The current COVID-19 pandemic has disrupted the lives of millions across the globe and has, at the time of this writing, killed over 300,000 people. In the United States alone, over 100,000 people have died, and that number continues to rise.[1] Unemployment across the country has skyrocketed, and many hospitals have struggled to keep up with COVID-19 patients. On Native American reservations, the pandemic has imposed strikingly high costs in terms of human lives and well-being. Native Americans are particularly vulnerable to the health and economic challenges caused by the pandemic due to high rates of poverty and chronic illness, as well as highly bureaucratic governance structures.

Many reservations are struggling to cope with immediate medical needs. For example, many tribal governments have reported shortages of COVID-19 test kits, and some reservations have had no test kits at all.[2] The Navajo Nation, which spans parts of Utah, Arizona, and New Mexico, now has the highest per capita rate of COVID-19 infection in the United States.[3] In New Mexico, Native Americans comprise roughly 50 percent of the state’s total COVID-19 fatalities.[4] Due to the tragedy unfolding on reservations, Doctors Without Borders has been deployed within the U.S. for the first time in the organization’s history.[5]

Not only are Native American communities disproportionately suffering from the health effects of the COVID-19 pandemic, they are also disproportionately suffering from the economic impacts of the pandemic. Tribal governments have closed tribal businesses across the country, limiting the income of many reservation residents. Additionally, tribal governments have seen their revenues sharply decline as their tax bases have been largely eliminated.[6]

The current medical and economic challenges on reservations highlight the relationship between the institutions that govern reservations and human well-being. The medical and economic disaster that is unfolding on reservations is the result of a long history of problematic institutions, including inefficient property rights regimes and excessively bureaucratic governance structures.[7] The long-term effects of these institutions have hindered reservation residents’ capability to cope with today’s medical and economic emergencies.

Economic Barriers that Exacerbate Poverty

Chronic poverty is likely one of the main reasons behind the economic and medical crises on reservations during the COVID-19 pandemic. Native American reservations have long been islands of poverty within the United States, and many scholars and policymakers have worked to understand and to improve the quality of life for tribal members. However, despite decades of federal and tribal initiatives, economic development and health outcomes on Native American lands have consistently lagged behind other places in the United States.[8] Additionally, native-owned businesses produce less income on average than those of all other racial groups.[9]

The complex institutional structure of Native American governance limits productive entrepreneurship and restricts individual liberty on a fundamental level. Institutions vary from reservation to reservation, but the federal government’s legal relationship with tribes has created many institutional similarities across most tribes. Over the course of American history, a pervasive administrative state has emerged on Native American reservations as the result of the unique institutions that govern those lands. These unique institutions impose high costs on individual Native Americans when they try to engage in most economic enterprises. The pervasiveness of bureaucratic control has also spurred negative forms of political entrepreneurship, eroded the rule of law, and hampered markets from working efficiently.[10]

Entrepreneurship and economic development on Native American reservations have been hindered through at least three main institutional channels: (1) the federal land trust, (2) a dual federal–tribal bureaucracy, and (3) legal and political uncertainty. These channels often pose barriers to mutually beneficial exchange, entrepreneurship, and innovation. In particular, they increase transaction costs, rent seeking, and bureaucratic delay, which impede many Native Americans from engaging in socially productive private enterprise.[11]

The Federal Land Trust

One of the largest barriers to economic development is the complicated nature of property rights on reservations. The federal land trust is a system where individual Native Americans or the tribal government own land on a reservation, but the title to the land is held in trust by the federal government. The land trust system significantly raises the transaction costs for buying, selling, renting, or using property. Native Americans who own trust land cannot sell or use their land as collateral without the express permission of the federal government.[12]

One of the most important federal agencies is the Bureau of Indian Affairs (BIA) within the Department of the Interior. In most cases, the BIA must grant permission to change land use, to make capital improvements, or to lease trust lands. Land-use decisions for tribal trust lands are even more complex than for individual trust lands because tribal trust lands face both BIA trust constraints and additional tribal controls that restrict leasing or other uses.

