The Evolution of Sovereignty in Economic Development

By Devin Gambler, MBA, Thompson Rivers University, ᐸᒥᐦᑖᐤ Pamihtâw Consulting Inc.

Clear separation of political control over economic development is the next evolution towards true sovereignty for First Nations. The role of political leaders is “composed of a chief and councilors who are responsible for making decisions on behalf of the First Nation and its members.” (Canada, 2023) The Aboriginal Economic Development Corporations (AEDC) are a growing organizations: “there are an estimated 260 AEDCs across Canada with a significant number concentrated in Ontario and British Columbia, reflecting the distribution of Canadian First Nations.” (White K. , 2016)

SEPARATION

There are few successful First Nations governance models that exist separately from First Nation’s economic development corporations. In comparison to their areas municipal and provincial counterparts, most Nations struggle in terms of infrastructure, capacity, population, budget size, and socio-economic indicators of success. Infrastructure are roads, sewage systems, water treatment, & buildings for example. With regards to the infrastructure piece: The infrastructure deficit across First Nations in Canada has been estimated by some experts to be between $25 billion and $30 billion (with some citing even higher figures). (The Canadian Council for Public-Private Partnerships, 2016) Capacity is the human capital in terms of experience & education for those working within economic development, it also means the structure of administration & financial from a policy and working model. Population sizes that can maintain housing and other infrastructure needs are low. The budget sizes of First Nations are low due to the funding gap that exists as well low revenues from own source ventures from AEDC’s. Socio-economic indicators of success are: “Indigenous communities need a stable socio-economic future, based on principles of social equity, economic vitality and sustainability.” (Stokes, 2019)

Since early 2000s, many Indigenous communities have witnessed the emergence and dramatic growth of a diverse individual and community-based entrepreneurial and economic development activities (Policy, 2017). While there is hope and change emerging at steady pace, only a few nations are experiencing successful outcomes, while most of them are struggling with inconsistency. With more than 260 AEDCs and approximately 600 First Nations in Canada, there are some similarities among local processes and institutions (White, 2016). The research conducted by the Harvard Project (2005) on American Indian Economic Development over the past 30 years calls for a separation of business (AEDCs) and politics (Chief and Council) among the governance institutions of Indigenous communities where entities are often collectively owned and operated, unlike their non-aboriginal counterparts (Camp, 2005). How do the few differ from the majority, and are those nations struggling, willing to learn and implement what’s been done?

To look at solutions we must first examine how Municipal, Provincial and First Nations create revenue. Municipal and provincial governments derive their revenue for their budgets from mainly taxation (within their jurisdiction). This is an area which First Nations are just beginning to access; however, this is limited especially with what Provinces have for jurisdiction. First Nations who are just starting down the path of taxation in many instances use government funding as their main source of revenue with own source revenue (corporations’ profit, impact benefit agreements, etc.)  Often First Nations economic development corporations are under-funded and lack capacity in terms of education or experience. They run in some cases as a nonprofit with staff doing multiple roles minus the pay for daunting tasks ahead of them. Most progressive Nations are well underway to growing their own source revenue to fund their government & businesses. These are how Municipal, Provincial and First Nations create their revenue and where they are at in their respective growth.

EVOLUTION

How do First Nations their respective economic development corporations grow and what is the next step of the journey ahead? The next steps in the evolution of Indigenous developmental leaders would be to pool their resources and attract more private sector capital (Krawchenko, 2021). Specifically, venture capital is what First Nations in Canada should look to attract, as the alignment of investment goals can mirror their own with some adjustments. Venture capitalists were attracted to a non-politicized board as it was stable & well structured. In fact, in this sample, all enterprises with a profit index score of zero lacked an independent board. The implication is that a board that serves as a buffer between the (inherently) political tasks of setting tribal direction and strategy and the more specialized and technical tasks of managing enterprises contributes to success (Jorgensen, 2005). The research backed by the Harvard Project has shown how an independent board is vital for success: Essentially, the research of the Harvard Project finds that poverty in Indian Country is a political problem—not an economic one. (Jorgensen, 2005)

Here are the impacts that relate to this management structure that promotes independence for the economic development corporation. Enterprises whose management is insulated from elected bodies face odds of profitability of nearly seven-to-one, whereas enterprises where elected leaders participate in management face odds of profitability little better than one-to-one (Jorgensen, 2005). I have personally seen the success of First Nations economic development corporations that are insulated. Insulated enterprises attract highly skilled talent & decrease turnover due to a stable work environment. Having worked in economic development for several First Nations, I have witnessed highly educated and experienced individuals refusing to work for their communities.  The main reasons include are low pay, politics and involvement of Chief and Council, and a lack of job security. A study by the Environics Institute in 2009 that interviewed Indigenous people found: “The majority of 18- to 24-year-olds who moved to the city did so to pursue an education (57 per cent), or a career (47 per cent). Most urban Aboriginal peoples do not intend to return to their communities of origin to live permanently in the future, but some (first and second generation) either plan to return or remain undecided.” (Institute, 2009) If some of your best players aren’t even considering playing for the home team, then it’s an organizational problem.

