One of the most common criticisms of free trade and globalization is the dreaded “race to the bottom”: Open markets, so the story goes, let multinational corporations flock to places with terrible labor and environmental conditions, pushing governments to lower their regulations to attract those investments and eventually making everyone worse off. This theory became trendy in the late 1990s but continues today, despite reams of new data showing that global capitalism—and the economic growth, rising living standards, and technological proliferation it foments—has been a boon for both the developed and developing world.
It’s a global race to the top.
Let’s start with labor conditions: From 1994 to 2019, the global share of workers in low-skilled jobs (a proxy for low incomes and bad working conditions) declined by more than 10 percentage points. Upper-middle-income countries that were most integrated into the global economy enjoyed a 20-percentage-point drop.
Over roughly the same period, the share of workers living in extreme poverty has collapsed, while those in moderate poverty fell from 21 percent to about 12 percent. The biggest declines were again in more globalized places, mainly Asia (but not just China).
Child labor has also improved: Between 2000 and 2020, the share of children in unsuitable or unsafe work declined from 16 percent to less than 10 percent. The share of children performing hazardous work declined by more than half, from around 11 percent to 5 percent (Figure 1).
Globalization contributes to these important gains. In his book Globalization and Labor Conditions, Robert Flanagan concludes, “Countries that adopt open trade policies have higher wages, greater workplace safety, more civil liberties (including workplace freedom of association), and less child labor.” Workers move into better industries and jobs as they get wealthier—and research has consistently found that globalization accelerates this process.
The story on the environment is more complicated but ultimately just as optimistic. Unlike labor conditions, environmental progress often lags during early development but picks up as national wealth grows. At this stage, pollution and other environmental damage decline rapidly as richer people can afford tighter regulation and new technologies. Trade again plays a big role, by boosting incomes and spreading environmental innovations from more advanced countries. Economists Jeffrey Frankel and Andrew Rose have found that increased trade “correlates with reduced air pollution, independent of the effect wealth had on environmental progress.” And as the Financial Times recently documented, carbon dioxide emissions are now declining in many developed economies and improving in developed ones at a faster pace than their richer peers improved (Figure 2).
Bad or scary things still happen in the world, of course, but the long-term trends are overwhelmingly great. Globally connected factories like the ones we saw in Guatemala—so-called sweatshops—are not just better than the less-globalized alternatives there; they end up raising living standards and leading to better jobs down the road. And while early-stage development can create short-term environmental problems, economic growth eventually leads to higher environmental sustainability and increasingly rapid improvement.
The race to the top doesn’t happen perfectly overnight, but it does eventually happen—thanks in large part to globalization.
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