RACE TO THE

BOTTOM

Globalization

and Regional

Economic

Integration

Submitted By:

Rashid Abdullah 19323

Raja Shoaib Akber 19608

Azhar Ali 19345

Submitted to:

Dr. Imranullah

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Table of Contents Introduction .................................................................................................................................................. 2

Race to the Bottom ....................................................................................................................................... 2

Case Studies .................................................................................................................................................. 2

Poor working conditions in Bangladesh .................................................................................................... 2

Nestles Formula Milk Scandal ....................................................................................................................... 3

Poor nations serve as e-waste dumping ground, says United Nations ........................................................ 3

Nokia in Hungary ........................................................................................................................................... 4

Multinational Corporations .......................................................................................................................... 4

Merits and Demerits (Race to the Bottom – Globalization Context) ............................................................ 5

Advanced economies are also in the race .................................................................................................... 5

“Informalization” fosters insecurity .............................................................................................................. 6

Hitting the brakes.......................................................................................................................................... 6

Conclusion ..................................................................................................................................................... 7

References: ................................................................................................................................................... 8

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Race to the Bottom The debate on “Race to the Bottom” emerged in United State of America in 19th century. Some

scholars initially titled it as the race to efficiency but later authors such as Justice Louis Brandeis

termed it as the race to bottom. It points to a situation where government deregulates the local

business and it results in lowering of the labor wages, falling of work environments and facilities

and companies such as multinational corporations not caring for the environmental

degradation.

Globalization Race to bottom has been intensified by globalization and free trade. There is an intense

pressure on governments to deregulate its markets and open them to trade. However, once the

markets are deregulated, behemoths (MNCs) from developed world step in under the name of

investment and exploit the underdeveloped countries that are rich in cheap labor and natural

resources which form the raw materials for production.

Case Studies

Poor working conditions in Bangladesh After China, Bangladesh is the world's number-one textile producer. Around 4,500 factories

produce approximately 80 percent of the country's exports, the total of which is annually

around 20 million euros. Bangladesh, the world's second-largest producer of textiles after

China, has the lowest minimum wage. Most of the people employed in the sector receive a

minimum wage, which in the year 2010 was raised to around US$ 38 per month (3,000 taka)

after mass protests.

Time and again there are protests in Bangladesh, not only over low wages, but also over

extremely harsh working conditions. Poor safety regulations and a lack of willingness from the

employers to improve the situation are harming the workers. A tragic incident happened in

April 2013 when Rana Plaza building, which housed a number of textile factories, collapsed,

causing the death of over 1100 people.

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Nestles Formula Milk Scandal Outrage started in the 1970s, when Nestle was accused of getting third world mothers hooked

on formula, which is less healthy and more expensive than breast milk. The allegations led to

hearings in the Senate and the World Health Organization, resulting in a new set of marketing

rules. Yet infant formula remains $11.5-billion-and-growing market.

It was "The Baby Killer," a booklet published by London's “War on Want” organization in 1974

that alleged that in poverty-stricken cities in Asia, Africa and Latin America, "babies are dying

because their mothers bottle feed them with Western-style infant milk". This really blew the lid

off the baby formula industry; Nestlé was accused of getting Third World mothers hooked on

formula; meanwhile, research was proving breastfeeding was healthier. Millions of babies died

from malnutrition. In the Times, USAID official, Dr. Stephen Joseph, blamed reliance on baby

formula for a million infant deaths every year through malnutrition and diarrheal diseases.

Irony of the fact is that Nestle got away with it and the formula and the dirty marketing tactics

including indirect bribes to the hospitals and doctors still continue.

Poor nations serve as e-waste dumping ground, says United Nations Millions of mobile phones, laptops, tablets, toys, digital cameras and other electronic devices

bought this Christmas are destined to create a flood of dangerous “e-waste” that is being

dumped illegally in developing countries, the UN has warned.

The global volume of electronic waste is expected to grow by 33% in the next four years, when

it will weigh the equivalent of eight of the great Egyptian pyramids, according to the UN’s Step

initiative, which was set up to tackle the world’s growing e-waste crisis. Last year nearly 50

million tons of e-waste was generated worldwide – or about 7 kilograms for every person on

the planet. These are electronic goods made up of hundreds of different materials and

containing toxic substances such as lead, mercury, cadmium, arsenic and flame retardants. An

old-style CRT computer screen can contain up to 3 kilograms of lead, for example.

The failure to recycle is also leading to shortages of rare-earth minerals to make future

generations of electronic equipment.

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Nokia in Hungary Nokia arrived in Hungary during the boom years of the late 1990s. As its devices reigned

supreme on global markets, Hungary produced so many that consumers in Asia and Africa often

came to identify the country with the Nokia phone.

But globalization has moved more jobs further east to Asia, and the spread of smartphones has

knocked Nokia off its throne in the mobile world, spelling bad news in Komarom, a town of just

20,000 residents in the northwest of Hungary. Komarom is separated from Komarno in Slovakia

only by the Danube River, and many Slovaks commute every day to work in the Nokia plant.

Nokia shed off, in one go, more than its 4,000 employees around the world, more than half of

them in Hungary, ending all phone assembly operations in Europe. In Hungary, 2,300 jobs have

been axed by the end of this December. The move hurts the labor market in Hungary as well as

Slovakia, where about a third of Nokia's workers have commuted from, even as Hungary's

political elite repeatedly declared the phone giant one of its most prized investors.

