draining development.pdf - Khazar University

46 Draining Developmentlead to a liberal rule of law because any new ruling coalition will alsorequire off-budget resources to maintain political stability and will keepresources available for elections (and for their own accumulation). Ifthese resources can be expropriated by a new coalition after an election,this can significantly increase the stakes during elections. Expropriatingthe financial resources of former politicians may therefore have the paradoxicaleffect of increasing instability (the case of Thailand after 2006,for example). It can increase the intensity with which assets of the currentruling coalition are attacked by the opposition, and it can increasethe intensity of opposition by excluded coalitions as they attempt to protecttheir assets from expropriation. Indeed, the evidence from stableintermediate developers such as Brazil or India suggests that the stabilityof the political settlement in the presence of competition betweenpatron-client parties requires a degree of maturity whereby new coalitionsunderstand that it is not in their interest to expropriate the previouscoalition fully. An informal live-and-let-live rule of law guiding thebehavior of political coalitions can reduce the costs of losing and allowelections to mature beyond winner-takes-all contests. However, this typeof informal understanding is vulnerable.If the competition between political factions has not achieved a levelof maturity that informally sets limits on what can be clawed back froma previous ruling coalition, a premature attempt at restricting financialflows may have the unintended effect of significantly raising the stakes inpolitical conflicts. If the ruling coalition cannot protect some of its assetsin other jurisdictions, it may feel obliged to use violence or intimidationto stay in power, and this can increase the likelihood of eventual expropriation.Paradoxically, some amount of flexibility in politically drivenfinancial flows at early stages of state building may help lower the stakesat moments of regime change. Thus, restrictions on political financialflows are only likely to improve social outcomes if live-and-let-live compromisesbetween political coalitions have already been established. Forinstance, in more stable political settlements such as in Argentina, Brazil,or India, a gradual increase on restrictions on financial outflows couldlead to better social outcomes as long as current politicians feel that therisk of domestic expropriation is low and the restrictions simply restrictexcessive illegal expropriation by political players. If formal rules restrictpolitical accumulation that is beyond what is normally required to sus-