Academic journal article Independent Review

Institutions and Economic Development on Native American Lands

Academic journal article Independent Review

Institutions and Economic Development on Native American Lands

Article excerpt

Native American lands are often rich in natural and cultural resources. Paradoxically, these lands are often the poorest parts of the United States. Native Americans own private businesses at a much lower rate per capita compared to other Americans, and the businesses they own produce less income on average than the businesses owned by all other racial groups (Miller 2001). As of 2010, 28.4 percent of American Indians and Alaska Natives were below the official poverty line, compared to 15.3 percent for the nation as a whole. Roughly 22 percent of Native Americans live on federally recognized reservations or other specially designated areas (U.S. Bureau of the Census 2011).

Previous economic scholarship has demonstrated an institutional basis for Native American poverty. Poverty is blamed largely on formal governance structures, especially inefficient property-rights regimes and excessive bureaucratic governance (McChesney 1990; Cornell and Kalt 1995; Anderson and Parker 2008, 2009; Akee and Jorgensen 2014; Regan and Anderson 2014; Russ and Stratmann 2014). Although previous scholarship has emphasized the role of formal institutions, market-process theory as it relates to Native American economies has been neglected in this literature.

This paper attempts to fill the gap by bringing market-process theory and entrepreneurship into the broader discussion of the institutional effects on Native American economic development. Institutions, as the formal and informal rules by which people interact, are critical to economic development anywhere in the world. Institutions are fundamental to economic development because certain institutions tend to facilitate mutually beneficial exchange, entrepreneurship, and innovation. Other institutions, however, may impede economic relations between people, or they may direct people to act in socially wasteful manners (Baumol 1990; North 1990; Murphy, Shleifer, and Vishny 1991, 1993; Acemoglu, Johnson, and Robinson 2001, 2002, 2005; Acemoglu and Johnson 2005; Boettke, Coyne, and Leeson 2008; Sobel 2008; Acemoglu and Robinson 2012).

The entrepreneurial market process is inextricably linked with the institutions that shape the private and public spheres. Within the market-process framework, people in the market react to their constantly changing circumstances. In this state of flux, they can become entrepreneurs and innovators by using their unique, subjective, and tacit knowledge to find new ways of fulfilling human desires (Hayek 1945, 1978, 1988; Mises 1949, [1936] 1981; Kirzner 1973). Institutions can sometimes create barriers or raise costs to participating in the market process. Economic growth and development are the direct result of the competitive entrepreneurial market process, and the quality of institutions that govern social action is the ultimate determinant of individuals' willingness to engage in entrepreneurial activity.

This paper explicitly adds market-process theory to the existing literature related to institutions and entrepreneurship on Native American reservations. This addition is important because it gives greater insight into the intimate connections between institutions, entrepreneurship, and economic growth. Institutional contexts lead entrepreneurs to direct their attention in either wealth-creating or wealth-destroying ways. When institutions guide individuals to be alert to arbitrage opportunities that are privately and socially beneficial, they can engage in productive entrepreneurship, which subsequently determines how economic growth and development will unfold in a dynamic world (Holcombe 1998; Boettke and Coyne 2003,2009). Without an explicit acknowledgment of market-process theory, the institutional explanation for Native American economic development lacks the holistic view it deserves.

Institutions impede entrepreneurship, the market process, and economic development on Native American reservations through three overarching channels: (1) the federal land trust, (2) a dual federal-tribal bureaucracy, and (3) legal and political uncertainty. …

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