By Robert J. Miller
Economic development is a crucial topic in American Indian affairs. Indians are the poorest people in America and have the highest percentage of families living below the poverty line per capita for any ethnic or racial group.
While economic development in Indian Country is a frequent topic, 99 percent of the discussion concerns government owned and operated businesses. But tribal leaders, Indians, and reservation communities need to focus on the potential of private sector economies.
These businesses have the potential to revitalize and sustain tribal communities for that Seventh Generation, the great, great, great, great, great grandchildren that tribal cultures always consider when making major decisions. We need to put that same kind of forward-thinking analysis into planning and creating sustainable economies in Indian Country.
Today, almost none of the 300 reservations in the lower 48 states have public and private sector economies, in which residents can be employed, spend money, and find adequate housing. Instead, Indians have to travel to distant cities to find banks, businesses, higher education and livable wage jobs.
One Navajo Nation official estimated that 80 cents of every dollar Navajos receive leave the reservation immediately, and studies demonstrate the same problem occurs on other reservations. This situation is a disaster for building reservation economies. The situation is also a major factor in perpetuating the extreme poverty, unemployment, and accompanying social issues that Indian nations face. Indian nations and tribal communities need to find solutions to these issues.
Keeping dollars in Indian Country
Reservations rapidly lose the money that residents receive because of the absence of a variety of privately-owned businesses. This leads to an enormous loss of economic activity and employment. Economists define this situation as “leakage,” when money leaves a community and an economy sooner than is optimal. Ideally, money should circulate five to seven times within a city, county, or state before it “leaks” away.
The only solution to this problem seems to be for tribal governments and communities to establish a sufficient number of privately and tribally-owned businesses that can capture the benefits of the consumerism of reservation residents and visitors.
The importance of having a critical mass of small businesses on reservations is demonstrated by other economic principles. First, every reservation resident has a certain level of disposable income. Even the poorest person has some money to spend. Obviously, if reservation residents would spend most of their income on reservations that would help boost economic activity and the development of even more businesses and jobs.
The second relevant principle is the “multiplier effect.” This phrase 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, an employee or supplier of that business. This person will then spend that one dollar, passing it onto others who will also spend it. In this circular fashion, one dollar multiplies throughout an economy and becomes pay, profit, and spending money for an ever-greater number of people as long as that dollar stays in the local economy.
The only way to keep dollars on reservations, so as to benefit from the multiplier effect, is to create opportunities for reservation residents and visitors to spend money at local businesses.
Developing businesses on reservation
Governments play a crucial role in creating economies that attract investors and in developing private, free market systems. Governments protect the public interest, ensure fair competition, maintain law and order, and create laws and judicial systems that enforce contracts and property rights.
However, many tribal governments have not yet enacted the kinds of laws and commercial codes that businesses and banks need before they can operate on reservations. Tribal governments need to adopt these laws and create competent court systems and bureaucracies.
Tribal nations can help remedy some of the reasons for the abysmal rate of Indian owned private businesses. For example, the vast majority of privately-owned businesses in the United States are started using family savings, bank loans, or by borrowing money against home equity. But most American Indians lack access to these avenues due to historic poverty and unemployment rates and a nearly non-existent private housing market on reservations. Consequently, seed money provided by tribal, state, federal, and private loan funds is critical to alleviate this issue.
Tribal economic development departments should also mentor and train entrepreneurs and help them start businesses. A few organizations already provide these services. In 1992, four Indian nations created the non-profit, Oregon Native American Business, and Entrepreneurial Network to train individual Indians to draft business plans, acquire financing, and operate their businesses. In 2000, the Four Bands Community Fund was created on the Cheyenne River Sioux Indian Reservation to focus on entrepreneurship and financial literacy. This entity has had a significant beneficial impact on that reservation and is now also working with the other Indian nations in South Dakota. And, the Lakota Funds was created in 1986 on the Pine Ridge Reservation and has played a major role in assisting economic development there and on the Rosebud Sioux reservations.
In conclusion, when there are a sufficient number of tribally and privately-owned businesses operating on reservations, functioning economies can develop from the effects of money circulating and re-circulating between reservation consumers, businesses, visitors, and employees. This is a laudable goal because functioning economies will assist Native communities, reservations, and cultures to be even more sustainable and viable, and will best serve the Seventh Generation. ♦