The trust system also severely limits the ability of individuals or tribes to use land as loan collateral, which restricts access to capital markets that are necessary for private enterprise.[13] Many banks choose to avoid lending to people with trust land because it is unlikely that banks can repossess the land in the event of a default.

One of the largest issues associated with trust land is the significant costs of bureaucratic oversight that non-Native Americans who own land outside of reservations do not face. For example, trust lands are subject to federal environmental regulations because the legal status of trust land is similar to other federal land, like national parks and national forests. The BIA must apply the provisions of National Environmental Policy Act (NEPA) and other federal laws and regulations. Compliance with these laws and regulations increases the time and monetary costs of engaging in economic enterprises, even if those enterprises are small.[14] The environmental assessments and environmental impact statements required under NEPA can be a time-consuming and financially expensive process for those who are least equipped to cope with such costs.

Dual Federal-Tribal Bureaucracy

The federal government and tribal governments have a complex relationship that is often ill-defined and convoluted. Nominally, the BIA and tribal governments have a government-to-government relationship, where the BIA has a duty to consult with the tribes. In addition to the consultation responsibility, the BIA oversees the trust obligations to “protect tribal property and resources.”[15] Since the BIA is obligated to fulfil the trust responsibility, it must consistently interfere in the control, management, allocation, and divestment of tribal lands and other resources. The federal government has assumed an active role in managing or regulating many aspects of life on a reservation.[16]

The BIA and tribal governments have wide discretion because of the complex system of property rights and bureaucratic management of the land. Due to the complicated and bureaucratic nature of property rights, land use decisions can become subject to the political whims of those in power. When a society is dependent on central planning and bureaucratic allocation, the small minority in power will often impose their preferences on others.[17] Nobel Laureate in Economics James M. Buchanan argued that “favoritism, discriminatory treatment (both positive and negative), and arbitrary classifications” emerge from socio-political systems that force people into dependency relationships with bureaucrats.[18]

Additionally, tribes function as both firms and governments because many of them run business ventures while they also have the coercive powers of government to tax, legislate, and regulate. Politics and economic enterprises are often intertwined and inseparable in these contexts.[19] Tribal governments run enterprises in a wide variety of fields, including tourism, gaming, energy, agriculture, forestry, manufacturing, and telecommunications.[20] The policymakers who run the businesses are often the same people or directly connected to the people who regulate economic activity on reservations.

Maintaining the separation between day-to-day business decisions and tribal politics is often difficult for tribal officials since enterprises are operated by elected officials and bureaucrats. The institutional arrangements that place politics and business close together, set up the potential for rent-seeking and corruption. In the case of many tribal enterprises a culture of rent-seeking has emerged where political leaders, who are simultaneously business leaders, discover and exploit opportunities that enrich themselves at the expense of others.[21]

Legal and Political Uncertainty

The complexity of Native American governance systems creates confusion and uncertainty for people who may want to do business on a reservation, creating significant barriers to economic development. Uncertainty regarding taxation schemes, judicial jurisdiction, incorporation codes, and access to capital markets hinders potential Native entrepreneurs, as well as off-reservation entrepreneurs who wish to enter reservation markets. [22] Potential entrepreneurs may be uncertain about how government actions will affect their decisions, and this uncertainty hampers the ability of entrepreneurs to engage in socially beneficial actions that create wealth on reservations.

Promising Signs, Despite the Economic Barriers

Although the economic barriers are significant, entrepreneurs across several reservations have leveraged their cultural and social ties to create robust informal economies, which have helped to mitigate the pervasive poverty. In cases where formal institutions have increased transaction costs or where access is limited to broader market networks, the informal or “underground” economy has become a vital part of everyday life on reservations.[23]

The informal economy allows individuals to be creative, look for entrepreneurial opportunities, and exploit those opportunities. For example, on the Pine Ridge and Rosebud reservations, most entrepreneurial individuals engage in “microenterprises” such as traditional beadwork, star quilts, Native dancing outfits, food catering, car repair, hair cutting, and babysitting.[24]

