The future of tribal governments and cultural survival relies heavily on economic development. For more than two hundred years, the U.S. federal government has exercised control over Indian economies and resources. This control damaged tribal economies and thwarted efforts at redevelopment. Only since the 1970s has the federal government recognized that the continuing cycle of poverty and social issues in Indian Country can be addressed best by tribal governments.
However, due to past federal land policy, tribal governments lack the traditional tax base on which state and local governments rely. Therefore, tribal governments must rely on economic development for the revenues required to provide strong and effective governments for their citizens. This circumstance obliges the tribal government to act as a business participant more than other governments that possess traditional tax bases such as state and local governments.
Additionally, Native American governments face several obstacles in economic development such as federal involvement, reservation politics, and the perceptions of potential investors on issues such as sovereign immunity. To date, for the majority of Native governments, economic development has mainly consisted of the exploitation of natural resources and gaming (since the passage of the Indian Gaming Regulatory Act). However, many tribes and nations are working on strategies to diversify their economies. These tribes realize that the lack of economic diversity leaves any government extremely vulnerable to the loss of governmental revenues.
A Brief History of Tribal EconomiesA brief review of the history of tribal economies leads to an excellent understanding of the origins of the challenges facing tribal economic development. When Europeans first arrived in the area later to be the United States, the Native peoples' social organization and trade rivaled that of Europe. The area contained an estimated 4 to 10 million people. At least 2 million Native Americans lived east of the Mississippi River. The tribal governments of these people exercised all internal and external aspects of sovereignty, including shaping their own economies and taxation.
In the first hundred years following the Europeans' arrival, Native American societies and governments underwent dramatic changes. To a limited extent, European illnesses made their entry into the continent and began affecting the indigenous population. Access to European trade goods became a key component in war, alliances, and population movements.
The next fifty years brought extreme changes to tribal economies, cultures, and governments. As the European-descended population in North America increased, intercultural commerce flourished between the Europeans and the Native Americans. During this time, Indians became fully integrated into the world economy by trading with European counterparties. Unfortunately for Native Americans, as economic relations increased, their contact with Europeans and the associated European diseases likewise increased. By 1750, the Native American population east of the Mississippi River dropped to approximately 250,000, whereas the European and African population east of the Mississippi River increased from approximately 250,000 in 1700 to 1.25 million in 1750.
In less than fifty years, the forces of new economies, of their impact on the environment, and of new diseases completely reordered the Native American world. The survivors consolidated into the historically known tribes. The massive death toll strained social and governmental institutions. However, regardless of the enormous changes and their weakened status, Native American governments maintained their autonomy and sovereign authority to determine economic and trading policy.
As Native American dependence on European goods increased, the tribes' ability to maintain relations with more than one European power became increasingly imperative. By maintaining their independence and carefully navigating the competing interests of the major European powers, Native Americans often secured better access to European trade goods than their Euro-American neighbors.
Unfortunately for the tribes, their ability to maintain multiple foreign trading relationships was severely compromised by Britain's defeat of France in the Seven Years War. As the French withdrew from the continent, the British obtained nearly absolute power over European relationships with the tribes. With no other European counterbalance, the British attempted to tightly control trade with the Indians. This trade behavior, combined with several instances of land encroachment, ignited Indian wars against British settlements. To avoid the expense of war, the British Crown issued the Royal Proclamation of October 1763, reserving the lands not duly ceded or purchased from the Indians to the Indians. Although the declaration also asserts a protectorate concept of the British over the Indian tribes, the tribal nations maintained control over their resources and economies. However, on the eve of the American Revolution, the supremacy of one European power had severely eroded tribal control of external economic factors.
After the American Revolution, British control of the external relations of the tribes east of the Mississippi passed to the new American republic. To some extent, the entry of this new power helped restore trading options to Native American tribes. In addition to the new American republic, Britain remained active on the continent and Spain returned to Florida.
Fresh from its victory over the world's greatest power of the time, the American republic made the same mistake as the British approximately twenty years earlier. In the first three years after the treaty ending the American Revolutionary War, the United States executed a series of treaties with Native Americans claiming nearly all of present-day western New York and Pennsylvania and eastern Ohio. Even before the adoption of the U.S. Constitution, the Confederation Congress arranged for the area's development through the Land Ordinance of 1785 and the Northwest Ordinance of 1787.
