New at Leuphana: Prof Dr Lukas Hakelberg - Postcolonial tax havens

Professor Hakelberg, how did tax havens emerge in the Global South?

In the 1960s, many countries in Africa became independent. The elites in the dissolving European colonial empires feared for their money and assets on the African continent. There was a kind of panic to close the door: The colonial elites wanted to monetise their possessions and get the money out of the country as quickly as possible. 

Where did the money go?

The wealth of the French colonial elite flowed into Switzerland via Tangier and Monaco. The British commercial and overseas banks, on the other hand, recommended remnants of the British Empire in the Caribbean to the British colonial elite. Some of the islands there did not levy income tax. They also continued to be ruled by white oligarchs. For the wealthy, this combination looked like the stable colonial order they were used to. 

Why didn't every British colony in the Caribbean develop into a tax haven?

Most of them did not, in fact. Let's compare the Cayman Islands and St Kitts & Nevis, for example: there were exactly two bank branches on both island groups in the early 1960s. By 1970, however, there were already seven in the Cayman Islands and still two in St Kitts & Nevis. During this decade, the Cayman Islands were constantly ruled by a white oligarchy of colonial officials and merchants who employed British expats to write tax laws and banking regulations. There was no democratic legislative process involving the non-white population. In St Kitts & Nevis, on the other hand, the black majority fought for political rights in the 1960s. Their representatives took power in a democratic system. For wealthy colonial elites, this self-determination looked like instability, even if the post-colonial governments did not change anything about property rights.  

You are proposing a new theory about the emergence of tax havens in the global South. How do you analyse the connections?

At the macro level, we look at the economic structure, racialisation processes, political systems and tax laws in the territories. We are building a database of all the tropical island states in the world to see if the initial findings can be generalised for the British colonies in the Caribbean. To this end, we are collecting data in the colonial archives of European countries, for example in Kew near London, Aix-en-Provence, Lisbon and The Hague. Our time series begin in 1842, as the United Kingdom introduced the world's first permanent income tax in this year and we assume that other countries were able to follow suit from this point onwards.

You also test whether racial prejudice influences investment decisions. How do you measure that? 

My team and I are planning a survey experiment: investors and people from the financial sector select the country in which they would be most likely to manage assets from hypothetical country pairs with a variety of attributes. Attributes can include the level of income tax, legislation on banks and foundations, but also the appearance of the head of government as conveyed by a photo. We want to clarify whether different identities have an effect on investment decisions, i.e. whether racist prejudices persist. To avoid reproducing stereotypes, all photos are taken in the same setting and depict people who ascribe a certain identity to themselves without being categorised. 

Does the population of tropical tax havens at least benefit from foreign investments?

Those who work in the financial sector certainly do. The population as a whole at least benefits somewhat. If you compare the infrastructure and education systems of the Caribbean countries, the Cayman Islands, for example, are doing well. But there is still a huge inequality between those involved in the financial sector and the rest of the population. And then of course there is the question of who can become something in the financial sector and who can't? Only expats or also the local population? And if the latter, which parts of the local population?

Thank you very much for the interview!

Lukas Hakelberg graduated from the Institut d'Études Politiques de Paris (Sciences Po) with a degree in Affaires Européennes and also completed a Master's degree in Political Science at the Otto Suhr Institute of the Free University of Berlin. He worked as a research assistant at the Environmental Policy Research Centre of the Free University of Berlin and as a trainee in the Middle East Division of the European External Action Service in Brussels. He completed his doctorate in political and social sciences at the European University Institute (EHI) in Florence in 2016. From September 2016 to October 2019, Lukas Hakelberg was part of the Horizon 2020 project "Combatting Fiscal Fraud and Empowering Regulators (COFFERS)" at the Otto-Friedrich-University Bamberg. At the end of 2019, Lukas Hakelberg became a research associate at the Department of International and Comparative Political Economy at the Otto Suhr Institute for Political Science at the F Berlin. At the end of 2023, Leuphana University Lüneburg appointed him Professor of Political Science, in particular Political Economy (W2).