A New Perspective on Native American Community Economic Development:  The Three Key Elements of Success—Sovereignty, Culture and Institutions

"The protectors", Michael Horse (Yaqui,Mescalero,Apache,Zuni)

The Role of Sovereignty in American Indian Economic Development

The Harvard Project on American Indian Economic Development also provides a thorough analysis of the development of sovereignty issues over the last several decades and an important consideration of sovereignty as one of the critical components of nation building:

"If we look back at the activist Indian politics of the 1960s and 1970s, it is apparent that sovereignty was the core issue at stake. Who could call the shots in Indian Country? Would the federal government continue to make decisions for tribes, to promote its own version of the tribal future, to control the use of tribal resources, and to wield veto power over tribal actions, or would Indian nations be allowed to govern themselves? The self-determination policy launched formally in 1975 and attendant court decisions and legislative actions answered that question, at least in the abstract. The sovereignty of the Indian nations was affirmed…

This left tribes with two major tasks. First, they have had to assert the sovereignty promised by policy. Against the entrenched interests of the federal governments, and the efforts of numerous other interests making claims to tribal resources, tribes have had to struggle to make their sovereign status a practical reality, to turn the abstract promise of sovereignty embedded in the self-determination policy into genuine decision-making power. This has not been easy. It has involved court battles, lobbying in congress, and in some cases a good deal of chutzpah as tribes have seized control to their affairs, displacing defeat and other decision makers.
Second, tribes have had to back up their assertions of self- governance with the ability to govern effectively. It is one thing to have the power to govern, it is another to deliver effective governance. The shift in governance from outsiders to tribes—a shift that many tribes have not been able to make—puts the spotlight directly on tribal capability. This is a fact the opponents of tribal sovereignty have been quick to point out, pouncing on every indication of tribal incapacity or incompetence in tribal government.

Real self-governance is a bit of a two edged sword for tribes and tribal leaders. Once tribes are in the drivers seat in reservation affairs, they begin to bear more responsibility for what happens in those affairs. When thing go well, they are entitled to credit; when things go badly, they bear a larger share of the blame. As tribes exercise more and more real power, the argument that the federal government or some other set of outsiders alone is responsible for what's wrong becomes less convincing. This doesn't mean that responsibility rests solely with tribes. The long history of warfare, imported disease, land loss, cultural suppression, racism, and paternalistic federal control of reservations has had a lasting impact on Indian nations that continues to handicap them today. But the decisions tribes make now and the capabilities they bring to the tasks of self-governance are crucial determents of tribal futures.

Assertions of sovereignty will have little impact on tribal socioeconomic conditions in the absence of effective governing capability. But what does effective governing capability involve? If successful development requires effective self-governance, what does effective self-governance look like?

The key is the institutions through which tribes govern, the ways they organize themselves to accomplish collective tasks. 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 simply have adopted the institutions of the larger society without considering whether those institutions, in fact are appropriate to their institutions and traditions. Such dependency and blind imitations are the antithesis of self-determination.

For sovereignty to have practical effects in Indian Country, tribes have to develop effective governing institutions of their own. The Harvard Project on American Indian Economic Development demonstrates that in order to be effective, the institutions of tribal governance must be able to create and manage:

  • Stable institutions and policies.
  • Fair and effective dispute resolution.
  • Separation of politics from business management.
  • A competent bureaucracy.
  • Cultural "match".

The Rose Community Development Corporation acknowledges the importance of meeting these requirements as a necessity for tribes to develop effective institutions of governance. However, for the purpose of implementing the new hybrid blended value business model, we have chosen to focus on the separation of politics from business management rather than on the more common social theory approach, which focuses on institutional reform. We locate the scientific basis of this decision in the body of literature commonly referred to as "the new institutionalism" and its intellectual precursor, rational choice theory

Politics, Culture and Institutional Choice

We also find common roots between the political economy of the Japanese system of economic development and the embedded Communitarian nature of Native American tribal culture. As we mentioned, and as Kalt and Cornell have extensively commented, the standardized corporate form of governance, which currently exists throughout Indian Country, is the result of an external imposition brought about by the Indian Reorganization Act of 1934. While they have shown in several settings that the tribes whose previous organizational and institutional structure most nearly resembled that of the Anglo-American model of governance have subsequently had the greatest degree of economic success, these tribes are the exception rather than the rule. In most cases, an analysis of pre-1934 tribal governance reveals a communitarian rather than a contractarian system of organization. T.J. Pempel notes a similar orientation in Japanese society, particularly in the context of the institutional arrangements, which facilitated business-government cooperation. At the center of the Japanese developmental state he finds two features which would be paradoxical in the Anglo-American contractarian setting but which are, in fact, complementary in the communitarian East Asian setting.

