IN 1995, DURING a golden age for globalisation, a business professor from Berkeley coined a cheering term: “the California effect”. When companies in wealthy markets face new competition from foreign rivals, argued David Vogel in his book “Trading Up: Consumer and Environmental Regulation in a Global Economy”, they do not invariably lower standards, as gloomsters might predict. Instead, strict rules in a competitive market can trigger a race to the top, including in neighbouring jurisdictions. A case in point involves strict engine-emissions standards imposed by the state of California, America’s most important car market. Rather than make different engines for different states, to take advantage of those with looser regulations, many firms chose to make all their cars to comply with Californian standards.
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