December 30, 2002
Let Aboriginals Join the Real Economy
I would like to thank the staff at Industry Canada for inviting me here today to express my views on a very important topic.
This forum appeals to me because I am absolutely convinced that the question of native poverty cannot be successfully addressed from outside the aboriginal community itself. The presence here today of so many from that community gives me the chance to present my thoughts on the subject to the only people whose consideration matters the most.
I applaud all efforts to remedy this most grievous of Canada’s social problems, one which in Manitoba, because we proportionally have the largest native population in Canada, is especially troublesome. The figures need no recitation here. Suffice it to say that the First Nations in Canada have the singular distinction of having lower incomes, more social problems and higher crime rates than any other ethnic group in the country.
These facts have bothered me for a long time, and in recent years, I had the chance at the Frontier Centre to take a serious look at the issue of native poverty. What puzzled me was why it was so intractable. My family, like most, had improved our lot by dint of hard work and schooling. I knew about the usual explanations for native poverty, and I believe they were once true. Wars are destructive instruments of change, and the arrival of Europeans on this continent precipitated a series of conflicts in which aboriginals ended up on the losing side. Tribal economies were smashed by these wars, and, if that were not enough, unfamiliar diseases decimated native populations.
But these terrible things happened a long time ago. Since then, Canada has absorbed a number of ethnic groups who had endured equally horrific experiences. The European Jews who escaped Hitler’s extermination camps, Vietnamese expatriates, most recently starving refugees from the African horn are examples of people who have left conditions at least as bad as those endured by Canadian Indians. It has taken a generation or two at most for these people to rise to the Canadian average or past it in terms of incomes, resources and status.
What happened to exclude our First Nations from participating in the general national prosperity? I have no time or patience for those who explain this conundrum in racist or paternalistic terms, although there seems to be no shortage of such misguided views. I grew up with natives, as did my father, I went to school with them, my mother boarded them in our home when they attended our local Residential School. The ethnic stereotypes were inadequate. They were confusing the symptoms of the problem with its causes.
It did not take me long to discover what I was looking for. My first reading of the Indian Act, and subsequently my examination of the history of the Numbered Treaties, the establishment of the Reserve system and the Surrenders, led me to an inescapable conclusion. The main difference between the economic condition of native populations and the rest of the country was a legal one, and I often use the term “legislated poverty” to describe it. The offending clauses of the Indian Act are described in detail in the paper that resulted from my study, called The Search for Aboriginal Property Rights1. It was this paper, and the subsequent awareness and discussion of it in academic and bureaucratic circles that led to the kind invitation to attend here today.
What did the paper say? It defines traditional, common-law property rights as containing three elements:
- (a) the right to exclusive use,
- (b) legal protection against invaders, and
- (c) the right to transfer.2
You will find these rights delineated nowhere in the British North America Act, or the repatriated constitution, with its Charter of Rights, that replaced the BNA Act twenty years ago. How, then, do they apply in Canada, if they’re not formally recognized? They do because the courts say they do. Along with its formal legal structure, Canada inherited an important element of British jurisprudence, that of common law. Essentially the common law is composed of all the precedents from all the court decisions ever made, and despite the fact that property rights are not explicitly stated in our governing statutes, courts have consistently upheld their validity in protecting the possessions of Canadians from the predations of others, particularly from the overweening power of governments.
I would prefer that our property rights be explicitly described, and perhaps someday they will be. But what is most important is that they are recognized as real and in place in legal forums. They are far from absolute in the common law, which, over time, has allowed for all sorts of incursions on their content and meaning. I believe that Canadian governments at all levels have used their powers of taxation and expropriation over time to whittle away at and diminish the effectiveness of our traditional property rights. But we still possess them. At least most of us do.
These traditional property rights are almost entirely experienced by individuals. Larger groups, say a married couple or a group of people or an organization, may own property in common, but what gives these rights their economic power is that they allow for the creation of a framework for the exchange of value. These exchanges, in fact the very existence of common markets for the ownership and exchange of goods and assets, depend on the recognition of property rights. When more than one individual owns the same things, and their interests diverge, common ownership can be a hindrance to the rules that govern exchanges.
