Business & Economics

Alleviating Poverty Among Native Americans Will Improve Health Outcomes

Increased legal certainty and low regulatory barriers will spur economic growth on reservations

Published by
Jordan K. Lofthouse

When compared with national averages, Native Americans experience higher rates of health problems. Today, the average Native American dies five and a half years sooner than the national average. During the first year of the COVID-19 pandemic, Native Americans faced the highest rates of infection, hospitalization and death due to COVID-19 when compared with any other race or ethnicity in the United States.

In addition to COVID-19, Native Americans suffer from other health problems at much higher rates than non-Hispanic whites. In 2019, the tuberculosis rate for Native Americans was almost seven times higher than for whites. Diabetes is also common for Native Americans, who are 2.3 times more likely than whites to die from it. In addition, Native Americans have the highest death rate from hepatitis C among all racial or ethnic groups.

One of the main reasons behind these health outcomes is the pervasive poverty that many Native Americans experience. In some places, the Native American poverty rate is more than double that of the general population. On the Navajo Nation—the most populous reservation in the country—the poverty rate hovers around 40%, compared with the 11.4% national average in 2020. High poverty rates and high unemployment rates are connected. When looking at the entire U.S., the Native American unemployment rate is roughly double the rate for whites. The Pine Ridge Reservation in South Dakota has an unemployment rate of roughly 80%.

Many scholars have shown that poverty and poor health outcomes are interrelated. When people are wealthier, they are likely to have better nutrition and more access to healthcare providers. And, when people are healthier, they are more productive, leading to improved economic growth and higher standards of living. Of course, economic growth is not a cure-all for poor health, and wealth can bring its own health problems. However, alleviating poverty could result in a generally healthier Native American community.

Barriers to Economic Development

Creating an environment that facilitates economic growth is not simple. Many government agencies and international organizations have tried and failed to promote economic growth in developing countries. On Native American reservations, economic growth has consistently lagged behind other places in the United States, despite decades of federal and tribal initiatives.

Most places that experience growth, however, have a few things in common. First, growth is more likely to happen in places with a governance system that adheres to the rule of law and minimizes legal uncertainty. Second, property rights need to be clearly defined and enforced well. Third, legal and regulatory barriers must be fairly low so that people can more easily engage in entrepreneurship and private enterprise. When laws and regulations hamper entrepreneurship and innovation, a society will experience relatively slow economic growth and poverty will be entrenched.

On Native American reservations, scholars and policymakers have pointed to bureaucratic red tape and legal uncertainty as two common barriers to economic development. These barriers contribute to the relatively poor health outcomes in the Native American population. Unnecessary red tape and legal uncertainty often make good governance difficult, make private property harder to use as an asset, and raise barriers to entrepreneurship and private enterprise. Native American poverty can’t be blamed only on these two barriers. The reasons behind the high rates of poverty are complex and historically contingent. However, reducing poverty and thus improving health outcomes for Native Americans will require long-term, large-scale reforms to the laws and regulations that govern reservations. Specifically, policymakers must streamline and clarify these laws and regulations.

Property Rights and the Federal Land Trust

One of the most common forms of red tape has to do with property rights. On reservations, property rights to land are not as straightforward as off-reservation land because of the federal trust system, which allows the federal government to hold in trust the legal title for parcels of land owned by a tribal government or by individual Native Americans. This system of property rights evolved from a series of federal policies, including the Dawes Act of 1887 and the Indian Reorganization Act of 1934. The legacy of these laws still affects property rights on most reservations today.

Because of the federal trust system, tribal governments and individual Native Americans face more regulatory hurdles than do other Americans when buying, selling, renting or using property. Individual Native Americans and tribal governments who own land held in trust cannot sell their land without the express permission of the Bureau of Indian Affairs (BIA), which is an agency in the U.S. Department of the Interior. In addition to permitting the sale of trust land, BIA officials must grant permission to change land uses, make capital improvements or lease trust lands, which can be a time-consuming process. In short, Native Americans face more regulatory barriers to use their land than other Americans, which makes it more difficult to engage in private enterprise.

One unintended consequence of the federal trust system is the difficulty of using land as loan collateral. Most Americans who don’t live on reservations can use their real estate as a form of collateral if they want to take out a loan to start a business. However, on many reservations, individuals or tribal governments don’t have the same access to capital markets because they can’t use trust land as collateral. Trust land cannot be repossessed in the event of a default, so traditional banks are hesitant to extend loans without a familiar source of collateral. It is possible for Native Americans to gain collateral for a loan if they use their house and the interest in the land, rather than the land itself. However, many traditional banks are unfamiliar with the peculiarities and complexities of trust land, leaving Native Americans with few traditional sources to get loans.

