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10.11.03

Mining And Casinos

It seems to me that the problems with casinos as an economic development strategy for Native American tribes are similar in many ways to the problems of mining as a development strategy for rural areas and developing countries.

The basic premise of most such development schemes is the idea of creating what is sometimes called a "growth pole." This is based on the finding of economic geography that firms benefit from proximity to other successful firms. Economically successful regions arise because firms generate beneficial externalities that other nearby firms can take advantage of -- they foster a pro-business political climate, they produce a trained pool of labor, they share the costs of infrastructure improvements, and so forth. One of the most important of these effects is economic linkages. The most commonly described type of linkages are based on product flows. For example, a successful steel plant will foster the growth of "downstream" industries like car manufacturers that use the steel, as well as "upstream" industries like steelmaking equipment manufacturers that produce things the steel company needs. Another type of linkage is a "fiscal" linkage. A fiscal linkage occurs when some entity -- often a government -- takes a portion of the company's profits and reinvests it in another enterprise.

Mining linkages are predominantly fiscal. Mining companies have been generally unsuccessful at generating upstream and downstream linkages, for a variety of reasons I won't go into at the moment. Casinos work likewise. Generally a casino is a self-contained resort complex, meaning there's little opening for additional related enterprises to accrete around it. Instead, tribes take their casino revenues and reinvest them in things like community services, other enterprises, and payouts to tribe members.

The artificiality of fiscal linkages is one problem. Because there's no economic interrelatedness to dictate what other enterprises will benefit from the linkage (as is the case in upstream and downstream linkages), fiscal linkages are more susceptible to manipulation. Corrupt and nepotistic use of mining revenues is a widespread problem in developing countries. Compounding this problem is the centralization of the money. Mines and casinos are typically single large enterprises, meaning the profts are concentrated in a few hands. This centralization continues when the government takes its cut. This centralization of money leads to a centralization, and hence focused use, of power. This is what has led tribes with casinos to gain more political clout. But it has also led to tribal leaders abusing their power within the tribe, since tribe members are at the mercy of those who control the casino's revenue stream. As I understand it, this kind of problem has plagued the Oneida Nation since the opening of Turning Stone Casino, as many of the out-of-power traditionalist faction feel that they have been greatly wronged by the Nation's leaders.

A second problem is the need for political involvement for casinos and mines. Both kinds of enterprises generally require special dispensation from the government to open - casinos need exemptions from laws, and mines need grants of land as well as the easing of tax and regulatory burdens. This encourages the growth within casino and mining operations of a skill at and inclination for special-pleading politics. These interests are used to getting special favors and case-by-case consideration from the government rather than following explicit and universal rules, and the concentration of economic power that the enterprises enjoy allows them to demand such consideration. The result is often cronyism. On the other hand, things go bad if the government ever turns on the casino enterprise, as we're seeing with many cash-strapped states. The economic concentration of these enterprises makes them appealing targets. And the history of relations based on special favors makes the government inclined to think that the tribe owes them, and that they can get away with demanding some special favors of their own. This results in an erosion of general principles of tribal sovereignty in favor of relationships worked out on the basis of the particular power relations in individual cases. The erosion of such general principles gives the tribes less of what the pretentious social scientist in me would call a "discursive resource," that is, a social structure or principle that can be drawn on to win an argument or struggle.

I hesitate to condemn casinos (or mines) outright, since without them many more Native Americans would be destitute and powerless. And I think some of the problems are more in the regulatory structure than in the nature of the casino business. Nevertheless, they present some serious problems and point to the difficulties of using a single industry to spur growth, and to the danger of the entanglement of favor-seeking that turns a well-regulated market into crony capitalism.

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