Olesya A. Valger
Political Science Class: International Economy
RTB Dynamic and Environmentalism
Is the global economy characterized by the race-to-the-bottom (RTB) dynamic or is it just a myth promoted by certain interest groups? In this essay I am going to argue that the RTB tendency is present in the modern economy and we can observe its influence on the example of environmental standards development. However, we do not observe the worst possible scenario of governments rushing to lower their standards to attract foreign direct investment, and this visible fact throws a shade of doubt on the existence of the RTB. I will argue that the RTB dynamic is compensated by the opposite driving force of environmentalism.
Drezner argues that there is no substantial evidence to support the RTB hypothesis (2010, 213). I don’t find the evidence provided in the readings substantial either. Moreover, I don’t think that there is a possible way to get the strict empiric data for or against the RTB, as it is next to impossible to extricate all the other factors’ influence. The weak point in Drezner’s argument is that he relies on the evident absence of negative effects of MNCs on environmental standards to conclude that there is no or little influence. Meanwhile, the reverse conclusion is no less probable: unchanging standards can indicate a negative dynamic if they normally show a positive dynamic otherwise. Let us build a model to illustrate the situation when a company’s strategy is driven by pure economic motives.
If we exclude social factors the need for maximizing profits is going to define the strategy of an MNC. Maximizing profits means minimizing costs. Higher environmental standards make the production more expensive. There is no “clean” production nowadays; we have “cleaner” production technologies, but any industry still affects the environment heavily. That is why any industry has an interest in lower standards, and it is significantly higher in the spheres where “clean” technologies are more expensive (mining, chemicals, etc.) Spar brings a good example how paper industry is heavily dependent on the standards (1999, 156). One may object that costs of moving the production are still higher than adjusting to higher standards, and thus MNCs cannot influence the government policy. I would stress in response that in a competitive world where FDI is precious for a lot of countries, losing possible FDI because of higher standards gives the governments a strong disincentive to adopt more stringent policies on environment. As a result, the RTB dynamic is strong where social factors are weak. This is relevant for domestic producers as well as for MNCs.
We do find examples of ruling against higher standards under the GATT and the WTO, such as hormone-fed beef, shrimp-turtle, and marine mammal protection cases (Narlikar, 93). But we don’t find massive examples of this, whereas the RTB hypothesis would supposedly lead to a lot of them. I suppose that the reason for this lies in the compensating work of social factors, primarily in the idea of environmentalism born in the 20th century as a counter force against “wild capitalism” (the RTB in action, to my mind). The idea that developed in the intellectual elite circles now successfully penetrates the societies and unfortunately, increasing health problems have contributed to its success. The pressure of electorate on the governments creates a strong disincentive to lower environmental standards, so we see the race-to-the top dynamic in the society; at the same time, the RTB dynamic in economy doesn’t allow the governments to increase the regulation level. I am very hopeful that we are on the point where social pressure finds economic ways to influence production (e.g. “green” labeling and conscious choice of environment-friendly products) and we will find the way to exclude the RTB dynamic – first from developed countries, and then from the world economy altogether.
Drezner, Daniel W. 2001. Globalization and Policy Convergence. In Frieden et al (Ed.), International Political Economy. Perspectives on Global Power and Wealth (pp. 200-221). New York: W.W. Norton & Company.
Narlikar, Amrita. 2005. The world trade organization. Oxford: Oxford University Press.
Spar, Debora. Yoffie, David. 1999. Multinational Enterprises and the Prospects for Justice.
In Oatley, Thomas (Ed.), Debates in international political economy (pp. 151-166).