The larger the ownership groups, the more uncertain the power of individuals to influence events. It is clear to most people nowadays that successfully operating markets are a key factor in raising standards of living. This is true because of the mutual nature of acts of voluntary exchange. When people agree to trade things, each of them expects to enhance their outcomes, and that leads people to specialize, to create new value by doing something or producing some good in a better way. Since both parties benefit, a real incentive exists for the creation of higher valued work. This process is the linchpin of social progress. The more individualized ownership is, the more effective is this dynamic of wealth creation and the more prosperous we all become.
When everybody owns something, which is the template for collective possession of the sort we see under government ownership, then in effect nobody owns it. We see this most commonly in fields like forestry, minerals, the fishery and other goods considered to be in common possession, under the umbrella of the Crown. The process of new wealth creation under the rubric of common ownership is close to impossible. To allow for exploitation of such resources, the government resorts to temporary expedients for possession, like licenses and permits, which give non-owners at least the illusion of ownership. If they didn’t, these resources would never be developed as extensively as they are, and our society would be all the poorer for it.
Indian reserves had been established in the Maritimes, Québec and Ontario before Confederation, and the western reserves followed a similar pattern in terms of legal structure. One important particular in this structure should be noted. The land reserved was held “in severalty”, which means collectively. In other words, bands and tribes, instead of their individual members or families, held title.
In 1868, the Secretary of State Act, soon followed by An Act for the Gradual Civilization and Enfranchisement of Indians, formed the basis for what became consolidated as the Indian Act of Canada. This legislation limits reserve land to bands for their "use and benefit in common".3
Section 10 of the Act speaks to the framework of political control:
A band may assume control of its own membership if it establishes membership rules for itself in writing in accordance with this section and if, after the band has given appropriate notice of its intention to assume control of its own membership, a majority of the electors of the band gives its consent to the band's control of its own membership.4
This sounds very democratic, but unfortunately it does not recognize the limits of democracy. Group rights derive from the rights of the individuals within that group, and have no meaning outside that context. In the Indian Act, individual rights, including property rights, receive very little recognition and almost no protection. Section 16, which deals with those who may want to leave the band, makes this crystal clear:
A person who ceases to be a member of one band by reason of becoming a member of another band is not entitled to any interest in the lands or moneys held by Her Majesty on behalf of the former band, but is entitled to the same interest in common in lands and moneys held by Her Majesty on behalf of the latter band as other members of that band.5
In short, only by virtue of membership in a band does the individual receive legal protection for his share of the common allotment. Provisions in Section 20 do allow individual possession of reserve property, but notice that it is hedged by conditions that make such possession very tenuous, dependent on the will of the band council and/or the Minister of Indian Affairs:
No Indian is lawfully in possession of land in a reserve unless, with the approval of the Minister, possession of the land has been allotted to him by the council of the band.
The Minister may issue to an Indian who is lawfully in possession of land in a reserve a certificate, to be called a Certificate of Possession, as evidence of his right to possession of the land described therein.
Where possession of land in a reserve has been allotted to an Indian by the council of the band, the Minister may, in his discretion, withhold his approval and may authorize the Indian to occupy the land temporarily and may prescribe the conditions as to use and settlement that are to be fulfilled by the Indian before the Minister approves of the allotment.6
Notice, also, the short shrift the Act gives to individuals who engage in commercial activity:
A transaction of any kind whereby a band or a member thereof purports to sell, barter, exchange, give or otherwise dispose of cattle or other animals, grain or hay, whether wild or cultivated, or root crops or plants or their products from a reserve in Manitoba, Saskatchewan or Alberta, to a person other than a member of that band, is void unless the superintendent approves the transaction in writing.7
Even when a band member dies, his bequests are not secure. Section 45 reads:
No will executed by an Indian is of any legal force or effect as a disposition of property until the Minister has approved the will.8
As mentioned before, property rights should be regarded as atomistic concepts. Attempts to apply them to nations or peoples inevitably mean these rights as properly understood are at significant risk. But even those who frame the discussion in a collective mantle must agree that the Indian Act did little to enhance the exercise of the property rights of Indian bands as collectivities. Listen to these provisions:
Subject to this Act, reserves are held by Her Majesty for the use and benefit of the respective bands for which they were set apart, and subject to this Act and to the terms of any treaty or surrender, the Governor in Council may determine whether any purpose for which lands in a reserve are used or are to be used is for the use and benefit of the band.
