Legal Definitions - Race to the bottom

Definition: A situation where parties compete with each other to achieve a desired outcome by making bigger and bigger concessions. This can lead to negative consequences that may not be noticed until it is too late to change course. Some people believe that a race to the bottom happens when governments try to attract businesses by lowering labor standards or corporate taxes.

• Two companies are competing for a contract to build a new bridge. Company A offers to do the job for $10 million, but Company B undercuts them and offers to do it for $9 million. Company A then lowers their price to $8 million, and the bidding war continues until one of the companies wins the contract but has to cut corners to make a profit.
• A country wants to attract foreign investment, so they lower their corporate tax rate to 5%. Other countries in the region see this and lower their rates to 4%, then 3%, and so on. Eventually, the tax rates are so low that the government can't afford to provide basic services like healthcare and education.

In both of these examples, the parties involved are competing with each other to achieve a desired outcome. However, in doing so, they are making bigger and bigger concessions that can have negative consequences. In the first example, the winning company may have to cut corners to make a profit, which could lead to a poorly built bridge. In the second example, the government may not be able to provide basic services because they have lowered their tax rates too much.