On the Navajo Nation, the costs of participation in the formal economy are relatively high due to federal and tribal policies, which has made the informal economy an important source of income. One of the most robust areas of the informal Navajo economy is at the 13 major flea markets that allow small, informal entrepreneurs to sell a variety of goods. Much of the informal economy on the Navajo Nation is sustained through community and familial ties.[25]

Although flea markets and other informal markets have helped mitigate the poverty on reservations, these markets are vulnerable during the pandemic. For instance, the Navajo Nation has ordered a lockdown during Memorial Day weekend and their stay-at-home order will be in place until at least June 7, which has shuttered flea markets and other economic enterprises.[26] However, after the stay-at-home orders are finished, informal and community-based approaches will likely be important ways of addressing the health and economic problems on reservations. These bottom-up efforts will likely have a tangible impact whereas the federal government’s response to the pandemic’s immediate economic impacts has already fallen short — in early May 2020, a group of Native American tribes sued the Treasury Department for failing to disburse billions of dollars in financial relief that was meant to aid tribes.[27]

Healthcare on Reservations

Before the pandemic started, many Native American reservations had worse health outcomes than other parts of the United States. Compared to other Americans, Native Americans are 50 percent more likely to have a substance-use disorder, 60 percent more likely to commit suicide, twice as likely to smoke, twice as likely to die during childbirth, three times more likely to die from diabetes, and five times more likely to die from tuberculosis.[28]

The Indian Health Service (IHS), an agency within the Department of Health and Human Services, is responsible for providing healthcare to Native Americans. Today, the IHS is a comprehensive health system for nearly two million Native Americans, mostly living on reservations. The IHS is the largest direct provider of health care in the U.S. Public Health System.[29]

The IHS is a microcosm of federally provided universal healthcare in the United States, but policymakers, tribal leaders, and policy analysts have often maligned the agency’s significant problems. For decades, healthcare for Native Americans has been marred by underfunding, poor quality, mismanagement, and neglect from policymakers.[30] The highly bureaucratized provision of healthcare on reservations has not been equipped to solve general health problems in the past, and it is unlikely that the system is equipped to handle the ongoing medical needs of the COVID-19 pandemic.

While the IHS has been unequipped to effectively manage the current pandemic, outside organizations have stepped in to provide critical assistance. In late April, Doctors Without Borders and the University of California, San Francisco sent healthcare workers to various communities on the Navajo Nation. The organizations’ healthcare workers are expected to stay through June. [31] Additionally, some estimates show that one-third of Navajo Nation homes do not have running water, which complicates virus suppression efforts. In response, a nonprofit has been donating handwashing stations, soap, and water to Navajo Nation residents to help slow the spread of the disease.[32]

Conclusion

The COVID-19 pandemic has been a burden on millions of Americans, but Native Americans are facing especially large challenges because of the institutional disadvantages of reservation life. In the short term, tribes will need help combating the immediate medical needs caused by COVID-19. However, this pandemic has highlighted the long-term economic and healthcare issues endemic in reservation life.

The economic barriers that have exacerbated poverty on reservations will continue to be problems into the future, even after the pandemic subsides. Resolving the problem of chronic poverty is likely to make reservations more robust against potential future crises. In recent years, some reservations have begun reforming their tribal institutions to remove unnecessary economic barriers, which should help to alleviate the problem of persistent poverty.[33] Like their tribal counterparts, federal policymakers should consider institutional reforms that will allow potential entrepreneurs on reservations to facilitate economic growth and reduce poverty.

The healthcare system on reservations also needs serious reconsideration. Federal policymakers are already making small institutional adjustments to the IHS, such as incorporating traditional medicines and traditional health practices.[34] However, the IHS will need more serious reforms to improve overall health on reservations and prepare for the next pandemic.