A court that is exercising any jurisdiction or authority under this section shall not without the consent in writing of the Minister enforce any order relating to real property on a reserve.9
The government said, in effect, “You own the land, but we'll decide how you can use it. And don't sue us, either, because the courts have to have our permission to decide the case.”
The Indian Act represents a form of bureaucratic paternalism that is foreign to the experience of most Canadian citizens. Native author Bill Henderson has described it as “a statute of which few speak well. The Indian Act seems out of step with the bulk of Canadian law. It singles out a segment of society - largely on the basis of race - removes much of their land and property from the commercial mainstream and gives the Minister of Indian & Northern Affairs, and other government officials, a degree of discretion that is not only intrusive but frequently offensive. The attitude that others were the better judges of Indian interests turned the statute into a grab-bag of social engineering over the years.”10
But the most egregious wording in the act, at least in terms of excluding natives from the wider Canadian economy, is contained in Section 89. This provision describes itself as a “Restriction on Mortgage, Seizure, etc. of Property on Reserve”:
Subject to this Act, the real and personal property of an Indian or a band situated on a reserve is not subject to charge, pledge, mortgage, attachment, levy, seizure, distress or execution in favour or at the instance of any person other than an Indian or a band.11
This restriction on the use of reserve assets was intended to protect natives from the dynamics of profit and loss in the wider economy. Designed to prevent exploitation, the Act prohibited, and still prohibits, lenders from seizing land or other reserve property for non-payment of debts. This exercise in condescension has caused a great deal of damage. I believe it to be the most important cause of the lower standard of living among aboriginals that we are here to discuss.
Recognition of the severity of the unintended consequences of this commercial restriction is reflected in the extent and variety of the means used to compensate for them. For decades, the Department of Indian Affairs acted as the lender of last resort through a hodgepodge of different economic stimulus programs. As you might expect, each of these has been accompanied by high overheads, with the usual, complex requirements for oversight, reporting and accountability that attach to federal dollars. The regular chartered banks have set up special “aboriginal units,” and special aboriginal banks like the First Nations Bank of Canada12 and the Peace Hills Trust Company13 have been chartered. But even these native institutions have no exemption from the Act and cannot attach collateral offered for loans.14 Instead, they extend credit in return for promises of future cash flow from band enterprises. Their assets are therefore exposed to considerably more risk than those of mainstream banks, meaning their chances for continuing success are automatically handicapped. In the financial industry, that translates into higher lending rates, making all commercial activity on reserves less competitive than it is off reserves.
I was pleased to see a discussion of this issue in the paper by Messrs. Lazar and Fiorini on tax exemptions and economic development that is included in your materials for this session.15 They share my belief that the Indian Act is the first and foremost barrier to prosperity, although they seem to regard the adverse economic consequences as strictly materialistic issues unrelated to more important community considerations. Gentlemen, keep up the good work, you’re on the right track. But let me remind you that very little community development takes places when the people who make up that group have empty stomachs and leaking roofs.
