draining development.pdf - Khazar University

24 Draining Developmentinstitutional arrangements that govern societal interaction in a countryand the distribution of benefits to which they give rise achieve a sufficientdegree of compatibility between economic productivity and politicalstability to allow the society to reproduce itself without an escalationof conflict (Khan 2010).There are two important elements in this definition. First, the judgmentof impact has to consider both direct and indirect effects because weare interested in the overall net effect of particular financial flows on thedevelopmental prospects of a country. Second, the specific political settlementof the country is important because the indirect effects, in particular,depend on the interplay between the economic and political structureof the country, and this can vary greatly across contexts. To simplify, wefocus on three broad variants of political settlements, but finer distinctionscan be made. The assessment of both direct and indirect effects isnecessarily based on a counterfactual assessment of what would happen ifthe illicit capital flow in question could hypothetically be blocked. Theassessment is counterfactual because, in many cases, the flows cannotactually be blocked or only partially so. The assessment is therefore subjectto the analytical perspective of the observer, but we believe that this needsto be done in an explicit way to facilitate public debate. Our definitionallows us to make sense of the perception that not all illegal flows are necessarilyillicit, while some legal flows may be illicit. The task of policy is toidentify both the particular capital flows that can be classified as illicit, butalso the subset of illicit flows that can be feasibly targeted.What constitutes damage in the sense of a negative developmentalimpact depends on how we define development. When illicit capitalflows are equated with illegal outflows (as in Kar and Cartwright-Smith2008; Baker and Nordin 2007), the implicit suggestion is that adherenceto prevailing legal rules is sufficient for promoting the social good. 1 Yet,the use of the notion of illicitness also suggests that damaging developmentaloutcomes may not always correspond to violations of the law andthat, therefore, social, economic, and political damage needs to be moreprecisely defined. Moreover, if we are not to suffer the criticism of paternalism,our criteria have to be widely accepted as legitimate in that society.In practice, it is difficult to establish the criteria that measure developmentand therefore can be used to identify damage in any society, butparticularly in developing ones. A social consensus may not exist if there