In July of 1790, the U.S. Congress asserted complete control over all trade with American Indian tribes by passing the Indian Trade and Intercourse Act of 1790. Based on the constitutional authority to regulate commerce with the Indian tribes (known as the Indian Commerce Clause), the act recognized tribal sovereignty and centralized control of relations between the tribes and the states. This centralized control extended to tribal land resources and prohibited land sales to any party other than the U.S. federal government.
Contemporaneous with asserting control over all trade with the Indian tribes, the new American republic launched a military offensive against the Ohio River Valley tribes. After experiencing two crushing defeats, the United States chose diplomacy and treaties over open warfare with the tribes. The new strategy involved an economic component, known as the "civilization" program. The program assumed that shifting Indian economies from a mix of hunting, gathering, and agriculture to the Euro-American small farm economy model would require a much smaller tribal land base and would therefore open more lands to Euro-American settlement.
To implement the program, the U.S. Congress enacted a series of laws between 1790 and 1820, known collectively as the Trade and Intercourse Acts. These laws vested exclusive control of the external relations of tribal economies in the federal government. Federal policy evolved to one of economically leveraging land cessions from the tribes. The United States used the Natives' debt owed to federally licensed traders to leverage land cessions throughout the western frontier. President Thomas Jefferson illustrated this economic policy by explaining to Indiana's territorial governor that the debt of influential Indians beyond their means could ease the way to increased land cessions.
The 1803 Louisiana Purchase ended France's presence in North America and added to the United States a vast area west of the Mississippi River. Thus, the tribes found themselves even further isolated within an ever growing sphere of exclusive American influence. Only Britain and a continually weakening Spain remained to counter American influence.
The American victory in the War of 1812 even further isolated the Native nations and tribes. Britain withdrew to Canada and played only a small part in future North American affairs. In 1820, the Spanish ceded Florida to the United States. With this cession, the last of the Native Americans' potential European allies withdrew from the region. The tribes found themselves surrounded and highly outnumbered by Euro-Americans. Exploiting its newly powerful position, the United States under the leadership of Andrew Jackson imposed a series of treaties (often illegally) that transferred millions of acres by 1820 from a variety of tribes to the United States.
Between 1821 and 1832, the U.S. Supreme Court decided three cases (known as the Marshall Trilogy) that had huge implications for tribal sovereignty, land, and economies. In the 1823 case of Johnson v. M'Intosh, the Court addressed the legitimacy of Indian land ownership and a tribe's restriction against transferring lands only to the centralized federal government. The Court decided this case attempting to establish consistency in land titles and to create a basis for the national public domain.
Chief Justice John Marshall used the medieval doctrine of discovery to accomplish this goal. Under this doctrine, the "discovering" European nations held ultimate ownership rights to the land, subject to the Indians' "right of occupancy." A discovering power could extinguish this right of occupancy by purchase or conquest. In this instance, Marshall reasoned that the United States was the successor to Great Britain's rights as a discovering nation.
The decision limited the disposition of tribal land only to the federal government. Thus, the alienation of the main tribal economic resources, its land base, was placed completely under federal control. Marshall did, however, recognize an Indian sovereign's control of its land resources while the land remained in tribal possession.
By 1831, in an environment promoting the forced removal of all tribes to areas west of the Mississippi River, the U.S. Supreme Court was forced to define the status of Indian tribes within the U.S. constitutional scheme. In Cherokee Nation v. Georgia, the Court recognized tribal sovereignty by finding that, although the Cherokee Nation is a "state" (meaning a government), it was not a "foreign nation." Instead, Chief Justice Marshall created the new concept of "domestic dependent nations." The decision was politically expedient because it allowed the Court to avoid the question of the validity of the Georgia laws over Cherokee territory by ruling that the Cherokee Nation did not have standing under the court rules then in place.
