Level the Playing Field for Aboriginals: Deal with root causes of underground economy

Commentary, Aboriginal Futures, Joseph Quesnel

Recent moves to confiscate contraband cigarettes from the Dakota Chundee Smoke Shop are a symptom of a larger problem where First Nations are excluded from the modern economy.

The seizure was co-ordinated by the Manitoba Finance Special Investigations Unit, with assistance from the RCMP.

The Dakota are subject to Manitoba’s Tobacco Tax Act, claims of aboriginal self-government notwithstanding. The same would go with gambling, if planned VLTs are installed.

Central to the problem is the lack of opportunities for most First Nations in Canada. The First Nations Tax Commission estimates it is 10 times more difficult to create wealth on First Nation communities than in a non-aboriginal community.

The absence of a developed private sector on many reserves creates problems where time and resources is spent on chasing grants and public monies when most of the wealth and investment opportunities are in the private sector, not the public sector.

Having to go through the Minister of Aboriginal Affairs for so many economic decisions on a reserve creates what Nobel Prize-winning economist Ronald Coase called transaction costs, or factors impeding economic transactions.

As stated before in this column, another substantial obstacle is a lack of access to capital and credit. First Nation entrepreneurs, to a greater extent than the mainstream, must rely on personal savings to start and maintain businesses.

Land cannot be collateralized on reserves as underlying title is held by the Crown and individuals cannot hold land in fee simple. Thus, First Nations face these obstacles as well as the poorest segment of the population already.

American economist Douglass North theorized the rules of the game create incentives for certain economic activities.

In a speech accepting a Nobel Prize in economics in 1993, North said, “If the institutional framework rewards piracy then piratical organizations will come into existence; and if the institutional framework rewards productive activities then organizations — firms — will come into existence to engage in productive activities.”

Now, replace the term “piracy” with “illegal cigarettes” or “illegal gambling” in a modern First Nation context. Within the existing institutional matrix of the Indian Act, interacting with an environment where police rarely enforce tobacco or gambling laws on reserves, and you have the recipe for the growth of contraband tobacco on reserves.

On Six Nations communities in Ontario, illegal smoke shacks create hundreds of community-sustaining jobs that cannot be ignored.

The unfortunate reality, however, is illegal contraband attracts organized crime, as it is shielded from public scrutiny. Under-priced cigarettes are also easily accessible by under-agers. There is also a link between low cost smokes and high rates of smoking on reserves.

The unfortunate reality is the police must deal with underground economic activities that fuel organized crime. However, that can’t be the only solution. Manitoba must work with indigenous communities and especially Ottawa to unshackle First Nation economies and help these communities develop alternative viable industries.