Mises Wire

The Utter Failure of America’s System of Indian Reservations

There are 310 reservations in America and 562 federally recognized Native nations.

There are 3 million Native Americans in the United States today, approximately 1 million of whom live on these reservations.

The Bureau of Indian affairs (BIA) — founded on March 11, 1824, by John C. Calhoun — and the Bureau of Indian Education (BIE), which are both a part of the Department of the Interior, have approximately 9,000 employees. That’s one employee for every 110 Native Americans on the reservation.

Annual federal funding and subsidies is $3 billion per year. This goes to roads, education, agriculture, tribal courts, social services, and overall economic development. The BIE gets $850 million for providing for its 42,000 students, which is roughly $20,000 per student, which is a lot. The national average is $12,500.

There are also a number of other federal agencies that subsidize Native Americans:

The Department of Health and Human Services houses the so-called Indian Health Service. It’s budget is $4 billion.

The Department of Housing and Urban Development runs the Native American Housing Block Grant Program, which has a budget of $750 million.

The Department of Education spends $300 million each year on BIE schools.

What, then, after all this money, do the reservations have to show for it? They have the highest rate of poverty of any racial group in the country  —  more than twice the national average. They have the highest unemployment rates in the country.

The majority of BIE schools are calamitous: even with all that money, they cannot keep the walls from crumbling down — collapsing roofs, gas leaks, wiring everywhere exposed, circuit-breakers popping, no heat in sub-zero weather.

In 2016, the last year for which the census data is available, the average household income on reservations was approximately 70 percent below the national average of $57, 617. Just over 20 percent of those households earned less than $5,000 a year. More the 25 percent of the reservation populations live below the official poverty level, compared with 13 percent of the United States as a whole.

The question, of course, is why?

Why do most — though, significantly, not all — Indian reservations exist in a perpetual state of poverty?

The answer lies in the fact that when Congress passed, in 1934, the Indian Reorganization Act (IRA), it thereby locked Indian lands in a state of perpetual trusteeship.

It also concretized Supreme Court Justice John Marshall’s 1831 opinion that “the relationship of the tribes to the states is that of a ward to his guardian.”

Thus, in this capacity of guardian, the Department of Interior now acts as perpetual trustee for most Native American lands and its resources.

It therefore regulates virtually all land use — including the leasing of land.

The result is a leviathan-sized bureaucracy that makes economic development next to impossible.

Consider this:

Native American reservations comprise close to 30 percent of the coal reserves west of the Mississippi.

The contain approximately 50 percent of potential uranium reserves, and 20 percent of oil and natural gas reserves.

The total value of all these resources is estimated at around $1.5 trillion.

There’s also fisheries, water, timber, and vast recreational-land potential that would help lift Native Americans out of poverty.

In 2013, for instance, the Blackfeet reservation in Montana, drilled a single oil well, which created 50 new jobs for the tribe, each member receiving a $200 royalty payment.

Indeed from oil reserves alone, the Blackfeet earned roughly $30 million in leases and payments to date.

RELATED: “Did the Indians Understand the Concept of Private Property?“ by Ryan McMaken

They’re not alone—not quite:

The Utes of southwestern Colorado own five energy companies. They invest their revenues from these companies in a growth fund whose estimated worth is $4 billion.

Quoting Terry Anderson in his book Unlocking the Wealth of Indian Nations:

Today, the [Ute] tribe’s 1,400 members are each worth millions and receive dividends every year from the growth fund. But these tribes are in the minority. The vast majority of Indian reservations remain mired in poverty, which begs the question: Why can’t they unlock their wealth potential? Is it because their culture is inimical to economic growth? Is it that their members lack entrepreneurial and technical skills?

The short answer is no.

“Contrary to what most Americans believe, individual and family entrepreneurship is not a new concept to Indian cultures,” says law professor (and tribal member) Robert Miller.

Before the arrival of Europeans, the more sedentary Indians of the East had well-defined tribal and individual property rights to land, and invested in making land more productive. Pacific Northwest tribes invested in weirs to catch salmon on their upstream migration and sustainably harvested salmon to increase populations. Pueblo bands in the southwest developed sophisticated irrigation systems to cope with aridity. Even the more nomadic Plains Indians invested in “surrounds” into which buffalo were driven, and in stone walls miles long to drive buffalo over cliffs. Thanks to the ingenuity of their members, many tribes were able to build up a surplus of goods—to, in other words, accumulate wealth—and trade with other tribes” (Terry Anderson, Unlocking the Wealth of Indian Nations).

There is, in short, a sickening lack of economic opportunity because there is a sickening lack of autonomy and private property. 

Native American reservations suffer from such dire poverty because they lack property rights and the indispensable rule-of-law necessary for capital investment: because assets held in perpetual trust cannot be used as collateral backing.

The reservation system, which really began in 1824 and was then amplified dramatically in 1934 with the passage of the Indian Reorganization Act, is not just pathetically antiquated and broken.

The reservation system is trash.

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