A year later, in Worcester v. Georgia, two men used their status as American citizens to bring the issue of Georgia versus Cherokee sovereignty back to the U.S. Supreme Court. The Chief Justice identified only three specific references to tribes in the constitution: (1) war powers, (2) treaty powers, and (3) the regulation of commerce with foreign nations, among the states, and with the Indian tribes. The Court found that the Indian tribes possessed exclusive authority within their territorial boundaries. Concurrently, the Court also found that Cherokee tribal sovereignty existed under the exclusive control of the federal government.
Even victory in the U.S. Supreme Court could not save the Cherokee Nation and most of the other Eastern tribes from forced removal to lands west of the Mississippi. The forced relocations, known as the many Trails of Tears, brought great hardship and the loss of many lives to most American Indian tribes. The Cherokee cases did, however, establish the guiding principles of tribal sovereignty that, although diluted, continue in Indian law today. Further, Indian perseverance and tenacity sustained their sovereign governments against great odds, although tribal economies languished in the face of such chaos.
Within one hundred years of U.S. independence, the organized Indian battle against the American government ended. Relocation and reservation programs added to the increasing isolation and challenges of maintaining and developing tribal economies. Although Indians existed on reservations surrounded by a Euro-American world, they managed to maintain their unique cultures and governments. Disruption in tribal economies and food sources forced many tribes to rely heavily on federal subsidies or payments. This situation left the tribal economy open to interference and control from Washington.
Although the doctrines set forth in the Marshall Trilogy established inherent tribal sovereignty, the Supreme Court also recognized Congress's absolute (or plenary) power in determining the survival of all or a portion of the tribes' sovereignty. Thus, the tribes were subjected to the political whims of a body in which they had no representation.
In 1871, Congress passed an act ending the practice of negotiating treaties with the Indian tribes. By the 1880s, federal policy became one of forced assimilation. In 1885, Congress placed Indians under federal jurisdiction for certain crimes. Beginning with the General Allotment Act of 1887, Congress exercised its plenary power over the next twenty years to break up the large tribal communal landholdings by allotting specified acreage to tribal members and selling "surplus" lands to non-Indians.
By the late 1920s, the American government recognized the assimilation programs as a huge economic and human rights disaster. The allotment program had resulted in the transfer of over two-thirds of Indian lands into non-Indian hands within twenty years. In 1928, 96 percent of Indians earned less than $200 per year. By 1933, 49 percent of Indians living on reservations were landless. With the typical allotment being too small for productive use.
Only 7 percent of Indian land was being used by Indians by 1935. Deprived of their land base and governmental systems, economic conditions remained dismal for Indians. Further, misguided policy and an arrogant, misdirected, inefficient, and inconsistent administration of federal Indian programs exacerbated the problems.
The 1930s brought New Deal reformers led by John Collier. At their urging, Congress passed the Indian Reorganization Act (IRA). The Act was designed to assist tribes in organizing their governments and in developing their economies. The Act intended economic development to reflect the values of the traditional tribal society. It also secured the remnants of the tribal land base by immediately repealing the allotment laws and restoring "surplus" reservation lands to tribal ownership. To strengthen the tribal governmental structure, the IRA (and other associated acts) funded the organization of governments and tribal corporations for select tribes.
By 1940, however, critics of Indian reorganization took control of Congress. Indian appropriations took a nosedive, as critics of the program sought to strangle the reorganization work and as World War II drew away financial and human resources. (Many Indian leaders left to participate in the war.) Collier eventually resigned as critics mounted new and more effective assaults on his person and his administration. Upon his departure, Congress pressured the new bureau leaders to revive assimilation, this time through the termination of the tribal-federal relationship.
By 1953, Congress initiated the termination of tribal governments through a series of laws designed to end the relationship between the federal government and Indian governments and people. In 1954, Congress began the termination of more than a hundred bands and tribes.
Ironically, the termination policy helped rein-vigorate the various interests that had begun organizing during the reforms of the 1940s. Protests, combined with the states' reluctance to bear the costs associated with assuming authority over Indian Country, eventually killed the momentum of the termination policy. With the Civil Rights Movement underway, federal policy concerning Indian Country began to shift again in the 1960s. By the early 1970s, congressional reports determined that the termination policies had resulted in yet another round of economic and cultural disaster in Indian Country.