Read More:

• Lofthouse, Jordan K. “Culture and Native American Economic Development,” Journal of Entrepreneurship and Public Policy 9, 1 (2019): 21–39.
• Lofthouse, Jordan K. “Institutions and Economic Development on Native American Lands,” The Independent Review 24, 2 (2019): 227–248.
• Aligica, Paul Dargos, Peter J. Boettke, and Vlad Tarko. Public Governance and the Classical-Liberal Perspective. Oxford, UK: Oxford University Press, 2019.
• Haeffele, Stefanie, and Virgil Henry Storr, eds. Government Responses to Crisis. London, UK: Palgrave Macmillan, 2020.
• Herzberg, Roberta Q., Peter J. Boettke, and Paul Dragos Aligica, eds. Ostrom’s Tensions. Arlington, VA: Mercatus Center at George Mason University, 2019.

Learn about the Hayek Program’s Freedom & Flourishing research project and submit a research proposal to get involved.

More Commentary on the COVID-19 Pandemic:

• Coming Back From COVID-19: Lessons in Entrepreneurship from Disaster Recovery Research
• Reassessing the Notion of Work During the COVID-19 Pandemic
• Doing Bad by Doing Good during the COVID-19 Pandemic
• The European Union’s Governance System and the COVID-19 Pandemic
• How Can Economics Help Us to Better Understand COVID-19?
• Polycentricity Amidst a Pandemic
• Should We Be Worried about Inflation from the Fed's Recent Money-Printing?
• Inequality and Surveillance During the COVID-19 Pandemic
• Market Regulation and COVID-19 Response: Pain, Change, and Opportunity

Author:

Jordan K. Lofthouse is a senior fellow for the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University.

Notes:

[1] World Health Organization, “Coronavirus disease (COVID-19) Situation Report — 120,” 19 May 2020, https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200519-covid-19-sitrep-132.pdf?sfvrsn=515cabfb_2.

[2] Mercedes Bawden, “COVID-19’s Threat to Native Communities,” Forbes, May 19, 2020, https://www.forbes.com/sites/civicnation/2020/05/19/covid-19s-threat-to-native-communities/#69e4cefb4d13.

[3] Robert Klemko, “Coronavirus has been devastating to the Navajo Nation, and help for a complex fight has been slow,” The Washington Post, May 16, 2020, https://www.washingtonpost.com/national/coronavirus-navajo-nation-crisis/2020/05/11/b2a35c4e-91fe-11ea-a0bc-4e9ad4866d21_story.html.

[4] Marjorie Childress, “Native Americans make up 50% of COVID-19 deaths in New Mexico,”New Mexico In Depth, May 11, 2020, http://nmindepth.com/2020/05/11/native-americans-make-up-50-of-covid-19-deaths-in-new-mexico/.

[5] Chelsea Curtis, “Doctors Without Borders, UC San Francisco send health care workers to Navajo Nation,” AZ Central, May 12, 2020, https://www.azcentral.com/story/news/local/arizona-health/2020/05/12/coronavirus-navajo-nation-doctors-without-borders-uc-san-francisco-health-care-workers/3121198001/.

[6] Liz Mineo, “For Native Americans, COVID-19 is ‘the worst of both worlds at the same time’,” The Harvard Gazette, May 8, 2020, https://news.harvard.edu/gazette/story/2020/05/the-impact-of-covid-19-on-native-american-communities/.

