Political Economy of Native American Economic Development

Jordan K Lofthouse

Advisor: Christopher Coyne, PhD, Department of Economics

Committee Members: Peter Boettke, Jayme Lemke

Buchanan Hall, #D135
April 09, 2020, 09:30 AM to 10:30 AM


Native American reservations are often islands of poverty within the United States. Many scholars and policymakers are concerned with facilitating economic development on Native American lands, but despite federal and tribal development initiatives, growth has been slow and inconsistent. The purpose of this dissertation is to better understand the effects of formal and informal institutions on Native American entrepreneurship and economic growth. To accomplish this, I use insights from public choice economics, Austrian economics, new institutional economics, and economic sociology to analyze the barriers to economic growth and to evaluate proposed solutions.

This dissertation consists of three chapters. Chapter 1 introduces the complex institutional structure of Native American governance that limits productive entrepreneurship and restricts individual liberty on a fundamental level. Over the course of American history, a pervasive administrative state has emerged on Native American reservations as the result of unique institutions that govern those lands. The federal trust responsibility and an elaborate web of federal, state, and tribal policies affect the liberties and economic well-being of Native Americans. These unique institutions impose high costs on individual Native Americans when they try to engage in most economic enterprises. The pervasiveness of bureaucratic control has also spurred negative forms of political entrepreneurship, eroded the rule of law, and hampered markets from working efficiently.

Chapter 2 fills a gap in the literature by bringing market-process theory and entrepreneurship into the broader discussion of the institutional effects on Native American economic development. 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. 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. Economic growth and development are the direct results 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. 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. Those channels generally raise barriers to mutually beneficial exchange, entrepreneurship, and innovation. In particular, they generally increase transaction costs, rent seeking, and bureaucratic delay, which impede many Native Americans from engaging in private enterprise.

Chapter 3 analyzes the underexplored interactions between institutions, culture, and entrepreneurship by synthesizing the literature on culture and entrepreneurship with the literature on institutional “stickiness.” This chapter combines theoretical insights from economic sociology, market process economics, and institutional economics as a basis to evaluate entrepreneurship and economic development on Native American reservations. Culture, as a web of social meanings, shapes what opportunities entrepreneurs are alert to, influences how they perceive transaction costs and determines whether institutions achieve their intended ends. Historical and contemporary case studies are used to build analytical narratives to corroborate the theoretical approach. The federal government has imposed many formal institutions on reservations, which have disrupted traditional governance and property rights structures. If formal institutions do not comport with the underlying culture, those institutions do not facilitate positive entrepreneurship and economic growth. Despite the barriers, entrepreneurs across several reservations have leveraged their cultural and social ties to create robust informal economies. In some cases, imposed institutions have fostered rent-seeking and have given rise to a culture of rent-seeking.