A "jobs and income" approach seldom leads to economic prosperity. We've learned through our research that we need to think differently about economic development. The solution has to be much more comprehensive and ambitious than just starting businesses. The solution is to build a nation in which business can flourish. It involves creating an environment in which the governing infrastructure and the legal infrastructure--the rules and procedures by which the society is run--support prosperity.

Sovereignty.
The first key to economic development is sovereignty. "De facto" sovereignty, meaning genuine decision-making control over affairs, is a necessary prerequisite for economic development. Who is really deciding the economic strategy? Who is deciding how many trees will be cut? Who is deciding whether the joint venture agreement with an outside investor will go forward? Who is deciding how the housing money will be spent? In Indian Country, when the answer to these questions is 'the tribe', we have de facto sovereignty--sovereignty in fact and in practice.

While sovereignty as a legal phenomenon waxes and wanes with federal court decisions and legislation, today the potential for de facto sovereignty is substantial. An assertive and capable tribe can take effective control of many economic decisions away from other contenders for that control, such as the Bureau of Indian Affairs and other federal agencies.

A "nation-building" concept of economic development has a goal of building viable, sovereign nations.

In virtually every case that we have seen of sustained economic development on American Indian reservations, the primary economic decisions are being made by the tribe, not by outsiders. In every case, the tribe is in the driver's seat. In every case, the role of the Bureau of Indian Affairs (BIA) and other outsider agencies has shifted from decision-maker to resource, from the controlling influence in decisions to advisor or provider of technical assistance.

The logic of this is clear. As long as the BIA or some other outside organization carries primary responsibility for economic conditions on Indian reservations, development decisions will reflect the goals of those organizations, not the goals of the tribe. Furthermore, when outsiders make bad decisions, they don't pay the price, the tribe does.

As long as the decision makers don't pay the price of bad decisions, there's no incentive for them to make better decisions. Making the feds bear responsibility for making things better on Indian reservations may be good political rhetoric but it is bad economic strategy. The research shows that when tribes take responsibility for what happens economically, they have started down the path to improving economic conditions. Assertions of sovereignty can have very concrete payoffs.

The reinforcement of tribal sovereignty should be the central thrust of public policy.

For example, a Harvard Project study analyzed the performance in the marketplace of 75 tribes with significant forestry operations. In the late 1980s, 49 of those tribes shifted some portion of their forest product industry control from BIA to tribal control. For every highly skilled position transferred from BIA to tribal control, both production and revenue to the tribe increased, and did so on a sustained-yield basis. Tribal control typically resulted not only in better forest management but in better marketing as well. The bottom line was increased prices for forest products and increased revenue to the tribe. In other words, the effective exercise of sovereignty has concrete, bottom line results.

This illustrates another finding that emerges from our research. It often has been asserted that if tribes wish to be sovereign, they must first establish sound economies. We think this is backwards. What the research indicates is that if you want a sound economy, you need first to be sovereign. There are three reasons for this.

• First, sovereignty brings with it accountability. Those whose resources and well being are at stake are the ones calling the shots.
• Second, the sovereign status of tribes offers distinct legal and economic market opportunities, from reduced tax and regulatory burdens for industry to unique niches for gaming and the commercial use of wildlife.
• And third, sovereignty secures the bases of development itself: control of one's own affairs and resources.

It is no coincidence that after tribal self-determination became federal policy in the 1970s, a significant number of tribes have begun to break the relentless pattern of reservation poverty and dependence. Before self- determination, there was very little in the way of sustained economic development on Indian reservations.

There is a major policy lesson in this. The lesson is that sovereignty is one of the primary development resources a tribe can have. The reinforcement of tribal sovereignty should be the central thrust of public policy. One of the quickest ways to bring reservation development to a halt and prolong the impoverished condition of reservations would be to undermine tribal sovereignty. We are aware that this is a very `pro- Indian' conclusion, but it comes from the data. It is what the research shows.

