In the past, most if not all North American indigenous peoples had a strong belief in individual property rights and ownership. Frederick Hodge (1910) noted that individual private ownership was “the norm” for North American tribes.
Likewise, Julian Steward (1938, 253) asserted that among Native Americans communal property was limited, and Frances Densmore (1939) concluded that the Makah tribe in the Pacifc Northwest had property rights similar to Europeans.’ These early twentieth-century historians and anthropologists had the advantage of actually interviewing tribal members who had lived in pre-reservation Indian society.
By the late 1940s, however, these original and firsthand sources of information had died, and false myths and historical distortions began to take dominant shape. By the mid–1960s, the tone in many college history books, history-inspired films and novels, and even speeches had completely changed (Mika 1995). A typical historical distortion, for example, is found in Baldwin and Kelley’s best-selling 1965 college textbook, The Stream of American History, where they write, “Indians had little comprehension of the value of money, the ownership of land . . . and so land sharks and grog sellers found it easy to mulct them of their property”(208). These myths were further fueled by popular books such as Jacobs’ (1972) Dispossessing the American Indian, which suggested that Native Americans felt that land (and other property) was “a gift from the gods” and as such not subject to private ownership. Gradually more and more people started to honestly believe that the indigenous people of North America had been historically communal, non-property oriented, and romantic followers of an economic system more harmonious with nature.
Today, tribal leaders, politicians, and various interestgroups in both the United States and Canada often repeat these myths as fact when discussing business, economics, and entrepreneurship during tribal conferences and congressional hearings (Selden 2001).
Terry Anderson (1995) attributes the beginning of the myth to settlers seeking farm land in the Great Plains, who interacted only with nomadic tribes that did not view land as an important asset. These settlers mistakenly generalized the lack of interest in land to infer a lack of property rights among all tribes. We argue that this fiction was further propagated in the nineteenth century by a virtual army of East Coast newspaper journalists, dime novelists, and Washington politicians who, in spite of writing about Native Americans, often had little contact with tribal groups. Reported, retold, and unchallenged, these incorrect perceptions ended up as the basis for later laws and institutional codification.
Compounding the problem was the land tenure system of the modern reservation. The system institutionalized and codified the legends, with dramatic and unfortunate consequences for indigenous entrepreneurship and economic development.
THE RESERVATION SYSTEM
In the United States, the modern relationship between land tenure and the reservation system was formally established with the General Allotment Act of 1887, known as the Dawes Act, and later with the 1934 Indian Reorganization Act. These governmental actions institutionalized a land tenure and property rights system that was fundamentally collective in nature, and they created obstacles to effcient economic organization.
Over time, congressional actions and judicial decisions created four types of land tenure on reservations: individual fee simple (privately land owned by individuals), individual trust (held in federal trust for individuals), tribal trust (held in federal trust for the tribe), and fee simple tribal land (owned by the tribe, but not in federal trust). Modern reservation land tenures are, for the most part, a combination of individual and tribal trust land. Modern reservation land tenures are, for the most part, a combination of individual and tribal trust land. Land that was used individually for a homestead or for subsistence farming typically became somewhat like personal property and constituted individual trust land. These assets could be improved, leased, or inherited among tribal family members. Tribal trust land was managed by the elected tribal council.
Although individual trust lands resemble fee-simple private property, they are nevertheless still within the Indian trust and the rules and regulations established by the various laws. Title, for example, cannot be transferred. Hence, while individual trust land can be mortgaged, it cannot be used as collateral. The income derived from the asset, rather than the asset itself, becomes the collateral for the loan. There are also jurisdictional issues associated with loan defaults or other claims on individual trust land. In addition, successive generations of inheritance create fractional ownership of property among distantly related tribal members, which may prevent reaching consensus regarding the use of the asset as collateral.
Another limitation is civil and tribal litigation. As an increasing number of cases are filed related to individual property rights, inheritance, and divorce, these assets become virtually useless as forms of collateral. Finally, many properties are now suboptimal in size for modern agricultural development.
These increased transaction costs inevitably raise the cost of capital. Thus they create inherent ineï¬ƒciencies and render real estate, usually the most important source of capital for entrepreneurial initiatives, virtually inaccessible for those purposes (see de Soto 2000). The potential for accumulating equity capital is severely limited and much of reservation land sits underutilized as a capital resource. The increased cost of capital inhibits individual initiative and shifts the focus to tribal trust land. As a result, over the last century second, third, and fourth generation tribal members have adopted a more collective perspective in property ownership.
Another largely ignored factor has been the continuous migration of the more entrepreneurially inclined tribal members off the reservation. In a study of entrepreneurial spin-offs from casino gaming on U.S. reservations, Galbraith and Stiles (2003) found that, according to many senior tribal members, the more entrepreneurial indigenous individuals and families had moved off the reservations to start businesses in the cities.
THE MOVE TO COLLECTIVISM
Whatever the reasons, there has been a dramatic evolution in the past several decades to a more collective orientation among indigenous people in the United States. We believe that this trend has been driven by collective land tenure systems that are counter to both the historical context and culture of the indigenous communities.
De Soto (2000) has made the forceful argument that economic development requires the establishment of institutions that protect property rights and the creation of a legal system sophisticated enough to allow the efficient transfer and development of these rights, as well as the ability to extract full benefit from them. In his discussion of the economic problems confronting the poor of South America, for example, de Soto (2000) argues that the entrepreneurial initiatives of these groups are severely restricted by their inability to access the most basic and important source of capital, i.e., their land.
