National Review: The wealth of Indian nations

It is said that a rising tide raises all boats, but that has not been true for American Indians. Despite recent growth partly owing to gambling casinos built on reservations, 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 a par with the people in countries such as Palau or Oman.

Why does this bastion of poverty persist in a sea of wealth? One hypothesis is 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 that these were not the words of the chief but were fabricated for a television program; this view does not fit the historical facts. From tepees 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.

Another explanation for reservation poverty is that Native Americans lack high-quality natural resources. Many reservations, however, encompass hundreds of thousands of acres, including valuable natural resources. In the 1980s, for example, the Crow tribe had $27 billion worth of coal, more than $3 million per tribal member. Unfortunately, the asset earned a paltry 0.01 percent return--leaving 55 percent of tribal members on public assistance.

Physical capital and human capital are surely important to economic prosperity but are lacking on reservations because the institutions that govern Indian economies do not encourage investment. Indians cannot borrow money because their land, which is held in trust by the federal government, cannot be used as collateral and because tribal judicial systems may not consistently enforce contracts. Moreover, education rates lag behind the national average.

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, and the same holds for reservations. Agricultural productivity on Indian lands is 30 to 90 percent less than on similar private lands. Furthermore, tribal judicial systems are noted for their biased decisions that discourage outsiders from contracting with tribes or individual Indians. Indeed, tribes that have relinquished their judicial authority to the states wherein they live have growth rates for 1989-1999 that average 20 percent more than tribes without equivalent state oversight.

Many believe that pulling Native Americans out of poverty can only be done with 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 must 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.

Terry L. Anderson is the Martin and Illie Anderson Senior Fellow at the Hoover Institution and the executive director of the Property and Environment Research Center (PERC). Dominic Parker is a research associate at PERC.