An Untrustworthy Trustee

This week at PERC, we begin a colloquium exploring the role of property rights and liberty in Native American history. The program will focus on the historical emergence of property rights and will then explore the role of property rights in Native American history and in the early West.

David Haddock, senior fellow at PERC and law and economics professor at Northwestern University, is a colloquium participant and author of the article “An Untrustworthy Trustee” in the latest edition of PERC Reports. The article, reprinted below, discusses the trustee relationship between tribes and the U.S. government. As Haddock concludes, “it is well past time to hand management of trust assets over to the individuals who own them.”

An adult may sell an asset carelessly for less than market price. The buyer has no obligation to warn in advance, augment the price later, or share the loss of misplaced receipts. No one expects young orphans to manage their assets, however—a task that a trustee assumes. If the trustee squanders an inheritance due to provable carelessness, an orphan cannot obtain compensation from buyers or sellers, but the law will force the trustee to bear the loss. This arrangement gives the trustee incentive to manage the assets as though they are his or her own. 

After confining tribes to reservations, the government decided those people, like orphans, were incompetent, undertaking a trusteeship over important assets. From the outset, that trusteeship was very different from an ordinary trusteeship. Governments per se lack brains and thus have no intentions or plans, and cannot possibly be trustees. Instead, the government employs people to formulate what we euphemistically refer to as governmental intentions and plans. For each transaction, some human in the Interior Department’s Bureau of Indian Affairs (BIA) acts as the functional trustee. Many transactions aggregate the properties of many individual Indians, which vastly exceed the bureaucrat’s personal wealth. Furthermore, the decision maker is rarely identifiable and is immune to personal liability for even a tiny fraction of waste.
Instead, when an Indian obtains compensation for some anonymous BIA bureaucrat’s mismanagement, the government is responsible. Governments transfer income rather than create it, so the actual responsibility falls on taxpayers. The Treasury distributes tax receipts in literally millions of directions; a taxpayer can track only a few expenditures, and few citizens make Indian affairs their priority. In theory, Indians remain incompetent to manage many of their most valuable assets: In reality, taxpayers are incompetent to supervise the BIA’s handling of that job. BIA bureaucrats thus behave as a trustee in both directions—obliged to manage Indian property carefully and to manage taxpayer money carefully—but bear little traceable personal responsibility in either direction. Chronic mismanagement has been an unavoidable curse ever since the War Department began handling Indian affairs in the early 1800s.
A series of suits, all including Cobell in their names, commenced in 1994 when Congress transferred management of Indian trust assets to a new Office of the Special Trustee. An audit discovered massive gaps and errors in records that should have tracked receipts since the nineteenth century. Despite repeated court orders, the Department of Interior could not rectify the shortcoming, making it impossible to know whether the BIA had even received all royalty payments stipulated by leases. Clearly little money had found its way to the Indian property owners, but nobody in the BIA acknowledges knowing where the rest went.
After 16 years of fruitless litigation, Congress concluded that a resolution in court would never be forthcoming. A bill allocated $3.4 billion to settle the Cobell claims once and for all. That is an average of $40 from each family across the nation, a painful penalty to pay for some bureaucrat’s negligence. Even so, less than half will go directly to the Indian property owners; the rest is to be administered by (you guessed it) the BIA—apparently the wages of failure are new opportunities to fail. Alas, the settlement is back in the courts; some closure!
Today, tribal members are literate and hold jobs in every sector of the economy. Whether or not Indians were competent to manage their own affairs in the nineteenth century, Cobell shows the BIA is incompetent for the job. It is well past time to hand management of trust assets over to the individuals who own them.
For more from PERC on Native American institutions, visit our research page.

Related Content

Happy (Late) Birthday, Aldo!

We are still far from harmony with the land. But today, less than a week after Leopold’s 133rd birthday, we can be sure he’d be proud of our progress.