I was also very interested to read the paper by the gentlemen from the Harvard Research Project, who claim that the most prosperous Indian Reserves in the United States are ones with the strongest assumption of sovereignty.16 I have no doubt that their correlation is correct, although I suspect that they have not told the whole story. I would like to have a look at the successful reserves they describe, to see if anything else is afoot. To say that self-government is a necessary condition for prosperity is one thing, the Western experience of the colonial form of government tends to bear that out. To say that it is a sufficient condition is quite a different matter. I can think of dozens of governments around the world which are clearly sovereign, but wallow in extreme poverty. Other conditions must also be in place. The Fraser Institute’s annual report on economic freedom suggests that the world’s wealthiest societies are those which offer their citizens a wide range of personal choices, including rights of voluntary exchange, freedom to compete and protection of persons and property. These in turn require the rule of law, property rights, limited government intervention and sound money.16
The Harvard study did agree with the work of Lazar and Fiorini in stating that, by themselves, government economic development programs to remedy native poverty are inadequate and fraught with failure. They are well intended, as I expect are the development programs offered by our hosts here today, and some of them may even be successful in the long run. But they are no substitute for fundamentals. However, most government spending of this sort, whether directed at aboriginals or non-aboriginals, emphasizes inputs, not outcomes, and, like much of the public sector’s activities, almost none of it is subjected to long-term measurement of its salutary effects. Economic development money tends to flow to the politically connected, and almost none of it confers sustainable benefits. I tend to support it anyway, at least in the case of aboriginals, because the poverty on Reserves is so pervasive. But it is no substitute for fundamentals.
What I learned most from the Harvard work provided more sharpening for the axe I have to grind. I was fascinated by their analysis of the social forms of the Lakota, a tribal group closely related to the Sioux that predominate in southern Manitoba. It co-incided with my own investigations of that culture, which indicate that conventional views of aboriginal society are much exaggerated. The Lakota tribal structures were highly individualized and decentralized. They came nowhere near to conforming with traditional, idealized notions of North America’s aborigines, that they differed from Europeans in the sense that they shared resources in a communitarian model. For further information that counters such myths, I refer you to the seminal work on the subject by Terry Anderson at the Political Economy Research Center in Bozeman, Montana.16
Of the resource materials sent out for discussion at this conference, the most important in my view is the paper by Tom Flanagan and Christopher Alcantara, Individual Property Rights on Canadian Indian Reserves.17 I am a big fan of Tom Flanagan, and his book First Nations, Second Thoughts should be required reading for every aboriginal leader in Canada. In their paper on property rights, Flanagan and Alcantara take me to task for overstating the lack of individual property rights on Indian reserves. They discuss four different social forms which, although not exactly the same as the kind of personal ownership of property familiar to off-Reserve Canadians, do confer a measure of property rights on Reserve dwellers.
However, the details of the four kinds of property which Flanagan and Alcantara examine – all of which have been adjudicated in various Canadian courts – do little to diminish my belief that the most important single cause of native poverty is the content of the Indian Act. I will summarize the four briefly, for the purpose of making my point:
1. Customary Rights. Families who have traditionally occupied property and developed enterprises are, on many Reserves, considered to be owners of those assets, and have even, in at least one case in British Columbia, used them to secure a CMHC mortgage. But in every court case cited, when the security of those rights was tested, they proved to be hollow protections, indeed. Most of the material in the section on customary rights deals with the several ways in which they have proven to be inadequate.
2. Certificates of Possession. This imitation of deeds is common on Reserves and is probably the strongest form of property rights extant on Reserves. Courts have upheld their use, and many bands have made creative use of them, including mortgage accessibility. Unfortunately, the Federal Court of Appeal has ruled that CPs do not confer the right to sell, lease or mortgage the property, and the right expires if the certificate holder moves off Reserve. The practice on most Reserves, in fact confirms that CPs are worth less than the paper they’re written on. They can be, and often are cancelled with only a day’s notice.
3. First Nations Land Management Act. Under this system, tribes are allowed to develop their own forms of land holding, and many Reserves are doing just that. But they are under no obligation to recognize the possession rights of individual members and apply them mostly to leased properties. The authors believe this new regime holds great promise, but cite concerns from women that the rules discriminate in favour of husbands. Because administrative costs are high, only more prosperous reserves may realize benefits.
4. Leases. The rules that govern leasing arrangements come close to giving natives a concrete exercise of property rights, but their use is neither universal nor uncomplicated. Short-term leases can be arbitrarily revoked or altered and their history of court validation is mixed, at least in terms of protection for outside renters. Some courts have upheld long-term leases, but many others have diddled with the contracts, so much so that the authors report a long litany of unsatisfactory legal conclusions.
