draining development.pdf - Khazar University

The Practical Political Economy of Illicit Flows 477institutions and processes to facilitate and hide their own illicit activitiesin the form of corruption and the illicit expatriation of capital.Does this all sound too rosy? If the list of intensified actions set outabove were interpreted as a new policy program, then skepticism wouldbe appropriate. We do not know the magnitudes of any of the causalprocesses outlined above. The arguments might be valid, but the causalrelations and the impacts are weak. But this is not a new policy program.The scenario I have sketched out here involves simply the further developmentof a set of tools for the regulation of perverse and damagingtransnational transactions that the international community has beencrafting for many years. These are the right tools to use not only in thebroad interest of much of the world, but from the specific perspective ofthe problems of institutional, economic, and political weaknesses inweak states. These weaknesses have strong internal roots, but they alsoreflect the ways in which the economies and political elites of weak statesinteract with global forces of various kinds, and illicit capital outflowsplay a significant role. Anything that makes illicit flows significantly morecostly or risky for the beneficiaries and their agents is likely to have positiveeffects on the economies and the institutions of those states that haveemerged from late 20th-century globalization with predatory elites, weakinstitutions, and flawed investment climates. Reducing illicit flows is nota substitute for internal reforms. Neither is it competitive with them.Rather, there is every reason to believe it is strongly complementary. 23Notes1. See also Maddison, A., “Historical Statistics of the World Economy, 1–2008 AD,”Datasheet, Groningen Growth and Development Centre, University of Groningen,Groningen, the Netherlands, http://www.ggdc.net/maddison/Historical_Statistics/horizontal-file_02-2010.xls; World Economy (database), OECD DevelopmentCentre, Paris, http://www.theworldeconomy.org/index.htm.2. Correspondingly, diamonds seem to have lost some of their previous value as amechanism for illicit capital flows.3. Point natural resources are concentrated and extracted—normally mined—through large-scale, capital-intensive operations. The political consequences aredifferent from the exploitation of agricultural and forestry resources, which,almost by definition, are widely dispersed, far less likely to generate high rents,and far less prone to monopoly capture.