President Lyndon B. Johnson announced the modern federal Indian policy in 1968 in a special address to Congress entitled the "Forgotten Americans." This was the first time a president had devoted a special address to Congress exclusively to Indian affairs. Two years later, President Richard M. Nixon announced the official policy of "self-determination" for tribes. Basically, the president's recommendations to Congress were to (1) reject termination, (2) grant the right to control and operate federal programs to the tribes, (3) restore specific sacred lands, (4) grant the right to control federal education funds and Indian schools to the tribes, and (5) pass legislation to encourage economic development.
In a series of acts passed in the 1970s, Congress began reversing the termination process and instituting the policy of self-determination. The trend has continued with Congress allowing for the expansion of tribal land bases, for greater control of natural resources, for recognition of "inherent sovereign powers," and even for amending the major environmental statutes to recognize "tribes as states."
As the legislative and executive branches embraced self-determination, the U.S. Supreme Court moved from the traditional protector of sovereignty into a role of limiting tribal sovereignty through judicial determination. In 1978, the Court initiated the modern trend of judicial termination of inherent sovereign powers. Since then, a series of cases have slowly chipped away at tribal sovereignty. Specifically, the Court has determined that tribal sovereignty is limited by treaties or statutes and has also lost the powers that are " inconsistent with their status" as domestic dependent nations.
Even in the Supreme Court's latest decision concerning tribal sovereign powers, United States v. Lara, the majority preserves its past analysis and restrictions on tribal authority. The case, however, recognizes congressional authority to "relax" the restrictions. The Court notes that such congressional authority may face constitutional challenges if relaxing the restriction interferes with a state's authority or creates due process or equal protection issues.
Inconsistency and rapid changes in federal Indian policy (e.g., from the Indian Reorganization Act in the 1930s to federal termination of tribes in the 1950s) left Indian Country and its economies in chaos. Congress's use of its plenary power to forcibly assimilate tribal members damaged self- government and often fractionated or destroyed the Native resource base. Administrative policies and inefficiencies squandered Indians' capital and resources. All combined to destroy almost completely tribal economies that had been deteriorating since the Trade and Intercourse Acts first installed federal monopolies on trade with the Indians and promoted indebtedness. Poverty ran rampant in Indian Country. The lack of predictability and stability destroyed the incentive for tribal or nontribal investment in tribal economies.
Since the 1970s, both the executive and administrative branches have embraced a policy of tribal self-determination. Congress has enacted several statutes aimed at reversing the disastrous federal intervention of the last hundred years. Support of these programs appears to be continuing in both the executive and legislative branches.
In contrast to executive and legislative efforts to renew tribal governments, the modern judiciary has turned from the traditional protectors of inherent Indian sovereignty, with absolute deference to Congress's plenary power, to self-appointed arbiters of the survival of inherent tribal sovereignty. The latest Court trend appears to limit all remaining sovereign power to only the members of the tribe, regardless of whether those powers were being exercised within Indian Country. Unfortunately, the Court appears to lack the ability to see the practical application on Indian Country. As a tribe or nation loses its ability to enforce tribal regulations on nonmembers on tribal land, it loses control of its territory. This situation severely compromises the territorial integrity of the tribe. A tribe must increasingly rely on state control over nonmembers to maintain order in its territory. Therefore, the current judicial trend erodes elements of self-government that are important to sustained economic development.
The Economic Situation in Indian Country Today
Indian Country still suffers from widespread poverty. Despite federal programs and philanthropic contributions, sustained economic development has yet to occur. Without sustained economic development, Indian Country will continue to suffer high unemployment, dependence on welfare and other government programs, and social problems including drug and alcohol abuse.
With a huge list of obstacles against them, such as the lack of capital and a well-educated or trained populace/workforce, tribal governments struggle for sustained economic development. Even with these obstacles, most tribal governments remain determined to increase opportunities for the tribe's youth while working to preserve culture. After decades of federal programs designed to demean and destroy the traditional way of life, tribal elders want to restore pride, self-worth, and belonging to the young people. Achieving such goals requires sustained economic success.