First Nations need to focus on taxation as a stable form of revenue to fund administration, infrastructure, housing, social services, cultural preservation, & attracting investment. This ensures that growth and investment of profits create sustainability and long-term growth. While all First Nations may pass by-laws related to the taxation of land under the Indian Act Amendment and Replacement Act (June, 2023) , the First Nations Fiscal Management Act (FMA) reaffirms participating First Nation governments’ enhanced authority over financial management, property taxation and local revenues, as well as financing for infrastructure and economic development. First Nations may pass by-laws related to taxation pursuant to section 83 of the Indian Act Amendment and Replacement Act (June, 2023). However, while section 83 affirms powers over individual First Nations’ fiscal management, it is limited in scope and jurisdiction  (First Nations Tax Commission, 2023). Economic development corporations need to focus on procurement, community benefit, and partnerships to support their revenue generation. We can observe how independence of the economic development corporation structure can promote results and ensure the growth needed for the journey ahead.

SOVEREIGNTY

Sovereignty for First Nations involves letting go of their power and authority over economic development. “They must do this for three main reasons: liability, capacity, and profits. Corporate Directors can be held liable for decisions made during their terms of service. Canada Revenue Services defines directors’ liability as the directors did not exercise the degree of care, diligence, and skill (“due diligence”) required to prevent the failure to deduct, withhold, remit, or pay” (Canada Revenue Agency, 2014). The leading case on corporate criminal liability in Canada is Canadian Dredge and Dock Co. v. The Queen [1985] 1 S.C.R. 662, in which the Supreme Court of Canada accepted the “identification” doctrine as the basis for liability (Government of Canada, 2002). This is why it’s imperative to have directors that have the education and experience to make sound decisions to prevent liability. Most First Nations lack the capacity, experience and education required to make informed decisions as a corporate director as they are in a dual role of being Chief & Council, which adds to the risk of actions the corporation takes. Often, they are put into conflict-of-interest positions and lack a policy that is neutral in disputes with people or other corporations. First Nations need to allow professionals to do what is needed with the oversight by corporate directors to drive profits. This separation will allow for new opportunities, such as partnerships and venture capital investments.

Sovereignty for economic development corporations involves ensuring good governance & driving profits work hand in hand. They must do this through three main approaches: structure, partnerships, and procurement. A good corporate structure allows for board representation that enhances and supports the overall corporation. The board doesn’t get involved in the day to day. They work through the CEO & support & communicate through their representative. The structure also includes legal and accounting assistance in ensuring compliance.

Partnerships are key to growth and many economic development corporations are taking advantage of these mechanisms. Providing employment AEDCs are major sources of employment for the community/ communities they serve. An average of 278 employees works for the AEDCs interviewed and their subsidiary businesses, with a large portion (69%) reporting one to 150 employees. This represents a total of 12,220 jobs across all 45 AEDCs interviewed (Canadian Council of Aboriginal Business, 2020). Federal procurement is a cornerstone, especially on major projects. A minimum of 5% of the value of federal contracts are awarded to Indigenous businesses (Government of Canada, 2022). These are highlighted examples of strategies that First Nations economic development corporations need to focus on to ensure good governance and profitable growth.

BIBLIOGRAPHY

Camp, R. R. (2005). Aboriginal land rights and development: corporations and trust. International Journal of Entrepreneurship and Small Business, 2(2), 134-148.

Canada Revenue Agency. (2014, 04 14). Income Tax Information Circular. Retrieved from Canada Revenue Agency: https://www.canada.ca/content/dam/cra-arc/formspubs/pub/ic89-2r3/ic89-2r3-14e.pdf

Canada, C. B. (2017, 03 14). Barriers to Aboriginal entrepreneurship and options to overcome them. Retrieved 04 2023, from Conference Board of Canada: https://nacca.ca/wp-content/uploads/2017/04/ Research-Module-3_NACCA-BDC_Feb14_2017.pdf

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First Nations Tax Commission. (2023). OVERVIEW: REGULATORY FRAMEWORKS – About the FMA. Retrieved from First Nations Tax Commission: https://fntc.ca/overview-section83-fma/

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Jorgensen, M. &. (2005). What Determines Indian Economic Success? Evidence from Tribal and Individual Indian Enterprises. The Harvard Project on American Indian Economic Development Wiener Center for Social Policy John F. Kennedy School of Government Harvard University, 12.

Krawchenko, T. &. (2021, November 29). Academia. Retrieved May 2023, from A place-based view on First Nations access to credit and Capital: Aboriginal Financial Institutions: https://www.academia.edu/62191740/A_place_based_view_on_First_Nations_access_to_credit_and_capital_Aboriginal_Financial_Institutions

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White, K. (. (2016, 03). “We Want Doors Opened, Not Slammed Shut”: Aboriginal Economic Development Corporations and Public Policy Case Studies From Saskatchewan. Public Policy Thesis (M.P.P.)–University of Saskatchewan, 2016., p. 77.

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