This part focuses on key conceptual issues regarding how globalization is reconfiguring policy spaces and the strategies of governments and firms to cope with it. Debora Spar and David Yoffie examine conditions that facilitate "races to the bottom" and "governance from the top". Sylvia Ostry focuses on the politics and dynamics of "deep integration" and the challenges they pose for the World Trade Organization (WTO). Alan Rugman and Alain Verbeke discuss how multinational enterprises (MNEs) can cope with environmental regulations that differ across jurisdictions. Alfred Aman probes the implications of the recent United States Supreme Court rulings on the subject of federalism and their impact on the abilities of the federal government to devise effective coping strategies.
One of the enduring themes in globalization literature is the retreat of the state, its eroding sovereignty and, consequently, its reduced capacities to enforce stringent environmental and labor laws. Further, globalized stock markets and an increasing scrutiny of firm performance by sophisticated investors are forcing MNEs to cut costs. As Spar and Yoffie note, these pressures on MNEs and governments are viewed as contributing to races to the bottom: the increasingly mobile MNEs search for lower levels of wages or regulation, thereby forcing national governments to converge towards lower standards. Such races, therefore, enfeeble national governments to perform the crucial functions of governance. To curb harmful races, international regimes and institutions could be established. Such governance from the top creates new rules, mitigating incentives for governments to participate in these races.
What facilitates such races? Spar and Yoffie suggest that the necessary conditions for races to occur are: (1) minimal border controls, and (2) regulation and factor costs that differ across national markets. Given the necessary conditions, races are most likely to occur when products are relatively homogeneous, cross-border differentials are significant, and both sunk and transaction costs are minimal. To check such races, governance from the top is more likely when there are significant negative externalities, races cascade through consecutive stages, and there are domestic coalitions with interests to curb such races.