Business: Tribal Enterprise

Indian entrepreneurship is increasing across the country, but it faces the obstacles of dissension from within and uncertain federal policy from without

LAST FALL THE Passamaquoddy Indians of Maine staged a financial coup that won Wall Street’s admiration. Five years after engineering the first Indian-led leveraged buyout, to acquire New England’s only cement plant, the tribe sold it at triple the purchase price. The $60 million profit in that deal left the 2,700-member tribe in control of one of Maine’s largest investment funds and confirmed it as a major player in the state’s economy.

Such an outcome flew in the face of what many Maine residents had predicted in 1980, when the Passamaquoddy and Penobscot tribes were together awarded $81.5 million in a landclaims settlement. The money was expected to pass quickly to non-Indians—and it might have done so, had the federal government’s tradition of dividing spoils of this kind equally among tribal members been continued. Elsewhere such division has inspired spending sprees to the benefit of off-reservation merchants.

The Maine tribes, however, built into the settlement the right to buy 300,000 acres of timberland, and crafted a diversified investment strategy. “Their goal was to use the land-claims money to solve unemployment, create more wealth, and raise their status in the community,” says Thomas N. Tureen, the chairman of Tribal Assets Management, which has provided financial advice to the tribes. The Passamaquoddy in 1982 bought one of the state’s largest blueberry farms and two radio stations, and in 1983 the cement plant, which at the time was losing money almost as fast as it belched pollutants. Under the tribe’s ownership it not only became profitable but also originated a patented pollution-control system that could help resolve the acid-rain crisis. When the tribe sold the plant, it kept ownership of the scrubber technology, which uses waste products to convert acidic emissions into salable by-products, and could become the tribe’s next big money-maker. The Department of Energy and the Spanish buyers of the plant have since agreed to fund the construction of a $9.6 million prototype scrubber at the Maine plant.

As the first tribe to go shopping for investments, the Passamaquoddy became a potent symbol for other Indians. Partly in response, dozens of the nation’s 500 federally recognized Indian tribes have in recent years sharpened their business skills and begun aggressively pursuing the kinds of deals—joint ventures with corporations, new factories to be built on reservations, and control of mining and drilling on their lands—that until a few years ago were widely viewed as instruments of outsiders’ exploitation. The Mississippi Choctaws’ five auto-parts factories and one greeting-card operation not only have raised tribal employment to more than 80 percent— the former unemployment rate—but also have made the tribe one of the state’s fifteen largest employers, with 1,200 workers. Other tribes, such as the Salt-River Pima Maricopa, of Arizona, New Mexico’s Jicarilla Apache, and the Devils Lake Sioux, of North Dakota, have likewise built well-managed tribal enterprises.

Large-scale reservation development, many tribal officials now believe, may represent the best chance in decades to improve Indians’ living standards—and their status in the regions where they live. “The pressure for development coming from within tribal societies is far greater than anything coming from without,” says A. David Lester, who was a health and human-services commissioner in the Carter and Reagan administrations and is the executive director of the Denverbased Council of Energy Resource Tribes, whose forty-three members are tribes with significant oil, mineral, timber, or fishery holdings. “The debate is pretty much over as to whether we should engage in economic development. The answer is affirmative.”

But the chances that many other tribes will soon replicate the Passamaquoddy’s success are slim. Formidable obstacles to economic development on Indian reservations remain, not only in the workings of the federal Bureau of Indian Affairs (BIA), which continues to exercise influence in nearly every area of tribal life, but also in terms of access to mainstream financial markets. And debate over the proper course of reservation development has in fact intensified, with some tribal factions arguing against the value of largescale projects such as factories or mining on reservations, and some government and business groups challenging the government’s role as trustee of Indian interests.

