European Research Council awards Dr. Lukas Hakelberg more than 1.4 million euros for research project on the emergence of tax havens in the Global SouthPolitical scientist Dr. Lukas Hakelberg from the Otto Suhr Institute of Political Science at Freie Universitšt Berlin has been awarded an ERC Starting Grant by the European Research Council (ERC). Hakelberg will receive more than 1.49 million euros of funding for his five-year project, "The Whiteness of Wealth Management: Colonial Economic Structure, Racism, and the Emergence of Tax Havens in the Global South" (WOWMA). The aim of the project is to investigate the political and economic development of small, tropical island states on an unprecedented scale. In particular, Hakelberg wishes to look into the extent to which racist prejudices influenced investors’ preferences for using those countries run by white oligarchies as tax havens.
"Tropical islands are often stigmatized as tax havens. But only a few tropical islands are significant exporters of financial services. This is surprising since many of them possess the attributes that are frequently associated with tax havenry. For example, they are small, sovereign, reachable from major financial centers within a few hours, and practice British common law," says Hakelberg. He wants to use the WOWMA project to investigate why, in spite of this, so few of these islands ended up applying tax havenry as a development strategy.
Conventional wisdom suggests that political stability, often measured with contemporary indicators of good governance, is the deciding factor. "How political stability is perceived among foreign investors is, however, interwoven with racist biases," says Hakelberg. Previous research shows that tropical islands had to emphasize their British heritage to attract foreign capital during decolonization. British heritage in this context was essentially a code for whiteness, signaling the continued political control of these islands by white oligarchies.
WOWMA’s objective is to explain why some tropical island jurisdictions were better able than others to convey political stability through an image of whiteness. However, in contrast to previous research emphasizing the rule of law, WOWMA will investigate the hypothesis that low agricultural suitability was an important factor that distinguished emerging tax havens from other tropical islands.
Colonial regimes usually introduced plantation economies on those islands that were suitable for agriculture. Slave labor and the high demand for sugar and cotton in Europe made this a very profitable business model, which made the introduction of income tax by the colonial administration more likely.
At the same time, those islands with a plantation economy often attained independence earlier than those without. This is because the exploitation of the Black majority led to a counter movement that brought forth powerful trade and labor unions. These unions morphed into political parties in the 1930s and 1940s that campaigned for more political rights and, ultimately, independence.
However, colonial administrators largely left those islands that were less suitable for agriculture to their own devices. People living on these islands mainly practiced a subsistence economy based on crop farming, fishing, and wrecking. The lack of profits meant that it was not worth introducing income taxes from the perspective of the colonial administration. It also meant that there was no working class that had the potential to mobilize through unions and political parties. As a result, white oligarchies held positions of power on these islands for much longer than they did on neighboring plantation islands.
WOWMA proposes a new theory on the emergence of tax havens in the Global South, connecting the colonial economic structure of islands and the introduction of income tax with the continuation of white oligarchic rule. It is precisely those islands that continued to be controlled by white oligarchies and did not introduce an income tax that became particularly attractive to foreign investors in the 1960s as tax havens. The project is combining two methodological approaches to test this theory. First, original data taken from colonial archives will be statistically analyzed using methods of causal inference. Second, project members will implement survey experiments in which wealthy respondents will be presented with a series of pairs of countries and asked which one they would hypothetically prefer to use as a location for their assets. This approach aims to clarify whether the skin color of the country’s head of state has an influence on the decision, i.e., if racist prejudices continue to exist.
Lukas Hakelberg joined the Center for International and Comparative Political Economy at Freie Universitšt Berlin’s Otto Suhr Institute of Political Science as a postdoctoral researcher in November 2019. His main research interests include international, comparative, and historical political economy. He has previously dealt with research questions related to the conditions under which states successfully combat tax fraud and evasion, and the effects of international tax cooperation on national tax policy.
Hakelberg was a member of the EU Horizon 2020 project consortium "Combating Fiscal Fraud and Empowering Regulators (COFFERS)" at the University of Bamberg from September 2016 to October 2019. He completed his PhD in political and social sciences at the European University Institute (EUI) in Florence in November 2016; prior to this he was a Blue Book Trainee with the Middle East unit of the European External Action Service (EEAS) in Brussels and a research fellow with the Environmental Policy Research Center at Freie Universitšt Berlin. Hakelberg completed a master’s degree in political science at the Otto Suhr Institute of Political Science and a diploma in European affairs at the Institut d’ťtudes politiques de Paris (Sciences Po), France.