Reservation Economics

1. Reservation Economics Failed Policies and Growing Dependence AI_14_13

2. The Federal Government and Native Americans • Many Indians are members of tribes as well as U.S. citizens; some tribal governments have their own court systems and some state laws do not apply on reservation lands. • A number of tribal Indians were not made citizens until special legislation was passed by Congress in 1924.

3. Special Status • The origins of the special status of Indian tribes goes back to the begin­nings of the republic. • The Constitution grants the federal government power "to regulate commerce with the foreign nations, and among the several States, and with the Indian tribes" (emphasis added). • A second source of this relationship was the practice of negotiating treaties with tribes. • Soon after the United States gained independence from Britain, Congress decided to continue the British practice of recognizing the rights of Indian tribes to the territory they occu­pied.

4. Special Rights • Although the government could acquire land from tribes through treaties or just wars, Indians still had recognized rights, and settlers could not purchase land directly from tribes. • Chief Justice John Marshall wrote in the case of Worcester v. Georgia (1832) that the Cherokee Nation was "a dis­tinct community, in which the laws of Georgia can have no force." • Marshall affirmed the right of the federal govern­ment rather than the states to regulate intercourse with Indian tribes.

5. Removal of Cherokee • De­spite their success in court, the Cherokee were forced a few years later to leave Georgia along the "trail of tears.“ • The removal was part of a policy of moving Indians westward. • Until the 1840s the federal government negotiated treaties (sometimes by coercion) to move most (but not all) eastern tribes to the West as a way of opening land for white settlement and to allow Indians time to adjust to the influx of white settlers. • This system set a boundary be­tween Indian tribes and white settlement, and in principle, whites were to stay east of the line and Indians would stay to the west in "Indian country."

6. Origin of Reservations • This Indian frontier was completely breached in the late 1840s with the massive movement of white set­tlers into California and Oregon to farm or mine for gold. • To protect Indi­ans while still opening land to numerous settlers pushing westward, the fed­eral government induced tribes to sign new treaties in which they ceded all or part of their lands in return for some land "reserved" for their exclusive use. • Typically these treaties gave a tribe a defined territory and future goods in return for surrendering title to other tribal lands.

7. Ending Their Way of Life • Once Indians were settled on a reservation, the federal government as­sumed the role of guardian of Indian property and Indian welfare on the reservation. • Federal agents distributed promised goods and supervised edu­cational programs. • The reservations often lacked sufficient resources for tribes to continue their traditional ways of supporting themselves. • For exam­ple, the destruction of the bison herds in the 1870s and 1880s eliminated the major food resource of Plains tribes and ended that way of life.

8. Assimilation • Conse­quently, one task of the federal agents was to teach Indians new ways of sup­porting themselves. • Congress also expected agents to push Indians to assim­ilate into mainstream society. • Farming was seen as the ideal means by which Indians could gain a new livelihood and almost magically become assimi­lated into white society. • This work was made more difficult because of limited resources and widespread corruption. • In addition, Indians often resisted heavy-handed programs to change their way of life.

9. Top-Down Policies • Among tribes with an agricultural tradition, "the Indian concept of land tenure enabled various villages to make the best possible use of the land in order to meet their own specific needs." • Institutional autonomy, however, was short-lived. • Instead, Congress and federal agencies began molding property rights from the top down. • With the Dawes Act, or Allotment Act, of 1887, the government made its first ma­jor attempt at bureaucratic control over the allocation of reservation land.

10. A Legacy of Mismanagement • The federal government has had an agency dealing with Indian affairs for more than two centuries. • In 1806, the Office of Indian Trade was created in the War Department. • In 1824, that office was replaced by the Bureau of Indian Affairs, which was also known as the Office of Indian Affairs. • In 1849, the office was transferred to the new Department of the Interior.

11. 19th Century • Indian treaties usually provided various types of aid to tribes in exchange for their ceding of land. • Between 1794 and 1871, more than 150 treaties were signed that provided teachers, schools, and other education benefits to tribes. • The federal government provided health services, food rations, infrastructure, and farm implements to Indian tribes. • It made regular annuity payments to tribes as a part of treaties.

12. Mismanagement & Corruption • The dominance of the BIA in Indian life has not produced good results. • One reason is that the BIA has been inefficient, mismanaged, and sometimes corrupt since the beginning. • Fraud, corruption, and bribes were common in the BIA during some periods in the 19th century. • One reason was because local BIA officials had substantial discretionary control over cash, goods, trading licenses, and other items handed out by the agency.