ZIGZAGS IN FEDERAL policy over the past hundred years have created many of the worst problems. The government has alternately sought to disband tribes and assimilate their members into the larger society (notably with the 1887 policy of allotment, which ostensibly tried to turn Indians into private farmers but shrank their land base by two thirds in fifty years) and to reinforce the tribal structures and land base (the New Deal’s Indian Reorganization Act). The most recent turn in federal policy, taken under President Richard Nixon, has contributed to the burst of tribal capitalism. In 1970 Nixon repudiated the Eisenhower-era policy of “termination,”which had led to the disbanding of 109 Indian tribes and the dispersal of their assets. Nixon endorsed tribal self-determination and supported the return of Blue Lake, a Taos Pueblo religious site, rather than forcing the Indians to accept cash for improperly taken lands. “The Nixon years were the best,”says Suzan Shown Harjo, the executive director of the National Congress of American Indians. Her view is seconded by most Indian leaders today.

During the Nixon years Great Society programs run by the Office of Economic Opportunity and the Economic Development Administration, while being cut back elsewhere, were expanded in Indian country, funding legal services and tribally based development schemes; the EDA spent $495 million from 1965 to 1976. The EDA at first favored industrial parks and vacation resorts, few of which have been successful, though this strategy also led to the construction of water and sewer lines on many reservations that had had none. Those programs had another, perhaps unintended, effect: “OEO broke the stranglehold of the Department of Interior over Indian people and allowed new leadership to develop,” LaDonna Harris, the president of Americans for Indian Opportunity, has said.

The energy crisis gave tribes an added boost in 1973 by increasing the value of resources under the reservations, including one third of the low-sulfur coal that can be strip-mined in the United States, and significant deposits of uranium, oil, and gas. Rapidly escalating mineral royalties and a series of land-claims settlements provided some tribes with large infusions of cash. Some Indian leaders also came to think about money in a new way. Instead of merely collecting fees from outside mining and drilling companies for the extraction of their reservations’ resources, they began ro look for potentially profitable production and marketing efforts of their own.

In the 1980s, however, oil prices plunged, and Indian mineral revenues with them. So did federal expenditures for Indian programs, which under the Reagan Administration were cut by $1 billion a year. Funding for job training and technical-assistance projects declined 56 percent from 1980 ro 1984, for example, and per-capita funding for the Indian Health Service, the U.S. Public Health Service agency that provides medical care to one million Indians, shrank by about half. The cuts had an immediate negative effect on Indian employment, because 44 percent of Indians’ personal income comes from federal and tribal jobs (in contrast, public-sector jobs provide 19 percent of salaries nationwide). Not surprisingly, overall Indian unemployment has in the past year climbed to 40 percent (by the BIA’s reckoning, which is widely regarded as conservative), from a low of 38 percent in 1987. The figure averages 75 percent on the ten largest reservations. “For practical purposes, there is no private-sector economy on many reservations,” says Alan R. Parker, a Chippewa Cree who is the staff director of the Senate Indian Affairs Committee and a former president of the American Indian National Bank.

In December of 1985 the Cherokee chief Ross O. Swimmer, who bad previously called for the abolition of the Bureau of Indian Affairs, took over as its head and announced that it would be his goal to prod reluctant tribes into ending their dependence on federal aid and adopting business principles. “We hear the buzz word of economic development in Indian country, but some think that means a check, more federal expenditures,” he told me last year. When Swimmer left office, last January, he conceded that he had made little headway in persuading tribes to be “self-sufficient instead of coming to Washington for more money.”

He had succeeded, however, in raising fresh doubts about the efficacy of the $3 billion a year that the federal government spends on Indian programs. Some conservative observers argue that government aid to Indians amounts to “an experiment that failed" and that Indian “privileges" should be revoked. Unsuccessful initiatives and bureaucratic overhead do consume at least a third of the BIA’s billion-dollar budget, but federal expenditures also include $1 billion annually for the Indian Health Service, plus rising sums for welfare grants to a population that is expanding at 2.8 percent a year— nearly twice as fast as the U.S. population overall. Federal aid has improved the Indians’ health, although alcoholism, tuberculosis, diabetes, and fatal car accidents still claim Indian victims at rates two to four times higher than those for others. The infant-mortality rate among Indians is nine percent lower than that in the general population. At the same time, however, an alarming number of Indian children are born with fetal alcohol syndrome.