Flanagan and Alcantara’s work makes me think that I have not at all overstated my correlation between the lack of property rights and native poverty. “We do not present private property rights as a panacea for all the economic and social ills of native communities” they write. “Nonetheless, their intelligent application will help many reserve residents obtain better housing and business opportunities. . . .” Amen.
Part of that intelligent application has to mean increased security of possession. The enjoyment of hard property rights and the economic benefits that flow from them cannot be had without a real check on the power of others to contradict them. Many Reserves have wise and considerate leadership who allow the de facto exercise of individual property rights. But no one’s rights should depend on the benevolent or enlightened exercise of total power. It makes little difference if you’re ruled by a dictator in Ottawa or one that lives down the street. The trouble is that you’re ruled by a dictator.
My work has raised some very real alarms. The danger expressed to me in my extensive correspondence and conversations with the numerous people who have responded to my paper, is this: If individual property rights of the sort that other Canadians enjoy become the norm on Reserve lands, and we decide to allow their use as collateral to leverage capital, Reserve property is thereby exposed to seizure by non-natives, and would threaten the values of social cohesiveness and communitarian needs held highly in the esteem of native people generally. They will look upon such arrangements as potentially destructive of even the paltry resources left to them under the Numbered Treaties. Many see it as opening the door to another land grab.
But the matter may be a moot point. Economic theory about property rights and their crucial role in creating a framework for prosperity is not a particularly well developed sub-category in the annals of the dismal science, but some of what has been thought through has direct application here. The 1991 Nobel Prize winner, Ronald Coase, is best known for his work on the dynamics of the large modern company and on the social implications surrounding ownership of the airwaves and pollution. But as a necessary part of his study of the latter two subjects, Coase looked in detail at the utility of using a property rights mechanism to resolving conflicts.
Dr. Coase came to a unique insight, now known as Coase’s Theorem, in his study of the concept of social cost, published in 1960. Specifically, he examined the problem of a railway belching smoke as it traveled across a farmer’s land. The farmer’s enjoyment of his property is compromised by the pollution, much as, say, the residents of a Reserve might feel that their social condition could be compromised by non-native ownership of previously excluded land. Coase’s solution was intriguing.
“The problem actually lay in an improper definition of legal rights,” explains Reason magazine in a preamble to its 1997 interview with Coase.18 “He noted that once property was well-defined and easily tradable, the efficient solution would follow. Ironically, the optimal social outcome would obtain no matter who owned the property. For instance, even if the railroad possessed the right to pollute, the farmer could pay it not to. Indeed, the farmer (really the farmer's customers) would pay whenever the benefit from mitigating pollution exceeded the cost created by pollution.”
In other words, if the goals that are intended to be met by some property owners are in conflict with others in a market, it is the very existence of carefully defined, hard property right that provides a solution. If a property is tradable, it is in the interest of the property owner to seek its highest value. In the case of the Indian Reserve, it is the band as a whole that fears the loss of neighbouring land to outsiders. If such a situation occurs, they can prevent the transfer by bidding a higher price to the existing owner than the outsider. Similarly, if a bank exercises its collateral option, and seizes a Reserve property for non-payment of a debt, the band has as much an opportunity as anyone else to retribalize that land by buying out the liability.
In other words, placing Reserve lands under an ownership structure similar to the one that exists elsewhere carries little real danger in the sense of the loss of tribal lands. If a case arose where a non-native person or entity was in a position to break down that social integrity, it is the existence of a market in land, a market that is impossible without property rights, that contains the remedy. It would be possible, of course, for a tribe or its governing council not to intervene, and not to bid on the threatened land. But if that happened, wouldn’t it mean that the social value that we decided to preserve by forbidding individual ownership wasn’t very important to the tribe in the first place?
In his own words, Coase explains it this way:
Take the case of a newly discovered cave. I say, whether the law says it's owned by the person where the mouth of the cave is or whether it belongs to the man who discovers it or whether it belongs to the man under whose land it is, it'll be used for growing mushrooms, storing bank records, or as a gas reservoir according to which of these uses produces the most value. The law of property determines who owns something, but the market determines how it will be used. . . . All it says is that the people will use resources in the way that produces the most value.19
When the value of the property includes the desire of some parties to prevent it from falling into the hands of some others, that feeling is automatically included in the determination of the ultimate disposal of the land. There is no real danger of any sort of permanent loss. That being the case, and when the benefits of individual ownership are so clear and so substantial, it makes no sense to me that we maintain an artificial wall of protection around Reserve lands. You don’t need protecting from individual property rights, you need the protection afforded by them.