To achieve sustained economic growth, Indian tribes must attract investment into Indian Country. When deciding where to place their money, investors compare investment opportunities with opportunities elsewhere in the United States or, to some extent, around the world. Generally, any business considers the risks involved in three fundamental factors when investing in Indian Country (or anywhere): efficiency, predictability, and enforceability. Efficiency is the ability to complete the project effectively in a timely manner. Predictability means that the investment parameters remain constant enough to allow for a return on investment over the life of the project. Enforceability means that the pertinent project contracts can be enforced.
American Indian self-government allows the tribes and nations to best accomplish economic development, whereas decisions made by the federal bureaucracy often do not result in sustained economic development. Tribal control returns the decision-making process to those most affected by the decision's consequences. Thus, tribal sovereignty and self-determination are inextricably linked to sustained economic development and prolonging poverty in Indian Country.
To effectively achieve sustained economic development, tribes must create governmental structures that carefully balance tribal and business needs and that reflect the tribes' cultural foundations. Without such a foundation, the formal tribal government is likely to lack legitimacy and fail to gain respect in the tribal community. A government that lacks legitimacy also lacks the ability to create an environment for economic development.
Even with legitimate government structures, Native tribes and nations must still create attractive business environments. Tribal governments (as with any governments) should establish the appropriate rules for economic development within the tribes' sphere of influence. The tribal government should set general strategic goals and direction. However, often Native governments become entangled in the day-to-day business decisions to which they are not well suited. Most economically successful tribes have insulated the day-to-day operations from politics. Investors look for protections, such as that of an independent judiciary, that protect them against tribal politicians turning their power into personal gain. The tribal government (like any government) must carefully monitor its position in the business environment.
To attract investment and to create sustained economic development, tribes must have formalized rules and procedures in place. This helps outside investors determine the business environment and increases their comfort level when investing in Indian Country. These formal institutions should include good financial controls and monitoring, record systems, professional personnel standards, and grievance procedures. Further, the tribes need to maintain a good business reputation for their tribal governments, as well as for any of their divisions or corporations.
If done correctly, these formal institutions will create an environment that brings investment into Indian Country. The tribes must create an environment with predictability and continuity, especially in tax and regulatory matters. To attract capital, investors must achieve risk and return profiles similar to (if not better than) non-Indian opportunities. Tribes must also confront the suspicions of business owners who fear that sovereign immunity may be used unfairly in business dealings by tribal governments and entities to gain competitive advantage.
Tribal Economic Development Entities
To achieve sustained economic development and to attract business partners and investors to Indian Country, tribes need a coherent strategy. Tribes must choose a strategy that includes a tribal economic development structure, and they should be able to clearly explain the reasons behind the structure. Randomly choosing, mixing, or changing structures defeats the underlying goals of bringing predictability and consistency for sustained economic development. The potential entities or structures can take two approaches: (1) economic development through the direct participation of the tribal government and (2) economic development through a tribally affiliated corporation.
When a tribe or nation decides to directly participate, it usually creates a division or agency of government under which to pursue economic development. Using this approach, the tribal government directly participates in the day-to-day business decisions.
This type of structure offers the advantage of simplicity. It involves only actions by the tribal government. It is a completely internal process; it requires neither federal bureaucratic involvement nor the development of a tribal corporate code. As an integral part of the tribal government, an economic development division of the tribe also falls within the tribe's sovereign immunity.
A tribe or nation that is directly involved in economic development must also acknowledge the disadvantages. As discussed, the tribes most successful in economic development have insulated economic development from tribal politics. In a direct participation strategy, all staffing, structure, and business decisions are subject to the whims of tribal politics. This situation greatly affects the prospects of predictability and consistency for potential investors, thereby injuring the tribe's chances of sustained economic development.
A Native tribe or nation is well served to make the business environment familiar and comfortable for potential investors. Contracting with a governmental entity is unfamiliar and thus uncomfortable for investors, and many potential investors will be unfamiliar with doing business in Indian Country. Additionally, tribal governments vary widely so that past dealings with a division of another tribe may provide little guidance for investors. Further, though useful to the tribes, a potential business partner is going to be very wary of the tribe's sovereign immunity. The inability of a business partner to enforce contractual obligations greatly detracts from the predictability, consistency, and enforceability required to foster sustained economic development.