Some tribal leaders have found creative ways around the collateral problem. For example, the Viejas Band of Kumeyaay Indians bought the Borrego Springs Bank in 1996, making it the first Native American-owned bank in California. The bank has been providing services to tribal governments and Native-owned businesses to facilitate entrepreneurial growth. The bank works with Native Americans to access credit that is needed for private enterprise, and it provides more flexibility with collateral than traditional banks. Tribal leaders in other places could learn from the Viejas Band of Kumeyaay Indians and find innovative ways around the problem.

The federal trust system isn’t all bad, but it is a proverbial double-edged sword. On one hand, the federal trust system raises the costs to using and selling property. On the other hand, the federal land trust essentially allows tribes and individual Native Americans to “keep Indian lands in Indian hands.” As such, one of the current goals of the federal government and many tribes is to bring more land into the trust. This is an understandable goal, especially because Native Americans lost tens of millions of acres that were originally set aside for them in the mid-to-late 1800s. Over the past several decades, millions of acres have been returned to the trust system, allowing tribes to regain some of the land that was lost.

Although it allows land to remain under Native American control, the federal trust system has significant tradeoffs that policymakers and scholars should consider. The federal trust system does not have to be completely dissolved, but serious reforms may be required so that individuals and tribal governments can more easily engage in socially beneficial entrepreneurship. Without significant reforms to the trust system, individuals and tribes will continue to face large barriers when they try to use, sell or lease trust land and the associated natural resources. If the BIA and tribal agencies do not remove costly red tape, entrepreneurship and innovation will remain rare, leading to slow rates of economic growth.

Regulatory and Legal Complexity

Other forms of bureaucratic red tape and legal uncertainty arise from the overlapping federal and tribal bureaucracies that regulate life on reservations. This jurisdictional overlap impedes economic growth and contributes to poor health outcomes. Both federal and tribal officials have the power to oversee how land is used, what type of labor is allowed, which types of businesses are allowed, who receives government money, how business will be regulated and so on. Not only do the federal government and tribal government have simultaneous jurisdiction, but multiple federal agencies and tribal agencies also overlap with one another. This means that several independently functioning bureaucracies can make public policies on the same topic, and they can sometimes be at odds with one another. As a result, reservation residents face relatively large amounts of bureaucratic red tape that increase the costs of engaging in entrepreneurship, slowing economic growth.

The complexity of governance on reservations has led to legal and political uncertainty, which has become one of the greatest barriers to economic development on reservations. First, taxation is complex because it is not always clear who has to pay taxes to whom. Second, it is not always clear who has judicial jurisdiction for civil and criminal cases. Third, confusion over sovereign immunity makes it difficult for entrepreneurs to engage in socially beneficial activities. Because of the common law sovereign immunity doctrine, tribes and tribal corporations are immune from suit unless Congress gives authorization. Entrepreneurs or potential entrepreneurs may be hesitant to engage with tribally owned businesses because they may not be able to sue those businesses if a contract is breached. Thus, these barriers discourage potential Native American entrepreneurs as well as off-reservation entrepreneurs who wish to enter reservation markets. In short, potential entrepreneurs may be uncertain about how government actions will affect their decisions or who is affected by which regulation.

Although reservations face institutional barriers to entrepreneurship and economic growth, many tribal and federal leaders are aware of the problems. Tribal and federal officials across the United States have enacted reforms and new policies to facilitate economic growth, with many successes. Tribal leaders can learn from one another and experiment with their own policies based on the experiences of other tribes. Federal officials can facilitate this mutual learning and experimentation by giving tribes the freedom and resources necessary to devise reforms that are tailored to their unique contexts.

Many tribal governments have shown that they are willing and capable of reforming their institutions to facilitate economic development. For example, several tribal governments have successfully streamlined legal processes and provided resources for tribal members to learn how to navigate complex legal structures. Tribal officials can consider these and other innovative reforms.

The long-standing disparities between Native American health outcomes and those of the general U.S. population are an important social problem that scholars and policymakers should take seriously. By reforming reservation institutions, policymakers can set the stage for Native Americans to flourish. Removing or reducing unnecessary red tape and creating an easier-to-understand and more predictable legal environment can encourage individual entrepreneurs and tribal businesses to find opportunities for economic growth. Without starting and continuing such reforms, Native Americans are likely to remain impoverished and suffer from higher rates of health problems.

Jordan K. Lofthouse

Jordan Lofthouse is the associate program director of Academic & Student Programs at the Mercatus Center at George Mason University. He is also a senior fellow with the Mercatus Center's F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics, as well as a senior research fellow. Lofthouse received a Ph.D. in economics from George Mason University in 2020. His research interests include environmental economics, Native American economic development, entrepreneurship and disaster recovery.

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