Multinational Corporations Increased activity of global multinational corporations (MNCs) often leads to a decrease in the

effectiveness and implementation of environmental policy. For example, a large multinational

mining company, Rio Tinto, has extended its operations into the threatened forests of

Madagascar. In several underdeveloped countries, MNCs do not adhere to the labor or

environmental regulations. For example, in Pakistan, McDonalds pays wages to its sales staff

which is almost half the minimum wage set by the government. Similarly, several

pharmaceutical and chemical companies such as GlaxoSmithKline and others are criticized for

irresponsible handling of chemical wastes and dumping them in natural water sources or

underground, which contaminates the water table and causes soil deterioration.

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Merits and Demerits (Race to the Bottom – Globalization Context) • We all benefit when competition results in lower prices for goods and services. When

corporations and governments lower costs by reducing worker benefits, environmental

protection, and social welfare contributions, then the results can be malicious.

• Mass production requires mass consumption. As each workforce, corporation, and

country lowers wages, then less money is available for consumption and economies

become stagnant, leading to recession. "As each country tries to solve its own problems

by producing and exporting still more products still more cheaply, the result is a

'downward spiral.'"

• Globalization has depressed the real earnings of low-wage workers, which has increased

gaps between rich and poor. This gap is increasing worldwide.

• The "new world economy" has transformed the nature of work for employees of

multinational corporations.

• According to Brecher and Costello, the power of capital to pick up and leave for lower

cost locales undermines the ability of local people to shape their futures through

democratic processes. Trade agreements further weaken "local" control, even at the

level of the nation state.

• Global corporations have become powerful economic actors. Global corporations have

become unaccountable because of a greater concentration of power within fewer and

larger corporations.

• Globalization engenders a destructive global rivalry that might result in global conflict.

• Globalization and its economic effects are exacerbating racism and extremist

nationalism because of the increased level of aggressiveness needed in an increasingly

competitive marketplace.

• Globalization is promoting global pillage rather than a global village because the

environment is being ignored for the sake of lowering production costs.

Advanced economies are also in the race The “race to the bottom,” as evidenced by the flight of capital and jobs to locations with lower

wage costs, has not been limited to the developing world. Previously productive urban

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industrial cities in the US, such as Detroit, Chicago, New York and San Francisco, have lost large

shares of their employment base. The “Race to the Bottom” also occurs within individual cities,

resulting in job losses where large segments of the labour force have to shift from one sector to

another. The urban poor are losing jobs and benefits and must now find other income-

generating opportunities in the informal sector, which offer no security or benefits.

“Informalization” fosters insecurity The loss of secure jobs with secure community roots fosters an ‘informalization’ of the urban

economy, with more people eking out a living in unregulated sectors. According to the Report,

several economic processes converge to ‘informalize’ employment and other aspects of urban

life. The closing of formal-sector enterprises often coincides with the down-sizing of ancillary

industries and services. As one industry declines – as with light engineering in Karachi -

incomes in the city as a whole reduce. Former employees are no longer able to purchase

services on the street; hence, street vendors also suffer. Simultaneously, if utility tariffs

increase - as they did in Karachi during the 1990s - other enterprises suffer and are forced to

reduce their operations or close altogether.

Hitting the brakes As “The State of the World’s Cities, 2004” points out, globalization has set cities against each

other in a desperate competition for a share of highly mobile capital and trade. The Report

emphasizes that the needs and desires of global capital must be balanced with policies based

on the needs of the region’s own inhabitants. Otherwise, efforts to alleviate urban poverty will

end up as meaningless gestures that provide little more than temporary relief – and the gap

between rich and poor will continue to grow larger.

According to the UN-HABITAT Report,

• Corporations have tended to concentrate direct investment in ten countries, including

China, Brazil, Mexico, Indonesia and Thailand. In stark comparison, the poorest

countries – most of them in Africa – have seen no such investment.

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• In an extreme case, Buenos Aires saw more than 50 per cent of its employment switch

sectors, as many medium-sized enterprises closed in a process of de-industrialization,

including more than 4,600 enterprises from 1995 to 2000, or about two per day.

• The vacuum created by “footloose industries’ is rarely filled by job opportunities for the

poor. Rather, any new jobs tend to be in knowledge-intensive industries, many requiring

university-level education.

• Free Trade used as a tool for exploitation by developed nations.

• Inability of developing nations to benefit from free trade, especially smaller economies.

• Lack of regulations in developing nations to protect labor from exploitation, local

businesses, bio-diversity and the environment.

• Little or no recycling mechanism to counter waste produced by industries.

• MNCs are above the law (e.g., Nestlé's formula milk kills millions of children each year).

• Developing countries being used as dumping grounds for hazardous waste

• Corrupt governments and bad financial policies make things worse

• IMF and WTO policies further aggravate the situation by forcing austerity cuts and

exploitative free trade policies.

Conclusion

The aforementioned has resulted in a race to the bottom, where developing countries are

declining in socio-economic indicators due to globalization. While the examples of China and

India are often quoted as a success story, the world my in-large is facing many challenges that

are overlooked, be it the poverty stricken sub-Saharan Africa or the air pollution in Beijing,

which is leading to a destructive path the results of which we cannot even begin to fathom. If

governments want to slow the pace of this “race to the bottom,” they need to have the

flexibility to move some of their own resources into activities to absorb labour – for example,

increasing construction or maintenance programmes. This would create a modest safety net for

the employees who face layoffs.

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References: Cities and Globalization: A Race to the Bottom

UN-HABITAT (Fruits of Globalization)

Reuters Website: http://www.reuters.com/article/2012/02/08/us-hungary-nokia-idUSTRE8171OU20120208

http://www.confectionerynews.com/Manufacturers/Hachez-moves-packaging-to-Poland-in-search-of-cheaper-labor

http://www.economist.com/blogs/freeexchange/2013/11/labour-standards

http://www.businessinsider.com/nestles-infant-formula-scandal-2012-6?op=1