However, from a tribal government's perspective, it would be unwise for a Native government to completely waive its sovereign immunity, potentially opening the way for state judicial interference in its governmental business activities. Therefore, every transaction between a tribal economic development division or agency and a business partner would require a limited waiver of sovereign immunity. A long list of limited tribal waivers, however, may slowly erode sovereign immunity, and requiring a continuous use of waivers in each document creates a lingering issue in long-term relationships.
To add consistency, predictability, and familiarity to tribal dealings with potential business partners and investors, tribes have borrowed the concept of corporations from European-American law. The underlying premise of corporate law requires a specific legislative act or constitutional provision granting sovereign authority to create a corporation. Under these basics of corporate law, the tribe may use (a) its inherent sovereign powers to create a corporation within tribal territory, (b) federal sovereign powers in the Constitution's Indian Commerce Clause, or (c) a state's sovereign powers.
Since a corporation requires a statutory or constitutional basis, a tribe must either adopt its own corporate statutes or amend its constitution. Either tribal action constitutes an exercise of inherent tribal authority. Once a tribal statutory or constitutional basis for incorporation exists, the tribe may then charter a corporation pursuant to its sovereign authority.
Using a tribal corporate code to incorporate a tribal development entity, the tribe incurs both advantages and disadvantages. Depending on the tribe's relationship with the Bureau of Indian Affairs, incorporation under a tribal corporate code may be a completely internal process that avoids major federal bureaucratic involvement. The tribal corporation has some degree of separation from the tribal government and associated politics, and an independent board is possible. However, as a creation of tribal statute or resolution, the tribal corporation can still be affected by radical changes in tribal corporate law.
Using a constitutional process to create a tribally chartered corporation can require the approval of the federal bureaucracy. Although time-consuming, any hurdles for constitutional changes place another layer of insulation between the tribal corporation and the tribal government. Any radical changes in the provision authorizing the corporation would also require clearing the same hurdles. In contrast, an easily changed tribal constitution provides little protection against tribal politics that may detrimentally affect predictability and consistency.
Using the federally charted tribal corporation (also known as a Section 17 corporation) also has certain advantages. The tribes are not required to pass any statutes. They simply vote to avail themselves of the provisions of the federal law. The authority for these actions is inherent in the federal government, and congressional statute creates the opportunity. Further, once issued, the termination of the charter requires an act of Congress.
However, using this option requires involving the federal bureaucratic process. The Department of the Interior must approve and issue the corporate charter. In enacting the IRA, Congress recognized that sovereign immunity could put the tribes at a competitive disadvantage. Therefore, it provided for the ability of the secretary of the Interior to waive sovereign immunity for Section 17 corporations. As originally conceived, the federal charter for Section 17 corporations often includes a "sue and be sued" provision.
Using a state-charted corporation may also provide some advantages. Potential business partners and investors find this vehicle the most familiar, and an independent board is possible. However, incorporation under state authority creates tax and sovereign immunity questions.
In any situation, a tribally chartered corporation still falls within the tribe's sovereign immunity, which causes the same concerns among potential business partners as previously discussed. However, in this situation, the tribal government itself never faces waiving sovereign immunity. The corporation can make broad waivers without directly affecting its parent, the tribal government. To avoid confusion and any impact on tribal governments, the tribes should take special care during incorporation to explicitly divest the tribal corporation from the tribal government's authority to waive sovereign immunity. Further, tribes must carefully avoid mixing the authority of the tribal government with that of the tribal corporation.
From an investor's perspective, contracting with a tribal corporate entity is more familiar. Companies are used to contracting with other companies. Also, a board at least somewhat insulated from politics adds consistency and predictability to the relationship.
Native Americans have shown a great deal of tenacity in maintaining their inherent right to self-government. Even in the aftermath of great destruction and upheaval, tribes have managed to re-form inherently sovereign governments from the remnants of scattered peoples in a relatively short period of time. After almost 200 years of federal intervention, these sovereigns survive and at long last are getting the opportunity to determine their own course under the federal government's program of self-determination. Tribal economic development is crucial to tribes' ability to realize their true potential as sovereigns. Sustained economic development by tribes requires the ability to exercise sovereign rights.