Economic diversification on the Navajo Indian reservation : a study of the development of small business enterprises


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Economic diversification on the Navajo Indian reservation : a study of the development of small business enterprises
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ix, 173 leaves : ill. ;
Gilbreath, Larry Kent
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Navajo Indians -- Economic conditions   ( lcsh )
Navajo Indian Reservation   ( lcsh )
Economics thesis Ph. D
Dissertations, Academic -- Economics -- UF
bibliography   ( marcgt )
theses   ( marcgt )
non-fiction   ( marcgt )


Thesis--University of Florida.
Bibliography: leaves 165-173.
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Manuscript copy.
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Thesis - University of Florida.
Statement of Responsibility:
by Larry Kent Gilbreath.

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Full Text



Larry Kent Gilbreath

A Dissertation Presented to the Graduate Council of
the University of Florida in Partial
Fulfillment o[ the Requirements for the Degree of
Doctor of Philosophy



To Shirley.


A number of people were kind enough to read this study

and give me the benefit of their criticism. In particular,

I am indebted to my committee members, Dr. Ruth McQuown,

Dr. Dale Truett, and my chairman, Dr. Ralph Blodgett. Most

of all, I am indebted to Dr. Joseph Perry, whose supervision

of my work was all that a student could ask for. His in-

sistance on high scholarly standards was an inspiration,

and his kindness to me as a friend was a constant source of

personal motivation.

There were many people in Arizona and New Mexico who

were helpful to me. I am indebted to those individuals

who granted me interviews and to the many Navajo Tribal

Officials and Bureau of Indian Affairs officials who as-

sisted me in my research. I am especially grateful to the

BIA's Assistant Area Director, Robert Cullum, and his wife,

Vera. The Cullum's friendship and counsel were of great

benefit to my research.

Finally, I would like to express my gratitude to my

wife, Shirley, whose research assistance, typographical

work, and support in a thousand different ways made this

study possible. Also, I would like to thank both my parents

and Shirley's parents for their inspiration and assistance.







ABSTRACT . . . . .



* . v

. . vi

. . vii

I INTRODUCTION . . . . . .








* 15

* 37

* 78

* 102

* 124

* 147



RESERVATION, 1970 . . . . . .

RESliRVATION, 1970 . . . . . .

BIBLIOGRAPHY . . . . . . . . .

BIOGRAPHIC(AL SKETCHi . . . . . . . .







Table Page

1 Business Population by Ownership and
Business Category . . . . . .. 17

2 Business Population by Reservation
District . . . . . . . .. 23

3 Population per Business by Reservation
District . . . . . . . .. 26

4 Comparative Retail Trade Data . . . 28

5 Comparative Wholesale Trade Data ... .. 30

6 Comparative Selected Services Trade
Data . . . . . . . . .. 31

7 Population per Business . . . .. 33

8 Population per Business by Area and
Reservation Ownership . . . . .. 34

9 The Family Background of Reservation
Entrepreneurs . . . . . . .. 137

10 Personal Characteristics of
Reservation Entrepreneurs . . . .. .140



1 Location of the Navajo Reservation
with Regard to Surrounding States . ..

2 Navajo Business Population Distribu-
tion by District, 1970 . . . . .



Abstract of Dissertation Presented to the Graduate Council
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Doctor of Philosophy



Larry Kent Gilbreath

August, 1971

Chairman: Dr. Ralph H. Blodgett
Major Department: Economics

This study analyzed the problems of development in the

tertiary sector of the Navajo economy. An underdeveloped

tertiary sector allows income generated by the Navajos'

primary industries to flow off the reservation without

generating secondary jobs and sources of income for the

Navajos. Lack of development in the tertiary sector also

forces Navajo consumers to drive long distances to do their

shopping, restricts their selection of consumer goods, and

results in higher prices on the reservation than in peri-

pherial towns. This study tested the hypothesis that the

lack of small business development on the Navajo Reserva-

tion was largely the result of the Navajos' unique legal,

financial, cultural, and educational institutions.


The reservation business community was statistically

analyzed according to ownership, business category, and

geographical distribution; the data were then placed in a

context where they were compared with similar data from

surrounding states and counties. The data showed that over

60 percent of the reservation's businesses were owned by

non-Navajos; the businesses were clustered around govern-

ment boarding schools; and the business community was domi-

nated by the old trading post system. On a per capital basis,

the reservation's retail sector was six times smaller than

that of the surrounding areas, the wholesale sector was 100

times smaller, and the service sector 14 times smaller.

The size of reservation businesses did not compensate for

their scarcity.