"The broadly cooperative relations between business and the bureaucracy can be traced back to a common set of economic goals and politics based far more on consensus building and cooperation than on formally outlined legal powers coupled with extensive punishments for the non-compliant…Since market economies are by definition highly decentralized, the goals of government economic policy cannot be directly realized by government action. They are produced by the innumerable microeconomic decisions of producers and consumers, employers and workers, capital owners and investors."
Pempel goes on to argue that despite the potential for conflict between the preferences of individual microeconomic actors, while "there is no denying the divisions, conflicts and disagreements that have occurred within the top ranks of the conservative regime, even when it was most harmonious", that (1) "this is to be expected in any political situation" and (2) "such skirmishes must be balanced against the broad agreement between the business sector and the executive and legislative branches."
Chalmers Johnson approaches the Japanese business- government consensus and the institutional configurations of the Japanese economic miracle in a somewhat different form when he points out that
It was the history of poverty and war in Japan that established and legitimized Japan's priorities among the people in the first place. The famous Japanese consensus, that is the broad popular support and a willingness to work hard for economic development that have characterized the Japanese during the 1950's and 1960's, is not so much a cultural trait as a matter of hard experience and of the mobilization of a large majority of the population to support economic goals…

The priorities of the Japanese state derive first and foremost from an assessment of Japan's situational imperatives, and are in this sense a product not of culture or social organization or insularity but of rationality. These situational imperatives include late development, a lack of natural resources, a large population, the need to trade, and the constraints of the international balance of payments.

While the Corporation draws a somewhat different conclusion than Johnson on the transferability of the Japanese institutional setting (and here even he argues in terms of cultural barriers), many of the factors, which he describes in Japan's situational imperative, could equally well characterize Indian Country at the dawn of the 21st century. And in terms of the cultural dimension, unlike the heritage of John Locke, John Stuart Mill, Jeremy Bentham and Alec Jevons, which characterizes the Anglo-American social and economic system, Native American tribal nations evolved through a process of communitarian rather than contractarian relationships. What this means, then, is not only should acute observers be looking at a different set of relationships than those imposed by the Indian Reorganization Act of 1934 but that the goals and mechanisms of realizing economic self-determination in Indian country are more likely to resemble those of communitarian systems, or systems with the same kinds of economic imperatives, than they are to resemble traditional approaches to economic development in Indian country. In this context, the comparison with Japan is useful for both the cultural and the trans-cultural elements in helping to understand what the architecture or configuration of economic development consonant with Native American values might look like in comparison to the purely "instrumentally rational utility maximizing" microeconomic construct of traditional economics.

The repeated failure of national policy is reflected by the legacy of the Allotment Acts, (Dawes Act of 1887, etc.) repeal of the Allotment Acts and reinforcement of the federal Trust Responsibility by the 1934 Indian Reorganization Act. This rather unprepossessing set of outcomes was then followed by the Termination acts of the 1950's and 60's and only in 1974 culminating in the Indian Self-Determination Act (PL 93-638 as amended) along with new Federal Recognition and Native Claims Settlements acts. This trial and error effort at "solving the Indian problem" has over a century of failure to its credit, as reported by the Presidential Commission on Indian Reservation Economies, (by Executive Order 12401, in1982). A critical element separating the success of the Japanese from the failures of the U.S. government in Indian Country has been the lack of enlightened, self-interested policy making (arising from policy power) and until very recently, the legal inability to create and manage the kinds of institutions, be they financial intermediaries, knowledge repositories and centers of diffusion or communications networks.