Rather than the “institutional voids” found in other parts of the world (de Soto 2000), the North American native populations face an entrepreneurial problem that is grounded in the “frozen capital” of the reservation system. The arrangement forces collective ownership on cultures that were historically non-collective, possessing well-defined property rights and personal ownership of productive assets, and highly entrepreneurial. It also creates legal barriers, which increase both organizational and transaction costs.
Not surprisingly, individual entrepreneurial activity among tribal members has been an abysmal failure. Galbraith and Stiles (2003) investigated gaming and non-gaming Native American tribes in the southwestern United States and found mean average business startups for non-gaming tribes of typically less than 0.15 per 100 adult tribal members. This is a business birth rate signiï¬cantly lower than most developed economies (about 0.37/100 adults in the United Kingdom and estimated at over 1.00 in the United States) (Levie and Steele 2000; Fraser of Allander Institute 2001).
The picture is even bleaker for employment from business startups. The vast majority of the tribal startups were microenterprises or hobby businesses, generating employment several levels below typical employment generated from business births in developed economies.
What are the reasons behind this low level of entrepreneurial activity? A large part is simply due to the barriers to individual property rights created by the reservation system. Non-gaming-related entrepreneurial firms cannot access their individual property rights created by the reservation system. Non-gaming-related entrepreneurial firms cannot access their individual or family-speicific capital, and thus need to compete at the low micro-level of entrepreneurial activity. On the other hand, gaming-related individual enterprises, which tend to be somewhat larger, are mostly protected monopolies providing inputs to a tribal-owned casino, and thus shielded from the higher organization and transaction costs associated with the reservation system.
Early indigenous people in North America were both highly entrepreneurial and acutely aware of the economic forces around them, but labored under a regime of high transaction costs associated with a fragmented, nonuniform and nonstandardized system of laws, contracts, and language. These economic disadvantages were further institutionalized by a nineteenth- century collective land tenure system that was alien to the cultural, economic and entrepreneurial context of most indigenous tribes of North America. This misdirected public policy prevents indigenous populations from exploring the full potential of entrepreneurial initiatives.
Even so, within the last two decades several forces are at play that now create an opportunity, at least for some tribal communities, to engage in entrepreneurial activities that could contribute to economic development. These opportunities have come in the form of: (a) government-sanctioned monopolies, such as casino gaming, which have created substantial income for some reservation economies, (b) environmental economies, particularly in the area of game hunting and fishing on reservations, and (c) the sale of natural resources, such as minerals, timber, and oil that are best accessed and managed by large estate holdings.
For tribes with access to these types of opportunities, the gains can be substantial.But successful entrepreneurial behavior must balance three competing forces: (a) the scale efficiencies of environmental activities and natural resource management, (b) individual entrepreneurs’ need to have less restrictive access to their “frozen capital,” and (c) the social pressures and policies created by the historical distortions regarding indigenous attitudes toward property rights and the productive use of environmental resources. Entrepreneurial success depends on taking advantage of the first and overcoming the obstacles posed by the latter two.
Anderson, Terry L. 1995. Sovereign Nations or Reservations? An Economic History of American Indians. San Francisco, CA: Pacific Research Institute for Public Policy.
Baldwin, Leland, and Robert Kelley. 1965. The Stream of American History, (3rd ed.). New York: American Book Company.
Densmore, Frances. 1939. Nootka and Quileute Music. Washington, DC: Bureau of American Ethnology, Bulletin 124.
De Soto, Hernando. 2000. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. New York: Basic Books.
Fraser of Allander Institute. 2001. Promoting Business Start-ups: A New Strategic Formula. Final Report to the Fraser of Allander Institute for Research on the Scottish Economy. Glasgow: University of Strathclyde.
Galbraith, Craig, and Curt Stiles. 2003. Expectations of Indian Reservation Gaming: Entrepreneurial Activity within a Context of Traditional Land Tenure and Wealth Acquisition. Journal of Developmental Entrepreneurship.
Hodge, Frederick. 1910. Handbook of American Indians North of Mexico. Washington, DC: Government Printing Offce.
Jacobs, Wilbur. 1972. Dispossessing the American Indian: Indians and Whites on the Colonial Frontier. New York: Charles Scribner’s Sons.
Levie, Jonathan, and Laura Steele. 2000. Global Entrepreneurship Monitor. Glasgow: University of Strathclyde.
Mika, Karin. 1995. Private Dollars on the Reservation: Will Recent Native American Economic Development Amount to Cultural Assimilation? New Mexico Law Review 25(Winter): 23–34.
Selden, Ron. 2001. Economic Attitudes Must Change. Indian Country Monitor, June 13.
Steward, Julian. 1938. Basin-plateau Aboriginal Sociopolitical Groups. Washington, DC: Bureau of American Ethnology, Bulletin 120. CARLOS L. RODRIGUEZ, CRAIG S. GALBRAITH, and CURT H. STILES are professors at the Cameron School of Business at the University of North Carolina Wilmington. This article is based on their chapter, “False Myths and Indigenous Entrepreneurial Strategies,” in Self-Determination: The Other Path for Native Americans, eds. Terry L. Anderson, Bruce Benson, and Thomas E. Flanagan (Stanford University Press, 2006).