[7] Randall Akee and Miriam Jorgensen, “Property institutions and business investment on American Indian reservations,” Regional Science and Urban Economics 46, no. 1 (2014): 116–125; Terry Anderson and Dominic Parker, “Wealth of Indian Nations: Economic Performance and Institutions on Reservations,” in Self-Determination: The Other Path for Native Americans, eds. Terry Anderson, Bruce Benson, and Thomas Flanagan (Stanford, CA: Stanford University Press, 2006); Terry Anderson and Dominic Parker, “Sovereignty, Credible Commitments, and Economic Prosperity on American Indian Reservations,” The Journal of Law and Economics 51, no. 4 (2008): 641–666; Terry Anderson and Dominic Parker, “Economic development lessons from and for North American Indian economies,” Australian Journal of Agricultural and Resource Economics 53, no. 1 (2009): 105–127; Shawn Regan and Terry Anderson, “ The energy wealth of Indian nations,” LSU J. Energy L. & Resources 3, no. 1 (2014): 195–223; Fred McChesney, “Government as definer of property rights: Indian lands, ethnic externalities, and bureaucratic budgets,” The Journal of Legal Studies 19, no. 2 (1990): 297–335; Joseph Kalt, Stephen Corness, Eric Henson, Kenneth Grant II, Jonathan Taylor, Miriam Jorgensen, Catherin Curtis, Andrew Lee, and Harry Nelson, The State of the Native Nations: Conditions Under U.S. Policies of Self-Determination (Oxford University Press: New York City, 2008).

[8] Rachel Mathers, “The Failure of State-Led Economic Development on American Indian Reservations,” The Independent Review 17, no. 1 (2012): 65–80.

[9] Robert Miller, “Economic development in Indian Country: will capitalism or socialism succeed?,” Oregon Law Review 80, no. 3 (2001): 757–860.

[10] Jordan Lofthouse, “Liberty versus Bureaucracy on Native American Lands,” Journal of Private Enterprise, 34 no. 1 (2019): 87–101.

[11] Jordan Lofthouse, “Institutions and Economic Development on Native American Lands,” The Independent Review 24, no. 2 (2019): 227–248.

[12] Joseph Kalt, Stephen Corness, Eric Henson, Kenneth Grant II, Jonathan Taylor, Miriam Jorgensen, Catherin Curtis, Andrew Lee, and Harry Nelson, The State of the Native Nations: Conditions Under U.S. Policies of Self-Determination (Oxford University Press: New York City, 2008).

[13] Terry Anderson and Dominic Parker, “Economic development lessons from and for North American Indian economies,” Australian Journal of Agricultural and Resource Economics 53, no. , (2009): 105–127.

[14] U.S. Bureau of Indian Affairs, “Indian Affairs National Environmental Policy Act (NEPA) Guidebook,” U.S. Department of the Interior, August 2012,

https://www.bia.gov/sites/bia.gov/files/assets/public/raca/handbook/pdf/59_IAM_3-H_v1.1_508_OIMT.pdf.

[15] U.S. Bureau of Indian Affairs, “Government-to-Government Consultation Policy,” U.S. Department of the Interior, 2020, https://www.tribalconsultation.arizona.edu/docs/BIA/BIA%20Consultation%20Policy%202000.pdf.

[16] Karin Mika, “Private Dollars on the Reservation: Will Recent Native American Economic Development Amount to Cultural Assimilation,” New Mexico Law Review 25, no. 1 (1995): 23–34.

[17] F. A. Hayek, The Road to Serfdom: Text and Documents (The Definitive Edition), ed. Bruce Caldwell (University of Chicago Press: Chicago, [1944] 2007).

[18] James M. Buchanan, “The Minimal Politics of Market Order,” Cato Journal 11, no. 2 (1991): 219.

[19] Richard Wagner, Politics as a Peculiar Business: Insights from a Theory of Entangled Political Economy (Edward Elgar: Northampton, Mass, 2016).

[20] Karen Atkinson and Kathleen Nilles, “Tribal Business Structure Handbook,” Office of Indian Energy and Economic Development, U.S. Department of the Interior, 2008, https://www.irs.gov/pub/irs-tege/tribal_business_structure_handbook.pdf.

[21] Seung Ginny Choi and Virgil Storr, “A culture of rent seeking,” Public Choice 181, no. 1 (2019): 101–126.

[22] Jordan Lofthouse, “Institutions and Economic Development on Native American Lands,” The Independent Review 24, no. 2,(2019): 227–248.

