To put a Canadian spin on a Middle Eastern saying, First Nation leaders never miss an opportunity to miss an opportunity.
Case in point is the kerfuffle surrounding aboriginal financial institutions. The federal government created these institutions in the mid- to late 1980s as a means for First Nation entrepreneurs to access badly needed capital.
Due to restrictions in the Indian Act, on-reserve First Nation people cannot access land as collateral for business loans. However, rather than deal with the cause of the problem — which is the lack of enforceable property rights on reserves and in the Indian Act itself — First Nation communities are up in arms over which types of lending institutions can distribute the money.
In 2009, Indian and Northern Affairs Canada (INAC) awarded five traditional lending firms $18-million in loan-loss guarantees. The Loan Loss Reserve program is a type of loan guarantee to reduce risk to lenders providing debt financing to small and medium enterprises in Native communities.
INAC excluded aboriginal financial institutions from the loan-loss reserves, and only extended the program to conventional lending firms.
Aboriginal financial institutions made the news by opposing the new INAC subsidy program.
These institutions have helped create jobs and play an important role in sustaining First Nation communities, but the matter of who gets to distribute this pot of money sidesteps the question of whether this is the best way to stimulate First Nation entrepreneurship.
So, rather than engage in a substantive debate about property rights for First Nation entrepreneurs or how the Indian Act impairs business and infrastructure development, the actors are distracted.
A better question is how best to create wealth for First Nations.
Aboriginal financial institutions say that they have distributed about $1.3-billion to aboriginal businesses over the years, creating many jobs in First Nation communities.
It may inject wealth into communities and create jobs, but is this sustainable?
André Le Dressay, an economist with Fiscal Realities Economists, a B.C.-based consulting firm that advises First Nation developers, argued that although Aboriginal Business Canada provides about $70-million in programs a year to help First Nations access capital, with real property rights they could be sitting on at least $6-billion in income-generating assets.
Fiscal Realities Economists studied the potential of 68 First Nations in British Columbia. What it discovered is that if only 40% of this land were converted to fee-simple ownership (land that can be transferred, sold or leased to anyone without restrictions and used as bank collateral), it would generate $3.8-billion in increased land values over 15 years.
We do not need to look at the issue hypothetically. In the United States, fee-simple lands came into existence on Indian reservations when surplus lands were granted to settlers during federal Allotment days, when Congress attempted a top-to-bottom privatization of reserves (called the Dawes Allotment Act). Tribal lands were divided into family plots and the rest was made available to non-native settlers. Allotment would only end in the 1930s, leaving differing forms of land tenure on reservation. As a result, U.S. reservations have a mix of fee simple, individual trust, and tribal trust lands.
Research conducted by Montana State University economist Terry Anderson and University of Arizona economist Dean Lueck revealed land tenure makes a difference. Compared with others, value of output per acre and agricultural productivity increases under a system of fee-simple ownership. Conversely, they found that a trust status placed on land points to poverty: it reduces average output by more than 50%.
The preference to deal with symptoms and not causes of poverty among native communities comes in other forms. Since 1999, First Nations can opt into the First Nations Land Management Act (FNLMA), legislation allowing bands to opt out of the land management provisions of the Indian Act (but the land remains a Crown-protected reserve). A KPMG study of 17 bands operating under FNLMA revealed these communities generated $101-million in investment and 2,000 jobs in the 17 communities.
Obviously, this is positive, but does this compare to the 2.6 million hectares First Nations could tap into if they converted only a fraction of it to fee simple?
Providing land wealth directly to the hands of individual native landowners avoids problems of politicized subsidy programs, or Ottawa picking winners and losers.
Let’s hope native leaders don’t squander this aboriginal financial institutions debate and settle for less than the best deal for First Nations.