draining development.pdf - Khazar University

62 Draining Developmentattempt to remove these rents could inadvertently result in more damagingrent seeking by the private sector or the sector’s political refusal toparticipate in industrial policy programs. If either happened, the economywould be less well off and could revert to the less preferable positionat stage 1. This assessment would depend on our understanding of thepolitical settlement and the power of the private sector to resist the impositionof policies that the sector perceives to be against its interests. Theattempt to control the illicit flows would then have failed in a developmentalsense even if the illicit flows disappeared. The core policy task inthis case would not be to block the illicit capital flows associated withstage 3 (import underinvoicing), but to support the creation of statecapacities and an adjustment of the political settlement that would allowthe effective implementation of efficient customs administration in thefuture without reliance on informal perks such as import underinvoicing.More generally, this suggests that a careful sequential microanalysis of themacro-outcomes of blocking particular illicit capital flows is required,locating particular strategies in the context of specific initial conditions.ConclusionOur core concern has been to show that what constitutes an illicit capitaloutflow can vary across countries, depending on the core political andeconomic features. The number of capital outflows that are unequivocallyillicit in our minimal definition is likely to be more limited than the numberthat might be defined as such in single-driver approaches based onquestionable underlying economic models. Quantitative estimates ofillicit flows using our definition are therefore likely to be considerably lessspectacular than, for example, recent estimates of dirty money (see Karand Cartwright-Smith 2008). This is precisely our point. We argue that, ifeconomic development is to be the main concern in this debate, then thepromotion of economic growth in the context of a distribution of benefitsthat is politically viable has to be the condition that any policy interventionmust meet. Wider criteria than this to define illicit capital outflows as atarget for policy intervention by necessity rely on some broader notion ofthe social or economic good based on an abstract underlying model thatmay have little relevance in seeking development in the real world.