Editor's Note: This column was co-authored by Shawn Regan.
What drives economic growth? It’s arguably the most important question in all of economics. Once you start thinking about it, said Nobel laureate Robert Lucas, it’s hard to think about anything else.
Although a precise growth recipe remains elusive, one ingredient is widely recognized as essential for prosperity: a system of secure property rights. The importance of such rights can be found in America’s own backyard.
Crossing into most Native American reservations reveals islands of poverty in a sea of prosperity. Per capita incomes on Indian lands are nearly a third of those for allU.S.citizens. Unemployment rates are no better, reaching almost four times higher than the national average.
The difference is due to a lack of property rights on reservations. Unlike other American citizens, Native Americans on reservations cannot even own land. The title to most reservation land is held in trust by the federal government. This means Native Americans cannot manage their own resources or use their land as collateral for loans. The result is what Peruvian economist Hernado de Soto calls “dead capital.”
The amount of dead capital on reservations is enormous. Reservations contain almost 30% of the coal reserves west of the Mississippi, 50% of potential uranium reserves, and 20% of known oil and gas reserves. The Council of Energy Resource Tribes recently estimated the total value of these resources at nearly $1.5 trillion.
Yet the vast majority of Indian lands with energy potential remain undeveloped. Federal control of reservations limits opportunities for economic growth by raising the cost of developing energy resources on Indian lands. Investors must go through dozens of additional steps and several different federal agencies to do business on reservations.
Without property rights, Native Americans are unable to control their own energy resources. The Bureau of Indian Affairs approves and oversees all energy development on Indian lands, adding layers of bureaucratic red tape to tribal resource development. When resources are eventually developed on reservations, the returns to the tribe are usually low. On the Crow reservation in Montana, for instance, the annual return on its massive coal reserves amounts to a mere 0.01%.