“Coase argued that, when one considers opportunity cost in its full meaning, no such devices [as artificial legal protection from unwanted externalities] are necessary: private losers and winners in such cases can ‘internalize’ these externalities themselves through negotiation and that the result will be identical regardless of which party has rights of ownership over the cause of the externality. In short, the manner in which a property right is initially assigned will not affect the efficiency of resource allocation.”20 This holds true in every case, except those in which transaction costs are prohibitively high, which does not apply in this case.
Economic growth that never occurs, the lost opportunities that never had a chance, cannot be measured. One can never therefore say for certain how important they are. But I have seen estimates, for instance, that as many as 90% of small businesses in North America are initially capitalized with a mortgage on a family home. The fact that non-collective property rights are not embedded in the arrangements that govern Reserves, and that neither bands nor individuals are allowed to leverage their assets with commercial credit systems means that they abandon the tools with which they can strengthen the very social continuity many of them seek to retain. There is no doubt that the flood of young natives to our cities would at least diminish in part if Reserve economies could provide for their needs.
Last summer, the Frontier Centre invited Jean Allard, a Manitoba Métis with vast experience in and knowledge of the transition to native self-government, to address a policy forum on the contents of his conclusions. His paper, The Rebirth of Big Bear’s People, contained a controversial proposal. Expand treaty payments, Allard says, to $5,000 a year per person instead of $5. Take about half of the budget of the Department of Indian and Northern Affairs, and dedicate it to individuals. Friends had informed me of Allard’s work before it was published,21 and I was intrigued by the fact that his thoughts were heading in the same direction as mine.
Allard’s his notion of decentralizing funding parallels with my suggestion for restoring property rights on Reserves, in the sense that both seek to address this crucial social issue with remedies that are decentralized and would tilt the social balance away from collectivities and towards individuals. The legend of Big Bear in instructive. During his long vigil of opposition to the numbered treaties, a position that was as prescient as it was futile, most of the people in his tribe packed up their hogans and sought other tribal groups. To be sure, they were starved into submission, but that’s not Allard’s point. What he wanted to illustrate was the fact that aboriginal societies were never the top-down, hierarchical groupings that native policy now encourages. Individuals and families always had the right to run their affairs differently if they chose.
When I first delivered my property rights paper, in Saskatoon, I was approached afterwards by a young lady who thanked me for my thoughts. She related that she had taken employment off-Reserve, but that she needed money to buy a car to get to the job. When she asked the bank for a loan to finance it – she was a professional and could well afford the payments – she was told that she could not lend money from them as long as she lived on the Reserve. She wanted to stay with her people, so she lied to the bank and gave another address.
It was only one of a thousand such anecdotes that I am sure everyone in this room has heard. There is no chance for Reserve economies to prosper, nor for tribal solidarity to survive, unless we shed ourselves of the property framework in the Indian Act. It is not an act of assimilation, it is merely the recognition that we all share rights in common.
The special status of our First Nations should lead us to make membership in those ranks carry more weight, not less.
Thank you for your time.
Dennis Owens was the Frontier's Senior Policy Analyst (1997-2007). A descendant of homesteaders near Portage la Prairie, he graduated from the University of Winnipeg in 1970 with a Bachelor of Arts in English and Political Science. Over a 20-year career in the transportation business, he rose to the position of operations manager of a Winnipeg-based firm. Since then he has researched and written about Canadian public policy issues for a variety of organizations including the Manitoba Taxpayers Association and the Prairie Centre. His specialties at the Frontier Centre include municipal issues, public education, healthcare and aboriginal policy. His frequent exposure in electronic and print media has included a regular commentary on CBC radio and articles printed in the Wall Street Journal and the National Post