Rose Community Development is aimed precisely at strengthening these factors, which are the foundation of economic growth and prosperity through the investments of socially responsible corporations into (1) the development of productive capacity in Indian Country (Rose Solutions), (2) the utilization of investment capital to build CDFI's and other institutions designed to retain wealth within the reservation's economy (Rose Capital), (3) the direct promotion of tribal culture along with scientific management principles and best practices, through the programs designed, sponsored and delivered by Rose Education and finally (4) the creation of a new education, business and cultural vehicle, the "Cyber Rez" by Rose Communications, a project which is designed to link all members of Native American communities together in a way very similar to the nationalist production ethic which Japan was able to tap into following the war and which brought such tremendous prosperity to their people.

The Separation of Business and Politics: The Weathervane of Tribal Economic Success

Kalt and Cornell, argue vigorously for the separation of tribal politics from business management:

At first glance, this may make sense to some people. After all, tribal enterprises belong to the tribe and the government represents the tribe; therefore, the government should run the enterprises. But most societies don't choose leaders on the basis of their ability to read market conditions or manage a labor force or negotiate purchasing agreements with suppliers. Societies ideally choose leaders on the basis of vision, integrity, ability to make wise long-term decisions, leadership attributes, and so forth. When it comes to running businesses, what societies typically need is to find the best business people available, people who know how to make businesses succeed and become lasting sources of income, jobs, and productive livelihood.

To sustain businesses, rather than temporary welfare programs, requires a clear division of responsibility. 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 proper matters for political debate and they are the sorts of questions elected leaders appropriately deal with. But when it comes to things like hiring the new foreman at the plant; working out the payroll at the casino; dealing with personnel issues, purchasing, or operating hours; putting together the business plan for next year; or deciding how much the middle managers should be paid—these are not appropriately political matters. They are business matters, and should be decided by skilled people working within the strategic directions set by the tribe but free of the interference of tribal leadership. When politics gets involved in business operations, businesses typically either fail or become a drain on tribal resources, preventing those resources from being used to the full advantage of the tribe. Businesses cannot compete successfully when the directions are being made according to political instead of business criteria.

The Harvard Project has been carrying out a running survey of tribally owned businesses on reservations. To date, we have surveyed approximately 125 such businesses on more than thirty reservations. The results are compelling. Those tribally-owned businesses that are formally insulated from political interference---typically by a managing board of directors and a corporate charter beyond the direct control of council members or the tribal president---are four times as likely to be profitable as those businesses that are directly controlled by the council or the president. To be sure, there are some council-controlled businesses out there that are successful. But the evidence from Indian Country shows that the chances of being profitable rise four hundred per cent where businesses are insulated from political interference in day-to-day operations." In support of this position, a June, 2000 survey of 18 tribal chairs, drawn from participants in the National Executive Education Program for Native American Leadership, found that the profitability of independent tribal enterprises (not directly controlled by the council or president) was a very healthy 6.8:1 as compared to council controlled enterprises, whose profitability was only 1.4:1. A consistent conclusion which emerges from the Harvard Project's years of studying Indian Country is that successful economic development requires three key factors: Sovereignty, Culture and Institutions. Under the Institutional rubric, the presence and nature of tribal politics is the strongest determinant of institutional effectiveness or failure. The greatest degree of managerial effectiveness has consistently taken place where the separation of business from tribal politics has been the greatest.

Tribal Council/Economic Development Crop.

The Institutional Setting for Tribal Business Success

The tribes, who have most consistently had successful economic development, are those tribes who have established linked, but separate economic development institutions, with separate boards from the governing council.

Tribal Council/Economic Development Crop

The Rose Community Development Corporation's business model is likewise based on the basic separation of politics from business management. In this regard, the Rose Corporation, however, goes beyond the Harvard Project's generic study and provides additional depth to the problems of organizational structure by building on the postwar Japanese economic development model. In order to best address the issues of institutional structure; the Rose Community Development Corporation has adopted an international approach to Indian economic development. The Corporation has researched a variety of global business models and has likewise expended considerable effort in evaluating the various degrees of success enjoyed by competing models of economic development in the global economy.

In this context, the most successful model of economic development was found to be that used by Japan following the Second World War. What was most striking in this regard was the realization that the Japan of the 1940's and 1950's had numerous similarities to present day Indian Country with respect to sovereignty, situation, culture and governance. These similarities are highlighted in the following Chart of Similarities