Although the BIA is no longer the unquestioned master on reservations, it remains a pervasive presence in tribal affairs, running schools for 200,000 Indian students, operating a special court system for Indian offenses, and employing more than a thousand tribal policemen, among other duties. It also must approve virtually every decision on the use of Indian resources—even the disposition of cash settlements that the Navajo and other tribes have won in lawsuits against the BIA itself. The BIA oversees the use of 53 million acres of Indian land, and its malfeasance has reached epic proportions— more than $1 billion a year is being lost in oil and gas royalties, according to estimates by the Interior Department and Congress. The bureau’s $20 million a year in business-development funds scarcely begins to cover the losses caused by its faulty oversight.

THE BUDGET-CLT’I INC under Reagan prodded tribes to seek to develop the economy they have instead of waiting for federal aid. “The budget cuts made clear that there was a false economy sustaining reservation life,”Alan Parker says. A series of Supreme Court rulings beginning in the 1950s has established that tribes are separate governments over which the states have no jurisdiction, and that Indians have extensive rights to the resources on their land. A 1982 law gave tribes the same powers of taxation and of issuing bonds that states have, extending their sovereignty.

As a result, the tribes’ options have expanded. Bingo games and sales of tax-free cigarettes and gas have become money-makers on many reservations. Unfortunately, even when tribal governments endorse the concept of enterprise, they often focus on winning federal grants, not managing young businesses. “The tribe feels it’s done its job by getting the money,”says Chris Berry, a discouraged adviser to tribal entrepreneurs. Tribal businesses often founder because of classic start-up blunders—underpricing or having no marketing plan, for example, or overstaffing to increase employment, a constant temptation on jobpoor reservations.

Indian culture and electoral priorities can make corrective measures highly unpopular. Creating jobs is a top priority of tribal enterprise, and favoring friends and relatives is often required, not frowned upon. In tribal elections, for which door-to-door campaigning remains essential, candidates may woo voters with promises of higher per-capita payouts from tribal enterprises, even when making such payouts is fiscally risky. Reinvestment of company earnings makes a poor platform, as tribal officials discover when entire councils are swept from office in elections, as has happened in some tribes. Suzan Harjo, of the National Congress of American Indians, explains, “If someone is going to give you a hundred and twenty-five dollars, that could feed a kid. Politics in Indian country is no different from politics anywhere else; it’s just a more open process.”

Politically successful chiefs have learned to manage that process while promoting development. Melvin J. Francis, the governor of the Pleasant Point Passamaquoddy, estimates that three out of four of his constituents support off-reservation investment. Nonetheless, he made sure that the cement-plant sale resulted in payments of $2,000 to each member of the tribe, along with the creation of a new-venturcs fund.

The experience of the Penobscot contrasts with the Passamaquoddy’s business successes. After an electoral rout of their sitting governor last fall, the Penobscot, who shared in the 1980 Maine land-claims settlement, severed their ties to Tribal Assets Management, which was formed after the settlement to help handle the tribes’ investments. The new administration questioned the tribe’s involvement with a profitable on-reservation audiocassette factory, and looked at other higher-return (and higher-risk) investments. Envy of the Passamaquoddy may have figured in the change.

Resentment may cause problems within a tribe as well. When Joe J. McKay, a member of the Blackfeet tribe, took over the failing Blackfeet Indian Writing Company, a tribally owned pen and pencil manufacturer in Browning, Montana, in 1985, he quickly halved its payroll of 120 to keep the firm from bankruptcy, a highly unpopular action. Two years later the tribal council blocked McKay from using a $1.5 million line of credit to buy raw materials for a new calendarprinting operation—at peak production season.

“It all but ruined our credibility with suppliers whom we promised payment,”McKay says. Partly as a result he has given up hopes of becoming a tribal leader and has returned to private law practice. “There should be development of individual businessmen, whether [in firms] totally held by tribal members or not,”he says, admitting that he has come to agree with Ross Swimmer’s view that tribal government often impedes the growth of industries it owns. McKay has two professional degrees, which he says brought him local resentment. Some at the pen and pencil factory say that hostility to McKay illustrates the famous Indian crab story—a bitter anecdote in which crabs at the bottom of a pail pull down one that is about to escape. For whatever reason, many talented Indians pursue their careers off-reservation—where nearly half of all Indians now live, owing in large part to federal relocation policies of the 1950s. That migration not only has deprived the tribes of badly needed skills but also causes a profound sense of dislocation among the people who have left.

