Natural resources alone won't save Canada's reserves

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Appeared in the Calgary Herald
Ever since the northern Ontario reserve of Attawapiskat burst into public consciousness late last year, a plethora of pundits and politicians assert that if only reserves had more cash from the minerals or oil around them, reserve hamlets could be turned into Hong Kong.

Perhaps. There are examples of reserves that capitalize on their location. The Osoyoos Indian band in the south Okanagan does smart things, having created a first-class winery (Nk’Mip), hotel and conference centre and thus profiting from wine sales and tourism.

But Nk’Mip, while blessed by sunshine and land suitable for grapes, doesn’t have resources such as oil or gas or diamonds. Nor, for that matter, does Hong Kong.

That highlights this important point about prosperity: What matters more than natural resources is a community’s institutions and, depending on the community, location.

A plethora of studies reveal the necessity of institutions such as proper checks and balances so political power is separated from economic power; property rights that give residents an incentive to take care of their home and who can then also leverage it for personal gain; and—odd as this may sound—having residents taxed by their local government, as direct taxation gives voters more control over their politicians, both the size of government and spending priorities.

If such protection for citizens is non-existent, weak, or only exists because the present leadership favours such policies (but where long-term guarantees are lacking and thus such rights may be imperilled by future leaders), all the oil, gas and minerals in the world won’t deliver sustainable, healthy prosperity for the long-term.

Internationally, the now-dead Libyan dictator Moammar Gadhafi is an example of how one nation’s resource wealth was largely confiscated by a political leader and his family because of inadequate institutions.

A recent story in the Edmonton Journal by reporter Elise Stolte, which chronicled the Samson Cree First Nation near Edmonton, is illustrative of how the “resource curse” (where sudden riches without proper institutions plays havoc with people’s lives) plays out on a reserve. That reserve discovered oil in the 1950s and saw a production boom in the 1970s. It gave ever-larger royalty cheques to residents in the 1980s before the oil wells ran dry.

With reference to the sudden riches, the reporter interviewed one reserve councillor, Vern Saddleback, who blamed the avalanche of cash for creating a perfect storm of deep drug and alcohol abuse in the youth and then poor parenting.

Positively, if proper institutional structures are in place, not only is the resource curse mitigated and sustainable wealth creation possible, individuals and families are also more likely to develop the necessary personal skills that lead to success: attention to educational opportunities, and habits of work, saving and investing. Alberta and Norway are just such examples of jurisdictions with proper institutions that work to the advantage of all.

On smart institutional governance, property rights on reserve are a good example of how proper safeguards for citizens work to the benefit of all. On the Westbank First Nation near Kelowna, where 8,500 non-natives and 500 natives live, non-native residents can and do lease land for homes on 99-year leases. Such protection, while not as secure as fee simple ownership, does give residents some security, especially as the local government has never interfered with such leases. The “reserve” is thus mostly indistinguishable from any other Canadian suburb.   

Still, there will be many reserves where, even with proper institutional structures, local prosperity will be difficult to achieve: Not every reserve is in the British Columbia sun-belt. Many are remote and the prospect for affluence is less likely given such remoteness.

The core problem with some reserves—as should be tragically obvious by now—is that unless they are located near an urban area where kids and adults both have off-reserve opportunities, a reserve too often becomes an artificial, government-created entity, sustainable only by massive transfers from other governments. In some cases, they are akin to Potemkin villages.

However, even there, treaty Indians might still profit if they think of reserve land in the manner shareholders view property owned by a company: profit from the land at a distance but move one’s family to where the opportunities exist. After all, a reserve government can always contract with some farmer or business to develop what potential does exist on remote land: lease the land to a farmer, or have a mining company build a mine. Then take royalties or lease payments.

It would be a mistake to think every reserve can be a mini-Hong Kong, but appropriate reserve-specific and individual strategies might lead to relative improvements for treaty Indians now subject to a marginalized existence.

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