Creating Economic Development on Indian Reservations

Why fostering local business matters

Published: 
Monday, October 1, 2012

Few of the Indian reservations in the United States have functioning economies in which residents can be employed, cash checks, and spend money within the community. This situation means reservation residents have to travel to distant cities to find banks and businesses where they can engage in commerce. A Navajo tribal official estimated that $0.80 of every dollar Navajos received immediately left the reservation, and other studies demonstrate the same problem for other reservations. This outflow benefits state economies but impoverishes reservations.

The lack of economic development on reservations is a major factor in creating the extreme poverty, unemployment, and the accompanying social issues that Indian nations face. Tribal governments can help solve this problem by increasing the number of privately and tribally owned businesses on reservations.

Tribal governments also need to provide the laws, regulations, and independent court systems that will assist and protect business and property rights; no one, whether tribal citizen or a non-Indian, will locate their business and risk their time and money on a reservation where the odds against being successful are too high. In short, Indian nations must make reservations fair and reasonable locations for businesses to locate if they expect to attract investment and build economies.
 
KEEPING DOLLARS ON RESERVATIONS
 
Reservation economies rapidly lose the money that residents receive because of the absence of small businesses where people can spend their cash on needed goods and services. This leads to the loss of an enormous amount of economic activity and employment for Indian country.
 
Ideally, money should circulate about six times within a community, city, or county before it “leaks” away. The only solution to this problem for reservations seems to be for Indian governments to help develop and locate a substantial number of privately owned and tribally owned businesses in their communities.
 
The importance of having a critical mass of small businesses on reservations is demonstrated by various economic principles. First, every reservation resident has a certain level of disposable income—even the poorest person has some money to spend. If reservation residents had the ability to spend their income at businesses located on their reservations, and that in turn created more reservation-based businesses and jobs, that would create an enormous benefit to the reservation economy.
 
The second relevant principle is called the “multiplier effect.” This term defines the situation where every dollar that is spent by one person ends up as profit and salary in the hands of another person, whether it is the business owner or an employee of that business. This new person will then also spend that one dollar and pass it on to additional people who will also spend it. In this fashion, one dollar reverberates throughout an economy and becomes pay, profit, and spending money for a greater number of people as long as the dollar stays within the local economy.
 
For a reservation community to benefit from the multiplier effect and to keep dollars circulating through its economy it must create and sustain opportunities for reservation residents and visitors to purchase their needed and discretionary goods and services at reservation-based businesses. The only way to keep dollars on reservations and moving between businesses, employees, and consumers is if there are numerous businesses offering a variety of goods and services.
 
LAYING A STABLE FOUNDATION
 
Governments can play a crucial role in developing free-market economic systems by protecting the public interest, ensuring fair competition, maintaining law and order, and creating laws and judicial systems that help enforce contracts and property rights. The stability provided by government encourages people to work to create and acquire economic rights and to risk their investments within the jurisdiction of those governments.
 
Most tribal governments have not yet enacted the kinds of business codes and uniform commercial codes that businesses and banks need before they can locate and operate profitably on reservations. Tribal governments can and should encourage businesses to locate on reservations by adopting such laws and creating stable and fair judiciaries and bureaucracies.
 
Tribal policy makers could also consider enacting “Buy Indian” acts, which encourage the tribal government to patronize tribal-owned businesses. Such acts might direct the expenditure of a certain percentage of tribal revenues, casino revenues for example, on private businesses owned by tribal citizens.
 
Finally, tribes should consider enacting constitutional or statutory provisions that mimic the United States’ constitutional provision that forbids states from impairing the obligation of contracts. In the past, some tribes have altered the contractual rights of private parties to the great detriment of investment and business operation in all of Indian country. These positive constitutional and statutory mandates would help encourage and support the creation and operation of more privately owned businesses on reservations and assist in creating real economies. In addition, tribes can use taxation and regulatory strategies to attract private investments and new businesses, similar to how states and counties entice new businesses.
 
SEED FUND SOLUTIONS
 
Tribal nations can work to remedy some of the reasons for the abysmal rate of private business ownership among Indians. Most private businesses in the United States, for example, are started using family money, bank loans, or by borrowing money against home equity. Most American Indians lack access to these avenues due to dismal poverty and unemployment rates, and rarely have home equity due to the near absence of mortgage home ownership in Indian country and a nearly non-existent housing market on most reservations. Consequently, seed money provided by tribal, private, or federal loan funds is crucial to alleviate this funding problem. Several Indian nations are well aware of this situation and are offering their tribal citizens business start-up loans.
 
American Indian governments must do everything they can to develop the entrepreneurial spirit in reservation residents and to ensure that more businesses are located in Indian country. Such businesses will provide jobs and economic activity that will stimulate the development of even more businesses and more economic activity. Once there are a sufficient number of tribal and privately owned businesses operating on a reservation, a functioning economy can develop from the effects of money circulating and re circulating between reservation consumers and businesses, employees and owners. This is a laudable goal. A functioning economy will help native communities create employment, adequate housing, and the needed infrastructure to help escape poverty and to begin to restore their historic communities that were once prosperous, healthy, vibrant societies sustained over thousands of years.
 
 

 

 

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ROBERT J MILLER is a professor at Lewis & Clark Law School, author of Reservation "Capitalism:" Economic Development in Indian Country (Praeger Publishers 2012), Chief Justice of the Grand Ronde Tribe, and a citizen of the Eastern Shawnee Tribe.
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