[This went pretty much as planned ... looking forward to the Ken Burns-esque editing on it!!]
Like many scholars, I have a sense that great disparities in income and wealth may be socially and even economically problematic. The biggest disparities are not within countries, it turns out, but between them. That begs the question, why are some countries rich, developed, high income, First World, call them what you will, while others are poor, undeveloped, and so forth. Such questions tend to attract ideologues so for decades there were competing stories none of which accurately described reality or satisfied the most scientifically-minded scholars, who pined for the ability to put countries into test tubes and conduct controlled experiments on them.
Well, that is impossible, of course, but some scholars noted that it is possible to conduct so-called natural experiments where nations were more or less randomly divided into two and endowed with different systems of political economy, with different rules about business formation and property ownership in other words. Decades later, the results could be observed and hypotheses about the causes of economic growth tested.
For example, after World War II Germany was arbitrarily split into two parts, as was its leading city, Berlin. The eastern portion was placed under the system of political economy known as command economy communism while the western part was placed under a system called private enterprise representative government. In less than half a century, the economic differences between the two halves of the country, and the two halves of Berlin, were so enormous that the eastern regime collapsed and East Germany and East Berlin rejoined its affluent neighbors. Although scars remain, the two sides continue to converge under a single, free system of political economy. Korea was also divided randomly and to this day remains divided between a poor communist north and an affluent private enterprise south.
China likewise found itself divided into 3 parts, the mainland, Hong Kong, and Taiwan, and, once again, the part that restricted human rights, of which economic freedom is a major component, failed economically while the parts that supported economic freedom flourished. Mainland China is now in the throes of a long transition to become freer, more prosperous, and more like Hong Kong and Taiwan.
Those and similar episodes induced scholars to scour history, where they began to turn up other natural experiments, including some in North America. Prosperous upstate New York in the early 19th century, for example, was often compared favorably to the adjacent parts of Canada, which wallowed under local autocrats, a distant monarch, and a moribund economy.
But what of income and wealth disparities within nations? Well, most obviously, the Northern states, also known as the Free States, did much better economically by most metrics than did the slave Southern states. Most people think that slavery ended with the Civil War, but in reality, as many scholars, including myself in The Poverty of Slavery, have pointed out, slavery did not so much end as transform itself into debt peonage, prison labor, company town tyranny, white slavery, and what we today call human trafficking. We do not yet, however, have enough data to assert that those new forms of slavery impeded economic growth by state or region.
We do, however, have estimates of income inequality by state and I was surprised to discover that my adopted state of South Dakota has a Gini coefficient of wealth inequality of just .33, the lowest in the nation. Digging further, I discovered that three of the poorest counties in the nation are located in the Mount Rushmore State and they are all coterminous with Indian Reservations. Then it dawned on me that the federal and state governments had conducted a type of natural experiment right here in South Dakota..
The counties ruled by Pierre, which is how the state capital is pronounced believe it or not, enjoyed a classical liberal government that supported human rights, especially economic freedom. So the government strove to be efficient, a la Alexander Hamilton, which meant getting as much public service bang for each tax dollar as possible. That allowed for a low level of taxes, often the lowest in the nation, without denuding the state of roads, schools, or other public goods. The state government also encouraged entrepreneurship, even the simple self-proprietor variety. That kept levels of entrepreneurship higher in the state than elsewhere because to a large extent entrepreneurship begets entrepreneurship as people learn through friends and relatives that they too can start their own businesses. That keeps the market for certain goods, like restaurant meals and retail, extremely competitive, especially in Rapid City and Sioux Falls, long the state’s two largest urban areas. Entrepreneurship also keeps unemployment low and while most companies remain small proprietorships, many hire a few people and a few grow to become substantial concerns, like POET and Raven.
For the most part, the state’s Indian Reservations are ruled not from Pierre but from Washington, DC, by a bloated, autocratic bureaucracy called the Bureau of Indian Affairs or BIA. The BIA means well but all that means is that it is highly paternalistic. It does not think that Indians can manage their own affairs, in other words, so it micro-manages them on their behalf, as if they were children. The BIA also provides Indians with their own sub-standard health-care and education systems and makes it difficult for Indians to start a new businesses, obtain a business loan, sell property to start a business, and so forth. Little wonder that Pine Ridge, Rosebud, and other Reservations look like Third World Countries because they are ruled the same way, with the same top down, command political economy.
Now racists, and there are still a lot of them out there, will tell you, usually quietly and on the side, that the BIA is not the main culprit, the Indians themselves are to blame. Rosebud is run down because Indians are too lazy, stupid, ignorant, drunk, depressed, and diabetic to form their own businesses. Such claims are dangerous because they are not wrong per se: Reservation Indians in South Dakota do suffer from much higher rates of alcoholism, diabetes, and suicide than the general population. And their average educational achievement is much lower. But I guarantee that the racists have the cause and effect backwards. Indians would thrive if allowed to. In other words, if you put the Euroamerican population under the thumb of the BIA and freed Indians to do as they list, within 50 years you would see the situation exactly reversed, with whites living in shacks eating government cheese and Indians thriving under the Dakota sun.
I can guarantee that because in southern Appalachia some whites were oppressed, at first by slaveholders and later by sheriffs beholden to mining corporations, and they responded by getting drunk, living in shacks, and so forth. I know because they are my ancestors.
I also know that whenever Indians are free of the BIA, as some are today thanks to successful casino entrepreneurship, they thrive economically, as they did before the arrival of the BIA and other Europeans. They had not attained the same level of technology as the Europeans had upon contact 500 years ago but for reasons that need not detain us here. The Indians were numerous and prosperous when the Europeans came and became dependent upon government handouts only after centuries of germs, enslavement, which we are now learning was much more prevalent than hitherto understood, and warfare decimated their numbers and socio-cultural support systems. Long distance trading networks, large-scale factories for the production of pemmican from bison, the rapid introduction of European technologies, the acceptance of debt, and other indicators show that Indians were not a-economic beings but humans much the way Adam Smith described them, interested in bartering and trading to mutual advantage.
Little Business on the Prairie fills in all the interesting and remarkable details of this natural experiment, from South Dakota’s prehistoric past to its prosperous present, with special attention paid to the plight of the Indians who lost their independence along with their lifeways. It concludes that the lives of Indians will not be improved until they are allowed to adopt a political economy better suited to their natural human desires to learn, grow, and develop. It also suggests that other states, ones with slower growing, more unequal, and more fragile economies, might be able to learn some lessons from the Mount Rushmore State and improve their level of economic freedom by lowering taxes and barriers to entrepreneurship and rendering their governments more efficient. South Dakota has at least 99 problems, but its flexible economy is not one of them.
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