Indian nations enjoy certain rights and powers, first by virtue of their inherent sovereignty, and second as a result of extended negotiations and interactions with the United States that have led to various specifications of the substance of their sovereignty. That sovereignty is the first key to successful reservation economic development, but sovereignty, in and of itself, is no guarantee of success.

Institutions.
Institutions are the second key to economic development. Any nation--Indian or not--that wants to be economically successful over the long haul must have capable institutions of self-governance, from commercial codes to effective and independent judicial systems, to controls on opportunistic politicians. Our research strongly indicates that sovereignty without the ability to exercise it effectively is a poor basis for economic development.

We work with one tribe that is among the wealthiest tribes in the country in terms of natural resources, but the reservation economy is a shambles. Unemployment is sky high, there are almost no viable enterprises on the reservation, and the tribe is dependent on federal money to keep many of its activities going. Social problems such as alcohol and suicide are major concerns. The political struggles have at times threatened to turn violent. This sovereign Indian nation has a long history of battling in the courts to affirm its sovereignty. It has won the right to control its own destiny. It is resource-rich and people-rich, but it remains poor.

What matters is not only rights and powers, but the ability to put those rights and powers to work in effective, productive ways.

The problem is the inability of this tribe to exercise its power effectively. Its constitution provides a system of government in which it is extremely difficult to get anything done. Its governmental system encourages recurrent factional battles that sap the energies of the tribe's leaders and distract them from the real tasks of government.

The instability in tribal government means that massive personnel changes occur overnight following the changes in administration. Few good records are kept; skilled people get hired and soon throw up their hands and quit. It's difficult to keep track of the money. Tribal plans change from one day to the next; leases made by the last administration are canceled by the next. Enterprises fail because of government interference.

This is hardly a promising environment for economic development. Outside investors won't invest--they don't like the risks such an environment creates. Equally important, inside investors--tribal members who might not have a lot of money but who do have ideas or energy or skills--won't invest either. Why should they invest their energy in the tribal future when the environment is one of uncertainty, political favoritism, and instability? As a result, the tribe gets little return on its resources, development is stagnant, and its people live in poverty.

Many nations across the world have sovereignty to a much greater degree than Indian nations do, but a lot of them have not found the way to exercise that sovereignty effectively. As a result they are not only often extraordinarily poor, but they are not taken seriously in the councils of the world.

Not only are we unlikely to invest our money or our energy in the economy of a country with a government that is unstable, riddled with conflict, that operates at the whim of its leaders, in which my investment of time or money or energy is not protected, in which contracts are subject to impulsive revision, etc., but why should I even negotiate with such a government? If it cannot put its own house in order, why should I take it seriously as a partner or as an antagonist?

A tribe must create laws, rules, and procedures that are appropriate to its situation and its heritage and that can get things done in the real world that tribes confront.

What matters is not only rights and powers, but the ability to put those rights and powers to work in effective, productive ways. Sovereignty is meaningful only when it can be exercised effectively, and that is a matter of institutions--of the organization of government itself.

One of the unfortunate consequences of a century of federal control of Indian nations is a legacy of institutional dependency, a situation in which tribes have had to rely on someone else's institutions, someone else's rules, someone else's models, to get things done. On many reservations, tribal government has become little more than a grants-and-programs funnel attached to the federal apparatus. On others, tribes have simply adopted the institutions of the larger society without considering whether those institutions in fact are appropriate to their situations. Such dependency and blind imitation are the antithesis of self-determination, and the challenge is to break these patterns.

To do so, a tribe must create laws, rules, and procedures that are appropriate to its situation and its heritage and that can get things done in the real world that tribes confront. The reforms needed vary from tribe to tribe, ranging from complete constitutional overhauls to the establishment of sound, genuinely independent judiciaries, to the development of commercial codes and the adoption of explicit rules of administrative procedure. Our research indicates there are three institutional factors that are of primary importance if a tribe is going to effectively exercise its sovereignty.

