draining development.pdf - Khazar University

Policy and Research Implications of Illicit Flows 485of crime. In fact, there is evidence that society can usefully do both.Police and prison do reduce crime, at least through incapacitation, andsocial programs such as early childhood interventions also reduce thepropensity to crime (Spelman 2000; Greenwood et al. 1998).There are other domains in which policy focuses on root causes,but with little attention to amelioration of harms. For example, the currentdebate about financial regulation, in the wake of the global fiscalcrisis, emphasizes rules to correct fundamentals rather than postfailureremedies.There is thus no general approach. For some problems, ameliorativeprograms have a minimal role; focusing on the root causes is, indeed, theonly path to reduction of the problem. For others, treating the symptomis also useful. What may be said about illicit flows in this respect?A distinctive feature of the IFF issue is that the illicit flows may themselvesexacerbate the underlying harms, that is, even if the tax evasion,corruption, and criminal markets continued unabated and all that oneaccomplished was to prevent the resulting funds leaving the home country,the result would appear to be welfare enhancing. Assuming that theowners of the illicit funds want to do more than hide their assets undermattresses, there would be more money for domestic investment and,perhaps, also a stronger tax base. Mick Moore takes this up in chapter 14.It is also possible that trapping funds in the source countries reducesthe attractiveness of corruption, tax evasion, and so on. A focus on theconsequences might then reduce the underlying activities. This reductioncould occur through at least two mechanisms. First, the returnsassociated with having to spend the money at home, with only the goodsand services available, for example, in Congolese markets, may make themarginal dollar less valuable and, thus, lower the incentive to steal fromthe state. With increasing globalization, however, the consumption possibilitiesin developing countries are approaching those available elsewhere,at least in terms of perishables. Substitutes for homes in the southof France may remain difficult to find in poorer countries (indeed, inalmost any country). Second, the funds are less secure at home thanabroad. This will also lower the marginal return of another dollar stolenin an ex ante calculation because a change in regime may lead to theseizure of some of these assets. The calculation of the probabilities ofseizure is no doubt complicated, but the fear of such a loss surely weighs