This is one of the most important questions in international political economy, especially if the answer is yes at least some of the time. I have spent much of my academic career investigating competition for investment, and how to control it, precisely because it is likely the main mechanism by which races to the bottom (in wages, labor or environmental regulation, taxes, etc.) could occur.

Of course, this is really two questions: Do races to the bottom occur? If so, are they a result of globalization (or perhaps more precisely, capital mobility)? There is actually a lot of literature out there denying that races to the bottom (or "social dumping," the European term) occurs at all. In my view, this denial was convincingly refuted by Dale Murphy in his book The Structure of Regulatory Competition (Oxford University Press, 2004, http://www.oup.com/us/catalog/general/subject/Law/PublicInternationalLaw/WTOandInternationalTrade/~~/dmlldz11c2EmY2k9OTc4MDE5OTIxNjUxMg==). Murphy shows that both shipping flags of convenience and tax havens are characterized by race-to-the-bottom behavior, as well as suggesting briefly some other areas where it likely occurs or has occurred.

An important area where we don't know if races to the bottom are occurring is tax competition. On its face, this would seem to be an easy case: countries around the world are cutting their corporate income tax (CIT) rate. But, as Kenneth Stewart and Michael Webb have shown, for most countries corporate income tax as a percentage of GDP has not fallen, nor has corporate income tax as a proportion of all taxes. This is not true for the United States, however, which might on its face have more power to keep effective taxes higher than smaller countries do. There is intense debate over whether their finding proves anything. On the one hand, profits have increased their share of GDP, in the U.S. and Europe. That would tend to maintain the CIT/GDP ratio in Europe, but still doesn't say anything about its fall in the U.S. (Also anomalous, European countries have cut their CIT rate while the U.S. has remained at 35%, so why has CIT/GDP fallen here but not there?) A possible explanation for both is that in Europe, personal income tax rates are higher than corporate income tax rates, giving individuals an incentive to reclassify personal income as corporate income, whereas in the U.S., the reverse is true, as our personal income tax rates are below CIT rates. I have not seen anything yet that I consider decisive.

 Assuming we do see races to the bottom, is globalization the cause? I think there is a pretty good case for it. To take Murphy's two main examples, ships are by their very nature mobile, and liquid finance capital that finds its way to tax havens is about the most mobile kind of capital there is.

But races to the bottom don't always occur. Murphy gives an illuminating example of cases where regulatory standards have been raised, the ban on ozone-harming chloro-fluorocarbons. A key here was that one company, Dow Chemical, was in a position to benefit from a ban because it had already developed substitutes for CfC's. With a dominant industry player on board, the standards were raised.

Another way to raise standards is with enforceable agreements. Obviously it's doable domestically (think minimum wage, for example), but in the international context, enforcement is more difficult. I have long argued that the European Union has been able to cooperate to control subsidies to business, but two big elements in the EU's success are the Commission's ability to monitor what Member States do, and the European Court of Justice's willingness to enforce Commission decisions generally.

Thus, I see the answer to the question in the title as: Globalization causes pressure for races to the bottom; sometime they happen, but sometimes they don't. If we want to have high wages, decent environmental regulations, and adequate tax revenues for government programs, we need to understand what can be done to prevent these races to the bottom.

By the way, I have by no means done Murphy's argument justice, but instead focused on an important political dynamic present in several of his cases. I highly recommend his book.