Separation of politics and business.
The first institutional factor in the effective exercise of tribal sovereignty is the separation of politics from day-to-day business management. On many reservations the tribal government--typically the tribal council or the tribal president--controls tribal businesses. Business decisions are made by the council, administrative and personnel disputes are referred to the council, and the council or president intervenes in the day-to-day running of the enterprise.

At first glance, this may make sense. After all, tribal enterprises belong to the tribe; the government represents the tribe; therefore, the government should run the enterprises.

However, we don't typically elect our leaders because we think they know how to read market conditions or manage a manufacturing labor force or negotiate purchasing agreements with suppliers. We elect them because we trust their vision of the future, their ability to make wise long-term decisions, and their integrity. When it comes to running a business, what we want are the best business people we can find, people who know how to make those businesses succeed so that they become lasting sources of income, jobs, and productive livelihood for our people.

The elected tribal leadership is responsible for the long-term future of the nation. Among other things, they properly consider strategic issues: what kind of society are we trying to build? What uses should we make of our resources? What relationships with outsiders are appropriate? What do we need to protect and what are we willing to give up? These are matters of political debate.

Our research indicates that chances of being profitable rise 400 percent if the business is isolated from political interference in day-to-day operations.

When it comes to hiring the new foreman at the plant, or working out the payroll at the casino, or dealing with personnel issues, or purchasing, or operating hours, or putting together the business plan for the next year, or deciding how much the middle manager should be paid--these are not appropriately political matters. They are business matters, and they should be decided by skilled business people free of the interference of tribal leadership. When politics gets involved in business operations, businesses typically fail. They cannot compete successfully in the marketplace when the decisions are being made according to political instead of business criteria.

In an ongoing survey of tribally-owned businesses, our research indicates that chances of being profitable rise 400 percent if the business is isolated from political interference in day-to-day operations, with management by a board of directors and a corporate charter that are beyond the direct control of council members or the tribal president. For sustainable enterprises on reservations, tribal leadership needs to take the crucial step of setting strategic direction, then put the day-to-day decisions in the hands of others.

Some tribes might say they are interested in jobs, not profits. They want to employ as many people as possible, and while it's great if it also makes money for the tribe, the point is to give people jobs. The problem with this is that enterprises that are run as employment services have trouble competing. Labor costs are high, products therefore are expensive, sales fall, soon the tribe is subsidizing the business, and eventually the business fails.

The lesson is that if a business is not competitive in the market, the jobs created won't last very long. A competitive business in which profits are reinvested into the business, on the other hand, will grow or provide capital to invest in new businesses, thereby eventually employing more people. This approach may not produce as many jobs today, but it will result in more jobs tomorrow.

Separation of government powers.
The second institutional factor in the effective exercise of tribal sovereignty is the separation of powers. Basically, this means having a strong and independent judiciary. It means assuring people that their claims and disputes--including disputes with the tribe itself--will be fairly adjudicated.

On many reservations, the tribal court is controlled by the tribal council. Either the judges serve at the council's pleasure and can be fired by the council or president, or the decisions of the court can be appealed to the council. If an investor--for example, a tribal member trying to start a small business on the reservation--has a complaint against the tribal government, then ultimately the tribal government is going to have the last word. The person making the decision may be the same one the complaint is about. Under those circumstances, business persons are going to be skeptical. They're likely to take their money, their ideas, and their time and energy and invest them elsewhere.

The legitimacy of governing institutions depends on a match with the values and culture of the people they govern.

Again, the data are persuasive. We have examined 67 tribes for which comparable information is available, and have found that those tribes that have strong, genuinely independent judicial systems economically outperform those that don't. The measure we used was unemployment, and after eliminating other factors, we found that simply having an independent judicial system reduces unemployment, on average 5 percent. If you're a tribal council member and you're looking for ways to reduce long-term unemployment on your reservation, one of the best things you can do is establish a strong, genuinely independent, effective judiciary that can fairly settle disputes and adjudicate claims.