13. Corruption • In the years following the Civil War, "Indian rings" of government agents and contractors colluded to steal funds and supplies from taxpayers and the tribes. • The New York Times railed against the "dishonesty which pervades the whole Bureau.“ • And the newspaper argued that "the condition of the Indian service is simply shameful. It has long been notorious that rascally agents and contractors have connived to cheat the Indians. …

14. Indian Policy • Allotment under the Dawes Act, Commodity Distribution, and efforts to encourage agriculture were not the only programs on Indian Reservations. • After over 100 years, most reservation Indians remain at the bottom of the economic scale virtually any way it is measured, relying almost completely on the U.S. government for support

15. Economic Conditions on Most Reservations • Difficult to exaggerate the overall depressed state of economic development on most reservations, or the sorry history of associated public policies • Unemployment rates on most reservations exceed 50 percent, and many reservations have 80 to 90 percent unemployment, year after year

16. Structure of Reservation Employment • 1988 study: most reservation economies heavily dependent on the “transfer economy” • Employed as part of tribal or federal government transfer or other public assistance programs not in productive enterprises • 59 percent of all reservation employment was in the transfer economy, compared to 17 percent for the U.S. as a whole. • There are some important and revealing exceptions, but the fact is that on many reservations, the only employment is in government funded offices that deliver social services to the rest of the reservation.

17. BIA and BIE • The federal government runs a large array of programs for the roughly 1 million American Indians who live on reservations. • Many of the programs are housed within the Department of the Interior's Bureau of Indian Affairs (BIA) and Bureau of Indian Education (BIE). • These two agencies have about 9,000 employees and spend $2.9 billion annually.

18. Self-Determination? • Since the 1970s, the federal government has promoted Indian "self-determination," but tribes still receive federal subsidies and are burdened by layers of federal regulations. • In addition, the government continues to oversee 55 million acres of land held in trust for Indians and tribes. • Unfortunately, Indians who live on reservations are still very dependent on the federal government.

19. BIA Policy • The government has taken many actions depriving Indians of their lands, resources, and freedom. • A former top BIA official admitted that federal policies have sometimes been "ghastly," including the government's "futile and destructive efforts to annihilate Indian cultures."

20. Cobell Settlement • The BIA has administered federal Indian policies since 1824, and its history is marked by episodes of appalling mismanagement. • Some of the BIA's scandals are reviewed here, including the Indian trust-fund mess that was recently resolved in a $3.4 billion legal settlement—after a century of federal bungling.

21. Gross Mismanagement • In 2011, the Department of the Interior's Inspector General (IG), Mary Kendall, testified to Congress about the "gross program inefficiencies at many levels of Indian Affairs and in tribal management of federal funds." • The IG described, for example, how the BIA funded a fish hatchery at a reservation for 14 years and yet no fish were hatched. • Eventually, a BIA official visited the reservation and found that the alleged hatchery was actually a real estate development that the tribes had been funneling taxpayer money into.

22. No Management Controls • The IG found that in one BIA region, millions of dollars were wasted on road projects that were never competed. • She noted that "internal management controls were so broken down that wage-grade employees were earning over $100,000 a year, with overtime, without explanation.“ • On one of the road projects, $2.4 million had been spent, but the IG couldn't find any of the work that was supposed to have been done.

23. BIA Uniquely Unresponsive • Many federal agencies suffer from waste and inefficiency, but the BIA seems uniquely unresponsive to criticism. • The IG routinely refers allegations of employee misconduct, such as fraud and theft, to the BIA, but the agency often fails to correct the abuses. • The IG testified: "For many years, the BIA has demonstrated tremendous inefficiency and has poorly managed the matters that we refer to them for action."

24. Pork-Barrel Politics • Pork-barrel politics adds to the BIA's inefficiency. • Michigan's wealthy Saginaw Chippewa tribe, for example, hit the jackpot after they hired infamous lobbyist Jack Abramoff and gave campaign contributions to former Senator Conrad Burns (R-MT) and other politicians. • In his recent book, Abramoff brags about how he helped direct all kinds of subsidies to the tribe.

25. One Explanation for the Lack of Economic Development • Economic resources problems: insufficient access to capital markets, small endowments of natural resources, and low levels of education and job skills • Since at least the 1930s economic development programs have played an important part in Indian policy; U.S. government has poured billions of dollars into these programs • Attempted to provide Indians with capital • subsidized loans or direct capital investments in the form of infrastructure, manufacturing plants, irrigation projects, and so on.

26. Development Programs, Continued • Training and education programs. • Natural resources • Some reservations are rich in resources (minerals, timber, agricultural land, natural and historic attractions that could be important for development of tourist industries, etc,) • Others are not and to augment natural resources, the US government has begun to buy land to add to reservations, as well as obtaining water rights for Indian agriculture. • None of these programs have made much difference for most reservation Indians • Remain reliant on the government for housing, health services, education, and food.

