A "race to the bottom" occurs when competitors (whether companies or countries) repeatedly slash prices, taxes, or standards to outdo one another. While it feels like a consumer/taxpayer win in the short term (and yes, sometimes it fuels efficiencies and improves quality of service), it often leads ultimately to a hollowed out economy, reduced quality or service, and/or a degraded quality of life.
Constant discounting shrinks profit margins to razor-thin levels, leaving companies with no or very small "rainy day" funds, and/or growing debt, making them highly vulnerable to economic shocks. Huge tax breaks often result in others picking up the tab or increased borrowing. It can stifle innovation, Research and Development is expensive. When every cent is funneled into price cuts, long-term innovation is sacrificed for short-term survival. Only the largest "big box" players with massive economies of scale can survive sustained low margins, which eventually kills small businesses and reduces market diversity. The Walmartization of retail is a good example. To maintain low prices, costs must be cut somewhere, and that "somewhere" is usually the supply chain and the workforce. Companies under pressure to lower prices will resist wage increases, reduce staff or replace staff with tech and robotics. Lack of affordability always starts somewhere. To save costs, manufacturers may switch to inferior materials or bypass safety protocols. They may sacrifice quality to allow for profitable lower-priced services or products. This can lead to sourcing from regions with the weakest labor laws. Lower-priced service providers often exaggerate the need for speed, sometimes at the expense of the consumer.
When nations or states compete by aggressively lowering corporate and/or personal tax rates to attract investment, the "bottom" is a lack of public infrastructure. Lower tax revenue means less funding for schools, roads, and healthcare. Paradoxically, this makes the region less attractive to businesses in the long run, as they need an educated workforce and functional logistics. Often, to make up for lost corporate revenue, governments shift the tax burden onto individuals through sales taxes, tariffs or higher property taxes.
Underfunded regulation often leads to environmental and financial watchdogs losing their funding, which can increase the risk of ecological disasters or market crashes. Our under-funded IRS currently is unable to audit/collect over $600 billion (legally) owed taxes each year, which could pay down the national debt (which leads to you and I paying additional taxes for interest to service the national debt, around $1 trillion per year). Maybe A.I. will resolve this eventually?
When you prioritize cheapness over value, most times you get what you deserve and it's not that good! Usually, it's unsustainable.
