Culture and Native American economic development
| DOI | https://doi.org/10.1108/JEPP-06-2019-0050 |
| Pages | 21-39 |
| Published date | 04 November 2019 |
| Date | 04 November 2019 |
| Author | Jordan Karl Lofthouse |
| Subject Matter | Strategy |
Culture and Native American
economic development
Jordan Karl Lofthouse
Department of Economics, George Mason University, Fairfax, Virginia, USA
Abstract
Purpose –The purpose of this paper is to explore how culture affects economic development on Native
American reservations by examining how culture directs the attention of entrepreneurs and interacts with
formal governance institutions.
Design/methodology/approach –This paper 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.
Findings –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.
Research limitations/implications –This paper looks at Native American entrepreneurship and
institutions in the broadest sense. However, there is a large amount of diversity within the cultural and
governance structures of Native American communities. Future research could examine specific tribes or
reservations in more detail.
Practical implications –This paper elucidates cultural and institutional barriers to productive
entrepreneurship on Native American lands. Policymakers must understand these root causes if they are to
facilitate economic growth.
Originality/value –This paper’s combination of theoretical perspectives helps explain the widespread
economic development issues on Native American lands.
Keywords Culture, Entrepreneurship, Economic development, Native Americans, Reservations
Paper type Research paper
1. Introduction
Native Americans are, on average, the least wealthy racial group in the USA (Kalt et al.,
2008, pp. 114-115). In the 2010 Census, the poverty rate for Native Americans living on
reservations was 28.4 percent, and the poverty rate for all Native Americans, whether on or
off reservations, was 22 percent. For comparison, the federal poverty rate for all Americans
in 2010 was 15.3 percent. Although poverty rates have improved in recent years, the
relatively high rates remain puzzling to policymakers and development economists.
Scholars have suggested that institutional barriers, including the federal trust system
and direct federal involvement in day-to-day governance, raise transaction costs and hinder
economic development on Native American reservations (McChesney, 1990; Cornell and
Kalt, 1995a; Anderson and Parker, 2006, 2008, 2009; Kalt et al., 2008; Akee and Jorgensen,
2014; Regan and Anderson, 2014; Russ and Stratmann, 2014; Lofthouse, 2019). Those
institutional barriers certainly play a role in the poverty puzzle, but scholars and
policymakers have underemphasized the nuanced interactions between institutions, culture
and entrepreneurship. Journal of Entrepreneurship and
Public Policy
Vol. 9 No. 1, 2020
pp. 21-39
© Emerald PublishingLimited
2045-2101
DOI 10.1108/JEPP-06-2019-0050
Received 1 June 2019
Revised 4 September 2019
6 September 2019
Accepted 6 September 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
The author would like to thank Christopher Coyne and Peter Boettke for their feedback and mentorship on
this paper.
21
Culture and
Native American
economic
development
When institutions, formal or informal, guide individuals to engage in productive
entrepreneurship, economic growth can take place (Baumol, 1990; Holcombe, 1998; Boettke
and Coyne, 2003, 2009; Baumol and Strom, 2007; Strow and Strow, 2018; Lucas et al., 2018;
Thanti and Kalu, 2018). However, entrepreneurship does not take place in a vacuum; culture
shapes the way that economic development unfolds (Leeson, 2005, 2006; Williamson, 2009;
Williamson and Mathers, 2011). How does an understanding of culture clarify our
understanding of Native American economic outcomes?
To answer that question, this paper makes both a theoretical and an empirical
contribution. First, the theoretical contribution synthesizes the literature on culture and
entrepreneurship with the literature on institutional “stickiness.”Second, the empirical
contribution applies historical and contemporary case studies from Native American
reservations to demonstrate the theoretical claims.
“Culture”is a context or mental framework that individuals use to ascribe meaning to
their purposeful action (Lavoie, 1991). Culture matters because it shapes what opportunities
entrepreneurs are alert to and how entrepreneurs perceive the various costs and benefits of
acting within different institutional arrangements (Chamlee-Wright, 1997; Lavoie and
Chamlee-Wright, 2000; Storr, 2006). Any institutional arrangement will pose transaction
costs to entrepreneurs, and culture determines how entrepreneurs perceive and react to
transactions costs. When institutions do not dovetail with the cultural context of a society,
entrepreneurs may find positive-sum opportunities too costly and, instead, engage in
negative-sum behavior (Boettke et al., 2008). Thus, institutions that appear conducive to
growth may not actually achieve their goals because a cultural mismatch leads
entrepreneurs away from wealth-creating behavior.
The stagnant economic development on many reservations can be largely explained by
discrepancies between culture and exogenously imposed institutions. Prior to colonization,
Native Americans had endogenously developed complex institutions of governance and
property rights. The US Constitution, however, gave the federal government broad
discretion over the formal governance of reservations. Beginning in the late nineteenth
century, the federal government imposed several institutions on reservations, such as a new
land tenure structures and bureaucratic governance, which disrupted the institutions that
native societies had developed (Anderson and Parker, 2009; McChesney, 1990; Stremlau,
2005). In many cases, those imposed institutions have hindered development by raising
transactions costs to entrepreneurial action. The ways in which people perceive and respond
to transaction costs are culturally contingent. Thus, even when similar institutions were
imposed on various reservations, outcomes have differed because entrepreneurs perceived
opportunities and transaction costs in different ways.
Additionally, the federal government imposed boilerplate constitutions on many
reservations in the 1930s. In cases where the imposed constitutions aligned with tribal
culture, economic outcomes appear to be better. When culture and constitutions were
incongruent, economic performance has stagnated (Cornell and Kalt, 1995a, b; Record, 1999).
Culture has also shaped instances where Native American entrepreneurs are alert to
negative-sum or positive-sum opportunities. Through the twentieth century, federal and
tribal institutions created government-granted aid projects and tribally owned businesses,
which has presented many opportunities for entrepreneurs to engage in rent-seeking
(Anderson and Parker, 2006, pp. 177-190; Kalt et al., 2008, p. 113). However, many Native
Americans are leveraging traditional cultural and social ties to increase economic
development. For example, on the Navajo Nation and the Pine Ridge Reservation, many
individuals have formed wealth-creating enterprises in the informal economy (Pickering,
2000; Dine Policy Institute, 2018).
This paper proceeds as follows. Section 2 theoretically connects economic development
to culture, entrepreneurship and formal institutions. Section 3 analyzes the how
22
JEPP
9,1
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