With a jobs and income strategy, the focus is on starting a business. With a nation-building strategy, the focus is on creating a system that reassures investors, levels the playing field, and gives businesses the opportunity to flourish. Governing power is used not to personally make judicial decisions, but to build an institutional foundation for real sovereignty and lasting prosperity.

Effective bureaucracy.
The third institutional factor in the effective exercise of tribal sovereignty is an effective bureaucracy. A tribe--or any other community--has to be able to get things done, consistently, fairly, and predictably. A civil service, established administrative procedures that are consistently observed, solid record-keeping, independent audits, and a commercial code are essential. They bring to tribal government and to potential investors a set of clear, consistent guidelines on which both can depend. They bring certainty and stability into daily operations. They clarify the rules by which businesses and programs operate, and they specify the appropriate relationships between businesses and the tribe.

The business world is an uncertain world at best. It tends to be especially uncertain on reservations. To keep investors involved, and to keep tribal members investing in the future of their community, the uncertainties they deal with need to be reduced. An effective, dependable bureaucracy is a crucial part of doing that. Without effective institutions of self-governance, sovereignty is hollow. The question of where to get those institutions brings us to the last of the three keys to economic development.

Cultural match.
The legitimacy of governing institutions depends on a match with the values and culture of the people they govern. That doesn't necessarily mean reviving all traditional governments. We live in a very different world today, and government has to be designed to work within that world. But the government has to have the support of the people if it is going to work.

For example, two of the tribes we work with at the Harvard Project on American Indian Economic Development are the White Mountain Apache Tribe of the Fort Apache Reservation in Arizona and the Oglala Sioux Tribe of the Pine Ridge Reservation in South Dakota. Both of these tribes have governments organized under the provisions of the Indian Reorganization Act (IRA) of 1934, which many tribes established in the aftermath of that act. The two government structures are almost identical, with boilerplate IRA government provisions: centralized power, strong executives, no independent judiciary, executive oversight of business operations. But while the institutions of governance are essentially the same, the performances of these two tribes are radically different.

When [the White Mountain Apache Tribe] adopted the IRA constitution. . . . they got a government that in many ways resembled their traditional government.

Economically, the White Mountain Apaches are one of the most successful tribes in the country. They run a number of economic enterprises that are consistently in the black. Their timber company outperforms non-Indian timber operations throughout the West. Their ski resort is one of the economic engines of that region of Arizona.

The Pine Ridge Reservation, on the other hand, is possibly the poorest reservation in the country. It has a history of repeated failure in tribal enterprises. It has some of the highest rates of unemployment and related social problems in Indian Country.

Resource differences cannot explain the very different record in the performance of tribal enterprises. The Fort Apache Reservation is blessed with a rich natural resource endowment, while Pine Ridge has comparatively little to work with. But the difference in resources does not explain why businesses at Fort Apache produce and last and businesses at Pine Ridge typically do not.

We think the difference is in the cultural fit of the governments. If we look at both tribes in the middle of the nineteenth century, before either tribe had come under the effective control of the United States, we see some important differences.

Where people don't think the institutions are much good, they're unlikely to invest.

In the Apache tribe, enormous power was given to single, charismatic leaders. Those leaders selected the tribal council to whom they looked for advice. There was no independent judiciary; the leader resolved the disputes. The leader made most of the economic decisions as well.

That looks a lot like the contemporary IRA government at Fort Apache. When they adopted the IRA constitution suggested by the United States government, they got a government that in many ways resembled their traditional government. As a result, people tend to believe in and support that government. It fits with their concept of how authority ought to be organized and exercised.