Tribal enterprises are luring a growing number of professionally trained Indians. Indian lawyers, who number 600 now as against fewer than a dozen twenty-five years ago, have had an unmistakable impact on the jurisprudence of Indian affairs in the past decade. Interest among Indians in applying management training is only now emerging.

Growth in the talent pool of Indian professionals is, however, unlikely to generate the needed development by itself. The involvement of tribal government remains a nearly indispensable ingredient in any large-scale industry on reservations, because other sources of funds for investment are scant. Though Indian tribes may not sell or mortgage their land, their governments do have the authority to negotiate loans and issue development bonds. Thirty years ago Phillip Martin, who was then a member of the council of the Mississippi Choctaws, began a campaign for economic development; his tribe had few natural resources and no large cash settlement to invest. First he rewrote the tribe’s constitution to stabilize its government and solidify its authority. “We went from two-year terms to four, and put the council on staggered terms,” says Martin, who is now the chief of the 5,000-member tribe. The fortunes of the tribe have improved considerably over the years. The Choctaws have used governmentinsured loans and undertaken joint ventures with automobile manufacturers to build on tribal land five factories, where employees produce wire harnesses and audio systems for cars.

Martin himself has become a spokesman for bringing major industry to reservations. In east-central Mississippi, Martin believes, factory labor, while not perhaps the ideal, represents a realistic step in the reservation’s development. “People don’t have to go away to work; it develops infrastructure and promotes a better life,” he says. Still more desirable job opportunities await Indians now completing their education, Martin argues: “A lot of jobs [on the reservation] require four years of college or better, and they now employ non-Indians.”

That employment pattern likewise holds true at a number of defense plants on reservations, which manufacture parts for ground-to-air missiles and helicopters, camouflage netting, and other military hardware. Often constituted as joint ventures with majority tribal holdings in order to qualify for Defense Department set-asides, such plants are in fact generally directed by outside corporations. But these factories have been a source of steady employment in Indian country, and have provided management training for some tribal members.

As it happens, placing factories, particularly those of defense contractors, on Indian land has alienated a number of development activists who favor building individual or family businesses instead. The Seventh Generation Fund, an Indian-run “appropriate technology” foundation based in Forestville, California, promotes smallscale development that is “sustainable and renewable, in the control of the people, and culturally enhancing,” according to Mike Myers, a Seneca who is a veteran of the 1969 Indian occupation of Alcatraz, and who is the fund’s program director. Seventh Generation has backed an impressive array of smaller enterprises run, typically, by families or groups of friends. Its projects to date include a wild-rice marketing co-op among the Ojibwa in Minnesota, a women’s shelter and quilt-making circle on the Pine Ridge Oglala Sioux reservation, in South Dakota, and a center to build low-cost, energy-efficient housing at a Mohawk community in upstate New York. Creating only a handful of jobs at a time may bring change far more slowly than government officials would like, Myers concedes, but he argues that the change will at least be durable. “We need to rethink how rapidly development can happen,” he says. “Corporate time lines don’t fit.”

In its critique of federally backed, large-scale tribal industries the Seventh Generation Fund echoes, from the left, conservatives’ complaints that tribal councils have little expertise in managing a company for profit. “They get confused between being a business and being a government,” Myers says. Projects like the ones Myers endorses often operate with little support from the tribal governments. A group of Navajo family farmers using Israeli drip irrigation, for example, found funding from Seventh Generation and the Department of Agriculture, not from the Navajo chairman, Peter MacDonald, who instead backed $30 million worth of high-tech development on the reservation. “MacDonald is absolutely committed to mega-development,”claims an activist involved in the drip-irrigation project, which last year sold $230,000 worth of produce on and off the reservation.

Indians on reservations spend several hundred million dollars a year offreservation for commodities ranging from groceries to auto parts, much of it in border towns where few if any businesses are Indian-owned. Many reservations remain barren of basic services. An extreme case is the Pine Ridge reservation, covering the nation’s poorest county: only nine percent of the $82 million a year that comes into Pine Ridge is spent on the reservation.