[23] Kathleen Ann Pickering, Lakota Culture, World Economy (University of Nebraska Press: Lincoln, NE, 2000);

Joseph Kalt, Stephen Corness, Eric Henson, Kenneth Grant II, Jonathan Taylor, Miriam Jorgensen, Catherin Curtis, Andrew Lee, and Harry Nelson, The State of the Native Nations: Conditions Under U.S. Policies of Self-Determination (Oxford University Press: New York City, 2008).

[24] Kathleen Ann Pickering, Lakota Culture, World Economy (University of Nebraska Press: Lincoln, NE, 2000).

[25] Dine Policy Institute, “Flea Markets of the Navajo Nation: A Report on the Informal Economy,” Dine College, 2018, https://www.dinecollege.edu/wp-content/uploads/2018/04/Flea-Markets-of-the-Navajo-Nation-A-report-on-the-Informal-Economy.pdf.

[26] “Navajo Nation orders community lockdown as Native Americans struggle amid COVID-19 outbreak,” MSNBC, May 24, 2020, https://www.msnbc.com/msnbc/watch/navajo-nation-orders-community-lockdown-as-native-americans-struggle-amid-covid-19-outbreak-83865157532.

[27] Mark Walker and Emily Cochrane, “Native American Tribes Sue Treasury Over Stimulus Aid as They Feud Over Funding,” The New York Times, May 1, 2020, https://www.nytimes.com/2020/05/01/us/politics/coronavirus-native-american-tribes-treasury-stimulus.html.

[28] Andrew Siddons, “The Never-Ending Crisis at the Indian Health Service,” Roll Call, March 5, 2018, https://www.rollcall.com/2018/03/05/the-never-ending-crisis-at-the-indian-health-service/.

[29] Mark Trahant, “The Indian Health Service Paradox,” Kaiser Health News, September 16, 2019, https://khn.org/news/091709trahant/.

[30] Andrew Siddons, “The Never-Ending Crisis at the Indian Health Service,” Roll Call, March 5, 2018, https://www.rollcall.com/2018/03/05/the-never-ending-crisis-at-the-indian-health-service/; Yvonne Wingett Sanchez, “Joe Biden pledges increased funding for Indian Health Services,” AZ Central, May 21, 2020, https://www.azcentral.com/story/news/politics/elections/2020/05/21/presidential-election-2020-joe-biden-increased-funding-indian-health-services/5232306002/; “Udall Pushes to Include Additional Funding for Tribal and Urban Indian Health Facilities in Next COVID-19 Relief Package,” United States Senate Committee on Indian Affairs, May 8, 2020, https://www.indian.senate.gov/news/press-release/udall-pushes-include-additional-funding-tribal-and-urban-indian-health-facilities; Timothy M. Smith, “Why COVID-19 is decimating some Native American communities,” American Medical Association, May 13, 2020, https://www.ama-assn.org/delivering-care/population-care/why-covid-19-decimating-some-native-american-communities.

[31] Chelsea Curtis, “Doctors Without Borders, UC San Francisco send health care workers to Navajo Nation,” AZ Central, May 12, 2020, https://www.azcentral.com/story/news/local/arizona-health/2020/05/12/coronavirus-navajo-nation-doctors-without-borders-uc-san-francisco-health-care-workers/3121198001/.

[32] Colleen Sikora, “A third of Navajo Nation homes don’t have running water, so a woman is raising money to donate handwashing stations,” KPNX 12 News, May 23, 2020, https://www.12news.com/article/news/health/coronavirus/a-third-of-homes-on-the-navajo-nation-dont-have-running-water-so-a-woman-is-raising-money-to-donate-hand-washing-stations/75-811d06f4-da9f-4093-b4e8-5a251ad96fdd.

[33] “Honoring Nations: Directory of Honored Programs 1998–2018,” Harvard Project on American Indian Economic Development, https://hpaied.org/sites/default/files/HPAIED%20Directory%202017-2018%20FINAL%20%28002%29_0.pdf.

[34] Sydney Akridge, “Returning To Roots, Indian Health Service Seeks Traditional Healers,” Kaiser Health News, May 14, 2020, https://khn.org/news/reversing-history-indian-health-service-seeks-traditional-healers/.