In a market economy, even a globalized one, prosperity and technological progress, growth and employment are driven forward not by the state, but rather by the market, or to be more precise, by competition among private companies. We advocate competition among companies in the areas of performance and innovation. Every possible effort should be made at the national and the international level to ensure viable competition. In addition to competition among companies there is also competition among nation-states to attract new businesses and industry, the so-called location competition. In this competition, each country tries to preserve existing capital and jobs or to lure new capital and jobs to its territory. From an economic and political perspective, nothing can be said against international competition when the goal is the most efficient national administration, the best education system, the most innovative research landscape, or the most productive public infrastructure. All of this creates greater prosperity and improves the living conditions of the people.
What is problematic, however, is what might be called the race to the bottom among nation-states. In order to keep capital and jobs in a country or to attract them from elsewhere, actual wages, business taxes, and social standards in industrial countries are being driven further and further down, and environmental protection is suffering wanton neglect. For less developed countries, this means a decline in their chances of improving their social and ecological standards within the framework of economic development. Here, traditional economic policy reveals a strange contradiction: While the economy is becoming increasingly international, politics is reverting to an increasingly outdated nation-state mode of thinking. It is responding to the globalization of markets with the renationalization of politics. I call this a fateful, real economic downward spiral, at whose end there are no winners but only losers. The race to the bottom is the wrong path, both from an economic and a political standpoint, because it distorts and disrupts international competition among companies. It leads to recessive developments, growing unemployment, and increasing national debt. It prevents the optimal allocation of resources. It undermines the economic, social, and ecological foundations of our society. [ . . . ]
From an economic perspective, the politics of wage pressure is also the wrong track, since lowering real wages weakens domestic demand, promotes recessive trends, and increases the need to keep exporting more and more. If all the industrial countries were to act according to the same philosophy, then this approach would fail, solely on the basis of simple arithmetic. It is impossible for all countries to achieve export surpluses simultaneously, since one country’s exports are always another country’s imports. And the overall sum of the trade balance of all the participants in global trade has to be zero. That is why aggressive export policy fostered by state wage dumping cannot add up. The race to the bottom among nation-states is by no means the inevitable result of globalization. It is the result of an erroneous political course. And this course can be corrected. [ . . . ]