THE ANSWER may lie not in importing industrial plants but in providing basic commercial services, from locksmithing to fencemending, that are now offered only informallv or off-reservation. “The smallest amounts of money are hardest to find,” says Rebecca Adamson, an Eastern Cherokee living in Virginia, who in 1979 founded First Nations Financial Project, to help tribes develop alternatives to federal funding. “We’re dealing with people who have no credit history, no checking accounts, no credit cards.” In 1986, after helping Pine Ridge put in place its first commercial code, to legalize debt collection, Adamson launched the Lakota Fund there and began to make unsecured loans of $1,000 or less to Oglala Sioux craftsmen and casual businesses at Pine Ridge. The $700,000 fund, raised from foundations, has made sixty of these small loans so far, and six larger ones. “There are fewer than fortyeight businesses on that reservation, but we found over a hundred activities that people do to get by, an economy that was ignored by federal funding,” Adamson says.

Another benefit of tiny, indigenous businesses, in the view of many development specialists who favor them, is that they offer only small roles to nonIndians. That non-Indians often occupy prominent positions in tribal enterprises, as either advisers or executives, disturbs activists concerned with bolstering the skills and power of native people. “All that money has not been a cure-all,” Mike Myers says, pointing to high rates of alcoholism and suicide among the Maine tribes. Although more than a score of tribes already own significant businesses requiring expert help that only non-Indians are now prepared to give, distrust of outsiders remains a thorny issue for many tribes.

Higher revenues from tribal enterprises or natural resources are the most likely source of significant new funds to invest in the future prosperity of Indian nations. Though federal funding for the BIA and the Indian Health Service has inched upward in recent years, any major increase in development outlays seems improbable. Not only must Indian programs compete with all other social programs for limited “discretionary” funds in the federal budget, but the welfare emergency on reservations has soaked up funds that might have been devoted to long-term development.

Both Congress and the Bush Administration continue to send conflicting signals on Indian policy. President Bush has promised to strengthen selfdetermination and to support tribal management of natural resources. But the head of the BIA, Eddie Brown, a Pascua Yaqui who formerly directed Arizona’s Department of Economic Security (which is only a small fraction the size of the bureau) and who was nominated by Bush, has little policy background in the issues facing Indian people. Two bills now before Congress would encourage development, one by allowing entrepreneurs to reap tax and depreciation benefits for setting up on reservations, the other creating a $200 million Indian Development Bank, modeled on the World Bank. But the outlook for both remains clouded. As one of his last official acts, President Reagan pocket-vetoed the bill to launch the development bank, whose usefulness was questioned by the BIA and also some Indian activists.

In the meantime, pressure on Capitol Hill to restrict tribal autonomy has mounted. A Senate committee was convened last winter to investigate bureaucratic bungling by the BIA and fraud by energy companies that do business with Indians. Instead, it focused on corruption among tribal officials, notably the Navajo chairman Peter MacDonald, who was the leading symbol of free enterprise in Indian country. MacDonald, a flamboyant and high-living spokesman for tribal economic development (he has been called “the Marcos of Indian country”), has been accused of seeking a $50,000 kickback for arranging the sale of land to the Navajo tribe. The charges, which are already the subject of an Arizona grand-jury investigation and the cause of a constitutional crisis among the Navajo over the tribal council’s attempt to impeach MacDonald, have led to renewed calls for greater federal oversight of the business dealings of Indian nations. Congress may try to pass legislation limiting tribal prerogatives, which could in turn strengthen the hand of the BIA and the major energy companies in Indian country-moves unlikely to enrich Indians.

Tribes with consistent leadership and consensus among members—the Choctaw, the Passamaquoddy—seem likely to consolidate their success. But only about one in ten tribes today has any means of producing a significant amount of revenue, and the proportion is unlikely to grow by much any time soon. The often vociferous debate over the tribes’ business strategies signals the depth of interest among tribal leaders in taking control of their people’s economic destiny. Proponents of big and small enterprises alike concede that it will be years before their projects have much impact on reservation economies. Another shift in government policy away from supporting tribal authority could destroy any difference they make.

Daniel Cohen