27. Natural Resources Mismanagement • Federal officials have been found to ignore the best interests of the tribes for which they are responsible for when it comes to natural resources. • A government audit of Red Lake Chippewa of Minnesota discovered that the BIA had misplaced as much as $500,000 per year. • In other instances, BIA timber sale accounts have not been balanced in over 70 years.

28. Corruption • The BIA leased timber owned by the Quinault tribe at only about 2 percent of the market value. • "forestry is a good example of how BIA over-regulation of Indian resources often interferes with reservation economic growth.“ • Indeed, in places where Indian tribes have been given control over their timberlands, they appear to be more efficient managers than the BIA.

29. Trust Abuse • In 2004, a court-appointed investigator looking into BIA's handling of Indian trust lands found that it was standard practice for officials to negotiate deals giving energy companies access to Indian resources at a fraction of the market value. • The BIA is a costly and unneeded middleman for Indian tribes that want to maximize the returns from their lands and resources.

30. Failures in Efforts to Stimulate Investment • Despite reservation tax advantages in competing with off-reservation enterprises, and locations that would be very attractive if they were not on reservations, tribes have found it to be extremely difficult to attract capital • Private investors see the absence of any record of success, and at the very real instability in both tribal governments and BIA policy, and frequent opportunism and corruption in tribal governments • many tribes have also been severely burned by “outsiders” promising to get profitable enterprises going in exchange for consulting fees, etc. • reluctant to employ outside management and expertise, or seek outside credit

31. Investments, Continued • On many reservations, the only investment dollars are still coming from BIA direct or guaranteed loans or outright grants. • Over a third of the BIA loans typically overdue, non-performing, or in default. • Government business creation efforts have a long history of failures • "white elephant disease" with subsidized manufacturing and other projects ending up as failures and closing down • Until very recently, (e.g., success of casino gambling on some reservations), almost no reservation-based business of significant size could withstand market competition without government subsidies.

32. Indian Education • Today, most Indian children attend regular public schools and the federal government kicks in subsidies to local governments to help cover the costs. • The federal government, through the Bureau of Indian Education, also owns 183 Indian schools, which have about 41,000 students. • The BIE operates about one-third of these schools, and tribal governments operate the other two-thirds. • Note that these Indian schools were transferred from the BIA to the new BIE in 2006.

33. Children Left Behind • Federal schools have long failed Indian children. • In 1980, the GAO found that, "BIA has failed over the years to provide Indians a quality education. … All of our reviews show that severe management problems have persisted for years." • A 2001 GAO study found that BIA student scores on standardized tests was generally "far below the performance of students in public schools.“ • a much higher share of BIE schools than public schools have failed to make "adequate yearly progress" under the No Child Left Behind law.

34. Too Little Money? • The 2001 GAO report found that per-pupil spending on BIE primary and secondary day schools was 56 percent higher than average per-pupil spending on all U.S. public schools. • $26,585 per student in BIE schools. • Average federal, state, and local spending on K–12 public schools in the United States in 2009 was $12,449. • Spending for elementary and high schools across the 50 states and Washington, D.C., averaged $10,560 per pupil in the fiscal year ended June 30, 2011.

35. BIA Remains in Control • Federal government, and therefore, the BIA remains omnipresent on most reservations • Reservation Indians remain heavily dependent on federal funding and few of them appear to be anxious to sever the flow of funds. • Public funding does not appear to decline for tribes that do enjoy some economic development success • Most reservation economies are, essentially directed and controlled by the BIA • Official trustee, negotiates contracts, determines resource use, manages financial records and accounts, retains power of final approval or veto of investment decisions, makes employment decisions

36. Cultural Explanations offered for the Lack of Development • Indians have "poor work attitudes" • Cultural heritage is one of communal property and production rather than private property and capitalism • Actually played a major role in Indian policy for much of the last two centuries • 1969, BIA report stated that "Indian Economic Development can proceed only as the process of acculturation allows."

37. Rejecting the Cultural Explanation • Fails to recognize the cultural and economic adaptability that characterized pre-reservation Indians, and even reservation Indians, at least until the Dawes Act was implemented • Fails to recognize the fact that some tribes actually enjoy relatively low unemployment and strong economies despite the fact that they remain culturally conservative, stressing preservation of Indian heritage • White Mountain and San Carlos Apache share common conservative cultures but White Mountain Apache (discussed later) are quite successful economically while San Carlos Apache are not

38. Lack of Effective Tribal Government Explanation • Sees tribal decision making, dispute resolution, and regulatory functions as highly politicized and unstable • Tribal governments squander resources and discourage investments by outsiders • Does in fact appear to be a critical factor on many reservations • U.S. government has been trying to fix this problem since the Indian Reorganization Act of 1934

39. Failed Efforts to Create Tribal Governments • Policy has ignoring diversity among tribes • Pushed them to adopt more or less generic formal constitutions drawn from larger society models • Have become the basis for most of tribal government institutions which have, as one study suggests, "plague reservation development efforts today.” • Governance institutions can be very important, but the generic reforms imposed by the Department of Interior have not been effective • Not all reservations are plagued, however, by ineffective governance institutions.

