draining development.pdf - Khazar University

Governance and Illicit Flows 25are deep divisions about social goals. However, as a first step, we caninsist that analysts and observers making judgments about illicit flows atleast make their own criteria explicit. This will allow us to see if thesecriteria are so far away from what are likely to be the minimal sharedassumptions in a society as to make the analysis problematic. In addition,because the effect of capital flows (and economic policies in general)is often heavily disputed, we also require an explicit reference toanalytical models that identify how particular capital flows affect particulardevelopmental goals. Making all this explicit is important becauseobservers may disagree in their choices on these issues.Our definition suggests that capital flows that are strictly within thelaw may be illicit if they damage society and that, conversely, flows thatevade or avoid the law may sometimes be benign, and blocking some ofthese flows may have adverse consequences. However, all illegal capitalflows may be judged illicit from a broader perspective if the violation oflaws is judged to be damaging for development regardless of the specificoutcomes associated with lawbreaking. We argue that this position iseasier to sustain in advanced countries where the formal structure ofrules is more or less effectively enforced by rule-based states and wherepolitical processes ensure that legal frameworks are relatively closelyintegrated with the evolution of socially acceptable compromises to sustainpolitical stability and economic growth. The ongoing global financialand economic crisis has demonstrated that this picture does notalways hold true even in advanced countries. Meanwhile, developingcountries are typically characterized by significant informality in socialorganization; laws, if they exist, are, in general, weakly enforced and donot typically reflect worked-out social compromises and economic programs,and significant aspects of the economy and polity therefore operatethrough informal arrangements and informality in the enforcementof formal rules (Khan 2005, 2010). Violations of formal rules are widespreadin these contexts and do not necessarily provide even a firstapproximation of social damage.To keep the analysis broad enough to include different types of societies,what then should we be looking for to judge damage to society? Isdamage to be judged by the effects of particular flows on economicgrowth, or income distribution, or different measures of poverty, orsome combination of the above? We suggest that we should use the least