Sovereign Nations or Reservations?

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Sovereign Nations or Reservations?

• Culture, Property Rights, and Paradigms

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I. Poor People Rich in Resources

• Many Indian reservations have abundant and
  valuable resources of land, timber, wildlife, and
  energy. But Indians suffer
• high unemployment (27 40 in the 1980s)
• low incomes (in 1990, 31 of households received
  public assistance)
• 23 percent of households below the poverty line.

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A rising tide raises all boats?

• Despite recent growth partly due to gambling, per
  capita income for Native Americans living on
  reservations in 1999 was 7,846 compared to a
  U.S. average of 27,880.
• This puts reservation Indians on par with
  citizens in developing countries such as Palau or
  Oman.

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Pine Ridge Reservation

• The following are a few facts about the
  reservation today.
• Population 20,000 Lakota people -half of the
  population is under 18 years old
• Unemployment 85
• People want to work but there is no industry.
• Per Capita Income 4,000.00
• Life Expectancy - Male 55 (U.S. Avg. 75) -
  Female 60 (U.S. Avg. 80)

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Islands of Poverty

• Why does this bastion of poverty persist in a sea
  of wealth?

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4 Explanations for Poor Economic Performance on
Reservations

• 1 Powerlessness, dependency, and expropriation
  (colonialism)
• Past expropriation of resources
• Indian dependence on federal government for
  income
• Indian economies will only prosper as tribes are
  freed from paternalistic controls and exploitive
  economic relations with the larger society.

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Pine Ridges Explanation Its Not Our Fault

• The Lakota Nation consisted of great leaders such
  as Red Cloud, Big Foot, Sitting Bull, Crazy
  Horse, and American Horse. The people who
  presently live on the reservation are a wonderful
  people. They have a beautiful culture filled
  with respect and generosity. Yet, they have been
  forced to live on land that is not conducive to
  farming, ranching or industry. (There is a reason
  that much of this area is referred to as the
  "Badlands".) http//www.redcloudschool.org/history
  /facts.htm

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2. Traditional development economics explanation

• Traditional development economics focuses on
  endowments of human and physical capital, and on
  natural resources.
• Poor schools, high drop-out rates, few college
  graduates mean low levels of human capital.
• Crow Indians are poor despite being resource
  rich.

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Crow Indian Reservation

• For many years the vast coal deposits under the
  eastern portion of the reservation remained
  untapped.
• One mine is now in operation and providing
  royalty income and employment to tribal members.
• In the 1980s the Crow tribe had 27 billion worth
  of coal or over 3 million per tribal member.
• Unfortunately, the asset earned a paltry 0.01
  percent return leaving 55 percent of tribal
  members on public assistance.

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Untapped Potential

• The Crow operate only a small portion of their
  irrigated or dry farm acreage and about 30
  percent of their grazing land.
• They maintain a bison herd of 300 head.
• Recently (August 2008) contracted with a foreign
  company to develop coal for liquefied coal fuels.

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Crow Indian Tribe Sign Agreement 7 Billion Coal
Mine Project

• The Crow Indian Tribe has signed an agreement
  with an Australian company that could eventually
  bring 1 billion a year to the tribe. The
  agreement outlined today (10 August 2008) calls
  for mining coal and developing energy a deal
  that could create thousands of jobs for tribal
  members.
• Tribal leaders say this deal will let members
  realize their dreams of good homes and the best
  schools.

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Crow Indians

• http//en.wikipedia.org/wiki/Crow_Tribe

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3. Indians are Different

• Indians are different due to intrinsic aspects
  of Indian societies, usually indigenous culture
  or tribal social organization.
• Indigenous populations inhabiting the North
  American, African, and Australian continents
  prior to colonization by Europeans are put forth
  as examples of environmentally sensitive cultures
  that understood sustainable behavior.

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Inimical to Capitalism?

• Many contend that Indian cultures are inimical to
  capitalism, but this is not supported by the
  facts.
• Supposedly Chief Seattle said in the 1850s "How
  can you buy or sell the sky, the warmth of the
  land. . . . Every part of the Earth is sacred to
  my people."
• Never mind the fact that these were not the words
  of the chief but were fabricated for a television
  program this view does not fit the historical
  facts.

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Capitalistic Institutions

• From teepees to horses to land and water,
  pre-Columbian Indians established property rights
  described by one anthropologist as "naked
  possession."
• Even after being confined to reservations, "the
  tradition of individual ownership was so well
  established that Indians resisted government
  efforts to establish common property," says
  economist Leonard Carlson.

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Differences, contd

• Cultural differences existed and continue to
  exist. Modern multicultural scholars contend
  that Indians were not corrupted by the
  self-interest of capitalism.
• It is difficult to find a correlation between the
  different Indian cultures and the performance of
  Indian economies.
• Certainly culture and ritual were important
  constraints on Indian behavior, but prices made a
  difference in everything from their choice of
  technologies to diets to art. This simple
  insight is crucial to understanding Indian
  history.

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4. Ineffective Governing Institutions

• Economic stagnation is due to the lack of
  institutions capable of effectively regulating
  and channeling individual and collective
  behavior.
• The new institutional economist asks what impact
  the rules of the game have on the interaction
  of individuals including families, clans, tribes,
  and governments as well as traditional economic
  markets my emphasis, p. 5.

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Economic Theory

• Economists believe that institutions and
  incentives matter.
• This does not mean that cultural differences have
  no influence.
• But, Culture never completely overrides the
  individual ego. Anderson, p. 19

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Institutions

• Institutions can be thought of as the rules of
  the game that determine who is able to derive
  wealth from the assets available to society.
• Rules of the Game include
• Formal laws
• Tribal constitutions, federal laws, and tribal
  regulation
• Informal rules

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What are Rules?