At Pine Ridge, however, traditional Sioux government looked radically different from their IRA constitution. There, decisions were traditionally made by the "Big Bellies"--all the men over forty--with very little power in the hands of single individuals. That council chose four executives, called the Shirt Wearers. It also selected a police force from among the warrior societies, called the akicita, who enforced the law and settled disputes. The akicita were remarkably independent. There are cases on record of the akicita physically beating Shirt Wearers--chief executives--for failing to observe the law.

There was a clear separation between strategic decisions and day-to-day business management. The council might decide where to move to, or when to gather for the buffalo hunt, but when it came time to actually move, or camp, or hunt, or go to war, the council chose individuals known to be superbly skilled in those activities, and those individuals took charge of the activities themselves. Once the hunt began, skilled and knowledgeable hunt leaders were in charge, and you did what they said, not what the leaders of the nation said. This was a very sophisticated system of government, with a separation of powers, checks and balances, and clear lines of authority. And it worked.

Tribal sovereignty has value not only for Indian nations but for non-Indian communitites as well.

Today, the IRA government is the opposite of how the Sioux, under conditions of freedom, chose to govern themselves. It places power in the hands of single leaders, has no separation of powers, muddies the lines of authority, fails to place checks on the behavior of leaders, and offers no independent, impartial means for settling disputes. As a result, few people really believe in it, and where people don't think the institutions are much good, they're unlikely to invest. Those who do invest eventually get burned, resources are squandered, and the chances of long-term prosperity disappear.

What's at stake is the legitimacy of governing institutions with the community itself. The institutions of governance at Fort Apache have legitimacy with the people. The institutions of governance at Pine Ridge, which on paper are virtually the same as Fort Apache, have little legitimacy with the people. They don't match the culture.

Conclusion.
So the keys to economic development are sovereignty, institutions, and legitimacy. In other words, nation-building. Economic development is not primarily an economic problem. It is first and foremost a political problem.

Tribal sovereignty has value not only for Indian nations but for non-Indian communities as well. Around the country, economically successful Indian nations are beginning to become major players in local and regional non-Indian economies.

The most abundant evidence of this comes from gaming tribes, whose operations are having major economic impacts not only on Indian communities but on non-Indian ones: creating jobs, providing new business to non-Indian vendors of various kinds, attracting increased tourism, expanding sales by local retailers, moving people off state welfare rolls, and increasing state income and sales tax receipts. That doesn't begin to include the major investments in non-Indian enterprises some gaming tribes are making with their profits.

Gaming is an easy example to point to. The money involved is substantial, it makes a big splash, and it gets most of the attention. But other tribes with successful economies--whether gaming is involved or not--also become net contributors to the larger economies around them.

The Choctaws in Mississippi, for example, have built a highly diversified economy and in the process have become one of the biggest employers of non-Indians in their region. They're importing non-Indians because there aren't enough Choctaws to fill all the jobs they've created, and some non-Indians now look to the Choctaws for a secure economic future.

The research is clear. What's good for Indian nations is sovereignty. That means tribal sovereignty is good for non-Indians, too, because it leads to the sort of activity on reservations that benefits the entire country. Sovereignty and the ability to exercise it effectively--that's where the value lies for everybody.

Overcoming reservation poverty has enormous benefits for Indians and non-Indians alike. The federal government, the courts, and the states all need to know that the best way to perpetuate reservation poverty is to undermine tribal sovereignty. The best way to overcome reservation poverty is to support tribal sovereignty, and support for tribal sovereignty has benefits well beyond the reservations.

The research is equally clear on another point. Indian nations need to know that the connection between sovereignty and economic development runs through institutions of self-governance. Those tribes that build governing institutions capable of the effective exercise of sovereignty are the ones that are most likely to achieve long-term, self-determined economic prosperity. The name of the game, in other words, is nation-building.






"It is true that around every man a fatal circle is traced beyond which he cannot pass;
but within the wide verge of that circle he is so powerful and free; as it is with man, so with communities."

Alexis de Tocqueville
1805-1859