The Price of Civilization: Reawakening American Virtue and Prosperity by Jeffrey D. Sachs

the decline of EATRs and the narrowing of the spread of EATRs are shown in Figure 6.2 for nineteen high-income countries, including the United States. The careful statistical study from which this figure is taken demonstrates that “increased capital mobility (FDI) has a negative impact on the corporate tax rate.” 12
    The effective U.S. corporate tax rate shows the same decline as in other high-income countries. America’s EATR declined from 30 to 40 percent during the 1960s to less than 30 percent from the mid-1970s onward, and is currently under 20 percent ( Figure 6.3 ). One part of that decline reflects the greater ability of U.S. companies to hide their profits in offshore tax havens, with the implicit or explicit support of the Internal Revenue Service. The upshot is a decline in the share of GDP paid in federal corporate taxes, from an average of 3.8 percent in the 1960s to just 1.8 percent in the 2000s. 13
Figure 6.2: Effective Average Tax Rate in High-Income Countries, 1979–2005

Source: Data from Alexander Klemm, “Corporate Tax Rate Data,” Institute for Fiscal Studies, August 2005.
    Figure 6.3: U.S. Corporate Taxes, 1950–2010

Source: Data from U.S. Bureau of Economic Analysis.
    The race to the bottom exists not only in falling corporate tax rates but in many other aspects as well, such as the weakening of labor standards, financial sector deregulation, and lack of enforcement of environmental standards. As one consequential example, New York and London were in a dramatic race to the bottom regarding financial deregulation during the past twenty years, to the delight of the financial firms on Wall Street and in the City of London. The end result was to feed the massive financial bubble that finally exploded in 2008. Dozens more places, ranging from Dublin to Dubai, have been slashing corporate tax rates and converting themselves into destinations for tax evasion.
    There is one overarching solution to the race to the bottom: international cooperation. All countries are suffering from the decline in corporate tax rates and the downward pressures on financial, environmental, and other regulatory standards. By banding together to set minimum international norms, such as a common approach to eliminating tax havens and a common standard of financial and environmental regulation, all countries can gain. Of course, with their overweening power, corporate lobbies routinely short-circuit such attempts at global cooperation by successfully playing off one government against another.
    The Depletion of Natural Resources
    The new globalization poses one more enormous problem: the depletion of vital primary commodities such as freshwater and fossil fuels, and long-term damage to the earth’s ecosystems under the tremendous stresses of worldwide economic development. For a long time, economists ignored the problems of finite natural resources andfragile ecosystems. This is no longer possible. The world economy is pressing hard against various environmental limits, and there is still much more economic growth—and therefore environmental destruction and depletion—in the development pipeline. The explosive growth of production in China, India, and other emerging economies is already pushing world prices of food and feed grains, coal, oil, and countless other primary commodities sky-high, indicating an era of much greater scarcity and resource depletion. The surge in primary commodity prices in recent years, including fuels (oil, gas, and coal), minerals (copper, aluminum, iron ore, and others), and cereal grains (wheat, maize, rice, and others), is shown in Figure 6.4 . The commodity price indexes are divided by the U.S. GDP price deflator to obtain inflation-adjusted indexes for each commodity group. It was only the steep economic downturn in 2009 that brought commodity prices down from their 2008 peaks.
    The scarcity problems may be even more serious in areas where market prices are not available to warn us of