• "Rules" are behavioral patterns that other
  individuals expect a person to adopt and follow
  in the context of various interdependent
  activities.
• The rules one individual is expected to follow
  influence the choices made by other
  individualslike prices, rules coordinate and
  motivate interdependent behavior.

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Informal Rules

• Customs, norms, religious teachings, ideologies,
  and traditions
• These rules are generally unwritten, evolve over
  long periods in response to changing physical and
  human resource constraints at the local level.
• In societies without written languages informal
  rules provide the bulk of the institutional
  framework.
• The informal rules that survive work, i.e.,
  promote efficiency.

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Definition

• Wealth
• Economists use wealth to mean any human values
  that contribute to human well-being.
• Trade creates wealth, because values are
  subjective.
• Trade is a positive sum game.

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Institutions

• Institutions Individual decision-making
• Contrary to popular belief, Indians used varying
  degrees of private ownership for many assets
  including household goods, horses, land, and
  hunting and trapping territories.
• Institutions Collective decision-making
• Whose values get represented? Aggregation
  becomes difficult as size increases.
• Key task How to encourage productive endeavors,
  and avoid wealth transfers (plunder).

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Collective Decision-Making

• The fundamental problem then becomes how to
  create collective units that have the necessary
  power to protect individual rights and to produce
  public goods without that power being used to
  transfer wealth to those who control the
  political power p. 10.

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Three Key Determinants

• Three determinants of how successful any society
  will be at preventing its collective agents from
  engaging in transfer activity
• 1. Size of the group
• 2.  Accountability (cultural constraints,
  reelection constraint)
• 3.  Exit (voting with your feet)

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Advantages of small societies

• It is easier in small groups to know what
  decision makers are doing.
• With the cost of bad collective decisions shared
  among a small number of people, each member of
  the group has a strong incentive to see to it
  that good collective decisions are made.

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Accountability

• Cultural norms, traditions, rituals, and taboos
  may constrain charismatic leaders.
• In Indian culture informal cultural constraints
  may be more effective than formal constitutions
  or laws holding tribal leaders accountable.
• Especially true if the constitutions were imposed
  on the tribe by the federal government.
• The prospect of reelection provides some check on
  performance.

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Avoiding the Transfer Society

• Once relegated to reservations, tribal
  governments (under the BIA) accumulated powers
  that limited the alternatives for individuals.
• Indian culture did not recognize a single central
  authority.
• Central authority was divided among different
  leaders.
• The Hunt Chief and War Chief were different men.
• Exit was always an option but after reservations
  were established, exit means integrating into
  non-Indian society (greatly raising the cost of
  exit).

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Preventing Wealth Transfers

• Powerful central authorities need to be
  constrained from plundering the wealth of the
  community.
• Years of federal government control have
• Eroded some of the informal cultural constraints
  on the behavior of community leaders.
• Some tribal councils have been notorious for
  their corruption.

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Pine Ridge Reservation Corruption

• In January 2000, the Grass Roots Oyate, a Lakota
  Sioux activist organization, began its occupation
  of the Oglala Sioux Tribal Headquarters to
  protest massive corruption in tribal government.
• With the support of the BIA, the tribal president
  was suspended in May 2000, and inquiries were
  made into the management of tribal funds.

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Institutional Change Examples

• Changing resource values (e.g., the horse)
• Indians had a rich history of institutional
  evolution, suggesting that they were very capable
  of responding to the benefits and costs of
  changing the rules of the game p. 14.
• Congressional Action
• Public Choice theoriesrent-seeking and
  special-interest groups.
• Congressional action designed to benefit white
  settlers.

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The Winters Doctrine

• Indians on the Fort Belknap Reservation were able
  to claim water rights through the courts.
• Water rights had become increasingly valuable.
• The Court reasoned that Congress had intended
  that establishment of reservations implied water
  rights sufficient to irrigate arable acreage of
  the reservation.
• Reasonable assumption?

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Economic Performance

• Capital investments on reservations have failed
  to increase wealth of residents.
• Some tribes have acted opportunistically,
  breaking contractual promises, thereby raising
  risk to investors (sovereigns paradox).
• Substantial expenditures to increase human
  capital investments have provided jobs, but the
  programs have not created viable and
  self-sustaining economies.

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Institutions and Economic Growth

• What incentives do the institutions produce?
• Are individuals and groups rewarded for
  investments in physical and human capital?
• The federal governments commitment to assist
  Indians has turned to direct provision of goods
  and services, creating perverse incentives.
• This encourages Indians to spend resources
  lobbying for transfers rather than making
  investments in self-sustaining projects.

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Institutions and Success

• Just as a growing number of studies show that
  private property, a consistent rule of law, and a
  lack of burdensome governmental regulations are
  crucial for encouraging investment in the
  developing world, the same holds for
  reservations.
• Agricultural productivity on Indian lands is 30
  to 90 percent less than on similar private lands.

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Institutions Success (contd)

• Tribal judicial systems are noted for their bias
  decisions that discourage outsiders from
  contracting with tribes or individual Indians.
• Tribes that have relinquished their judicial
  authority to the states wherein they lie had
  growth rates for 19891999 that averaged 20
  percentage points higher than tribes without
  equivalent state oversight.

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Conclusion

• Many believe that the only hopes for pulling
  Native Americans out of poverty are quick fixes
  such as federal aid and gambling, which are not
  sustainable solutions, especially for rural
  tribes.
• If American Indians are to escape poverty, they
  will have to abandon what former interior
  secretary James Watt called "bastions of
  socialism" and commit to a rule of law with
  secure property rights and market institutions.