Fixing the Indian Act

Commentary, Aboriginal Futures, Frontier Centre

Canada’s most archaic legislation, the Indian Act, may finally be revised this year, but the changes under discussion will do little to remedy the abject poverty of most aboriginal citizens. Until they experience the full range of rights enjoyed by other Canadians, they will continue to be the poorest, least educated and therefore most jailed ethnic group in the land.

“New law to reform native voting,” read the headline after Indian Affairs Minister Robert Nault announced his proposals in January. Many of them are laudable and long overdue; on many reserves, voting is a joke, with the outcome tilted towards incumbents who wield enormous financial power over band members. A legal structure that ensures fair elections and protects the jobs of reserve employees who dare to dissent from entrenched chiefs will help remedy that.

But the changes offer window dressing on a dilapidated house with a rotten foundation. How fairly leaders are elected is decidedly less important than how much scope the government has when it takes office. Band councils have the legal authority to evict families from their homes with 24-hour notice. The title to most reserve lands, at the behest of the Crown, belongs to the entire community. With no security of possession, it becomes an irrational act for individuals to build or improve their assets. And the wholesale exemption of reserve lands from the strictures of commercial law guarantee First Nations’ exclusion from the dynamic economy surrounding them.

In a ground-breaking book published in 2000, Peruvian economist Hernando de Soto explained the connection between secure property rights and prosperity. Called The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, it links higher Third World poverty levels with the lack of clear legal definitions of property. De Soto estimates that the teeming masses in Latin America, Africa and Asia are sitting on assets that total US$9.3 trillion dollars, a capital base that could generate more enterprises than all the money coming from developed countries. Mostly composed of the land occupied by poor people, it has become what is called “dead capital,” “held but not owned” by its occupants. It amounts to 20 times the size of foreign commercial investment over the last decade and 93 times the amount of foreign aid to the Third World in the past 30 years. It remains unreleased because most of its occupants are squatters, with no legal title.

To quote The Economist, “secure title makes assets fungible. In a country with good property laws, almost anyone can use a house or a piece of land as collateral to raise a loan.” It also allows for collective effort; ownership of enterprises can be shared by hundreds, each of whom can cash out his or her share without jeopardizing the business. Without a decentralized system of ownership, with legal protection of transactions, economies remain trapped in inefficient, localized webs of interaction.

This analysis offers a compelling explanation for the entrenched poverty of Canada’s native people. A growing number of their opinion leaders are coming to the same conclusion. The sections of the Indian Act — 29, 87, 89 and 90 — that effectively forbid commercial credit create “a real reluctance to put a business on a reserve,” one of them recently stated. Repeal of those sections of the Act would do more to empower ordinary band members than a regime of fair voting.

B.C. native activist Meaghan Walker-Williams, assisted by economist David Friedman, has developed a proposal for expanding native commerce. She calls it the Coast Salish Free Trade Model, and it contains the ingredients for the revival of aboriginal economies. It would create free trade zones on all reserve properties, akin to the open economic structure that made Hong Kong an economic powerhouse, with no taxes and no external regulation. In exchange, business that invested in the zones would have to provide equity and employment for band members. Ms. Walker-Williams would also require investors to plow a percentage of their profits into a perpetual trust fund which would underwrite the myriad of government services now paid for by taxes.

Free trade zones would certainly mitigate the economic disaster induced by decades of bad law. But the notion would be impossible under the current Indian Act. What investors would go near a reserve if it meant risking total capital loss? The section of the Act that forbids non-natives from seizing assets on reserves must be repealed, or the idea is a non-starter.

Aboriginal poverty is mostly a function of bad laws. Tinkering with the Indian Act might expand democratic rights on reserves, but the most pressing need is the assurance of economic rights. When the belly is empty, who cares about voting?

If we intend to help natives climb out of the income cellar, we have to clear the clutter off the stairs.