40. Effective Tribal Governments • Some tribes appear to have solved at least some of the problems of governance • E.g., the Flathead in Montana, the Mescalero Apache, and the Cochiti Pueblo • Techniques for solving problems vary dramatically • Successful tribes have different types of governments: • Cochiti have a theocracy rooted in indigenous culture, Mescalero have a very strong chief executive, and Flathead have a parliamentary system • Some characteristics of tribal government can make a big difference but this explanation is incomplete (BIA remains the dominant decision-making power on most reservations)

41. Another Explanation: The Dependency Theory • Attributes Indian poverty to the • historical and contemporary appropriation of resources by non-Indians, • the enforced powerlessness that is a precondition for appropriation, and the • resultant dependency of Indians on outside sources of economic support and decision making • Implication: Indians will be able to establish viable economies only when freed from paternalistic controls and exploitive economic relations with the larger American society

42. Pres. Comm. on Indian Reservations Economics • BIA "management of Indian trust resources creates numerous land, labor, and capital obstacles to Indian reservation economic development. In terms of land and resources, incompetent asset management undermines local initiatives and raises costs to Indian tribes and businesses .... Bureau personnel are either under qualified to manage their present responsibilities, or unable to provide expert technical assistance for business development.... A Byzantine system of over-regulation actually deters investment.... Exacerbating the development climate is the fact that BIA consumes more that two-thirds of its budget itself.... The system is designed for paternalistic control and it thrives on the failure of Indian tribes." (1984 report)

43. Dependency, Continued • Even those Indians who are employed are dependent on the BIA because they work for it. • Both the employed and the unemployed reservation Indians rely on the continuation and growth of the BIA. • As a general explanation for Indian poverty this is a pretty persuasive argument • Resources losses, such as the transfer of lands to the whites under the Allotment process, lack of political power that allowed for such transfers, and persistent domination of the BIA in virtually every economic decision made on reservations, have, in many cases, done irreparable harm to Indian development efforts

44. Block Grants • A good reform to pursue would be to consolidate all BIA funding for each tribe into a single block grant of a fixed amount. • That would give tribes an incentive to allocate and spend funds more efficiently, and would prevent Congress from micromanaging Indian affairs or earmarking funds to favored tribes. • The tribes would be able to use the block grants to provide tribal services in-house or to contract them out to local governments or businesses.

45. Self-Determination Contracts • Federal policies have already moved in this direction. • The 1975 Indian Self-Determination and Education Assistance Act allowed tribes to contract with the BIA to administer the delivery of some programs. • Today, a substantial share of BIA funding is delivered to tribes through "self-determination contracts" and "self-governance compacts."

46. Trust Responsibility • As the tribes move further toward self-governance, the trust responsibility becomes less relevant. • As tribes gain greater control over their lands, natural resources, and trust funds, it becomes their own responsibility to manage them well, not the federal government's responsibility. • It had long been understood that the BIA was supposed to "work itself out of a job" as it helped Indians become self-sufficient.

47. Self-Determination • Indian self-determination is inconsistent with continued Indian dependence on the government for subsidies. • Indian subsidies have similar negative economic effects as other government subsidies, such as farm subsidies and welfare subsidies. • Subsidies reduce the incentive of recipients to pursue productive activities. • As far back as the 1928 Meriam report, experts have observed that BIA subsidies reduced the incentive of Indians to work.

48. Ending Subsidies • While ending subsidies is controversial, there is broader agreement that self-determination should mean greater Indian control over their lands and resources. • Over the last century, the BIA has been a miserable failure at managing Indian resources. • As discussed above, the agency has too often sold timber, coal, minerals, oil, and natural gas on Indian lands at below-market prices.

49. Dependency Theory is an Incomplete Explanation • Does not account for the differential success that some tribes have had in overcoming poverty • Indians generally have come from the same powerless dependency positions, but some tribes have managed to improve their economic lot. • Degree of dependency varies • The relatively successful reservations are all relatively free of BIA control, but what has enabled a few tribes to at least partially break the hold of the BIA while most have not?

50. Institutional Explanation of Reservation Economies • Complementary to the dependency argument, but helps fill the gaps • Focuses on the overall institutional environment, not just parts that arise through Congress and the BIA, or through tribal government or culture • Douglass North, the Nobel Laureate who was Terry Anderson's Graduate advisor, explains that transactions costs affect the structure of property rights, and therefore social, political and economic behavior