Race to the Bottom

CORE DEFINITION

Race to the bottom, also translated as 'downward spiral' or 'race to the bottom', refers to governments relaxing regulations on the business environment and lowering tax rates in order to increase economic vitality and investment attractiveness of their respective countries or regions. This deregulation by governments reduces operating costs for businesses, so companies located in countries/regions with higher labor costs, stricter environmental standards, or higher taxes may relocate to countries/regions with fewer regulations, which in turn prompts countries with higher labor costs to attempt to reduce regulations in the hope that their companies will stay, driving countries to compete to lower minimum regulatory standards.