australia than in India. It also invests in Luxemburg, which is the leading country as far as environmental and labour standards are concerned, seven times compared to the whole of Africa where there is a huge reserve army of desperately poor workers and corrupt governments which care less for the fate of their natural resources.

Yes, outsourcing and free trade are capable of providing financial capital to help keep third world countries growing. Additionally, it helps in the dissemination of diversified skills and knowledge, exchange the current technologies and create employment opportunities for indigenous populations (Milberg & Winkler, 2013). It also expands their middle-class position, aggregating the demand for improved working as well as environment conditions. But the fact remains that the greatest recipients of the direct foreign investments are not the countries whose capitalists pay low wages and even dump toxic wastes into their rivers. It is the United States of America.

Statistics have indicated that the United States attracted more than $194 billion and more than 84% of it came from the wealthiest nations in the world like Britain, France, Japan, Switzerland, Luxembourg, Canada, Germany and Netherlands (Crotty, Epstein & Kelly, 2016). The direct foreign investment exceeded $2 trillion, leading to the creation of so many jobs (like one job in every three available manufacturing jobs) and generating a significant part of the country’s wealth. Just as its businesses abroad pay salaries which are significantly higher compared to the rates in the prevailing market in those host countries, the foreign countries based within the country also pay high salaries than its corporations (approximately $68,000 per employee)

Are you baffled that most of the foreign investments globally flow just among the wealth nations? The response is just simple. Individual business owners know that, while labor costs, as well as regulations, play crucial roles in their investment decisions, profitability highly depends on a country’s legal system transparency that should protect the property rights in the private sector, disciplined and competent workforce and a good supportive infrastructure (Palley, 2014). Free trade always encourages all that. But are developing countries taken care of?  I mean the developing countries with its citizens starving in the sub-Saharan areas. Not at all, in most cases. The race at the bottom force has been a driving force in most of developed countries like United States of America.

References

Du Toit, A., & Ewert, J. (2012). Myths of globalization: Private regulation and farm worker          livelihoods on Western Cape farms. Transformation: Critical Perspectives on Southern      Africa, 50(1), 77-104.

Milberg, W., & Winkler, D. (2013). Outsourcing economics: global value chains in capitalist         development. Cambridge University Press.

YIMPRASERT, J., & HVEEM, P. (2015). The Race to the Bottom. Occasional Papers.

Crotty, J., Epstein, G., & Kelly, P. (2016). Multinational corporations in the neo-liberal      regime. Globalization and progressive economic policy, 117-143.

Palley, T. (2014). The economics of outsourcing: How should policy respond?. Review of Social   Economy, 66(3), 279-295.

Sweeney, S. (2014, October). The case for global justice unionism. In New Labor Forum (Vol.     13, No. 3, p. 57). Sage Publications Ltd..