In testing the hypothesis, it was found that a number

of institutional factors hinder the reservation's business

development. The Navajo system of land tenure forces en-

trepreneurs to obtain business leases from the Tribe, and

obtaining the lease is a slow and difficult task. Finan-

cially, it is difficult for Navajo entrepreneurs to obtain

capital from private sources, and Tribal and Federal govern-

ment sources of capital are not adequate for the Navajo's

business needs. Navajo culture hinders business development

in a number of ways: overextension of credit to relatives

causes many businesses to fail; the Navajo religion dis-

courages capital accumulation; "familistic individualism"


discourages the emergence of entrepreneurs; and estab-

lished trade patterns often cause Navajos to bypass reser-

vation business to shop in peripheral towns. The Navajo

educational system does not emphasize the teaching of basic

economics or business decision making skills. There is

also a general unfamiliarity with the nature of American

capitalism and the role of profits in a market economy;

this often results in hostility toward businessmen and busi-

ness in general.

The development of the reservation's tertiary sector

would slow the outflow of the Navajo's primary income and

generate new jobs and secondary sources of income; however,

there are many obstacles to developing business on the

reservation, and the pace of development is likely to be

slower than the Navajos desire.



In recent years, Americans have shown an increasing

awareness of the cultural and ethnic diversity of the United

States. This recognition of diversity marks a significant

deviation from the "consensus and homogeneity" theme which

for many years dominated the ideas and policies of both the

United States government and the American people. The

movement toward self-awareness and self-determination among

minority groups was focused at first on the nation's black

community. Over time, however, other ethnic minorities

began to show an awakened interest in their own heritage

and to demand recognition of the uniqueness of their social

and economic problems. This study is devoted to the exami-

nation of a specific economic problem of one of the nation's

least visible minority groups--the Navajo Indians.

The Problem

In the context of the United States economy, the Nava-

jos, like most American Indians, are poor. The estimated

1 Barton J. Bernstein, ed., Towards a New Past: Dissent-
ing Essays in American History (New yoTr: Ranom house, 1969),
p. vzi.

per capital income of the Navajos in 1970 was $831.2 This

figure compares with a per capital income of $2,894 esti-

mated for the State of New Mexico, $3,336 estimated for

Arizona, and $3,680 estimated for the nation as a whole.3

The Navajos' low per capital income is reflected in a lower

level of living, especially in the quality of their diet,

housing, and health.

Many of the Navajos' economic problems stem from the

strong dependence of the reservation economy on agriculture

and a few modest extractive industries. The Navajo economy

is not generally considered to be diversified; it does not

have a significant manufacturing sector, and it does not

have an adequately developed tertiary sector. The lack of

development in the manufacturing and tertiary sectors, com-

plicated by a rapidly growing population and a relatively

unproductive land base, contributes greatly to the reserva-

tion's inability to adequately support its population. The

absence of a well developed secondary or manufacturing and

processing sector forces many Navajos to seek employment

off the reservation. And many of those Navajos who will

2 Navajo Agency, BIA, Program Memorandum and Budget Data
(Window Rock, Arizona: Navajo Agency, BIA, 1971). This
memorandum was restricted material which the author was not
allowed to see. The figures quoted above were read to the
author from the material.
3U. S. Department of Commerce, Survey of Current Busi-
ness, April, 1970 (Washington, D. C.: Government Printing
Office, 1970), p. 16. This periodical supplied data on New
Mexico, Arizona, and the United States.

not leave the reservation or cannot find suitable jobs with-

in commuting distance from the reservation have to depend

on a subsistence agrarian income or welfare assistance.

The absence of a well developed tertiary or small business

sector allows most of the income generated by the reserva-

tion's basic industries to flow directly off the reserva-

tion.4 The first stages of the multiplier effect are not

felt, and many job opportunities and sources of secondary

income are lost to the Navajo people.

This study will be concerned with the development of

the reservation's tertiary or small business sector. Given

the present limitations on the reservation's capital and

entrepreneurial resources, the development of Navajo small

businesses offers an opportunity for immediate economic

benefits. The development of the secondary or manufacturing

and processing sector of the Navajo economy would require

the investment of large amounts of capital and the employ-

ment of relatively sophisticated entrepreneurial resources.

The development of small businesses on the reservation, how-

ever, would be more accessible to individual Navajo entre-

preneurs and would represent a more gradual transition from

the present agrarian economy. A well developed small busi-

ness community on the reservation could help provide needed

4 Among the reservation's basic sources of income are
agriculture, gas and mineral production, handicrafts, tour-
ism, and numerous government programs.

jobs and could also help many young Navajos obtain business

skills important to the reservation's economic growth.

Furthermore, it could reduce the leakage of the Navajos'

basic income and cause the first few rounds of the multi-

plier effect to be felt on the reservation. The presence

of a larger number of tertiary businesses could also reduce

the distance that Navajos have to travel to do their shop-

ping, provide a larger selection of commodities from which

to choose, and lead to lower prices through increased com-

petition. By providing ancillary services that did not pre-

viously exist, a small business community could also assist

in the future development of the industrial sector of the

Navajo economy.

The Setting of the Problem

The Navajos are the largest tribe of Indians in the

United States, both in population and in reservation size.

The Navajo Reservation covers 14,450,369 acres or over

24,000 square miles of land; added to this are over 3,500,000

acres of Navajo-owned land in areas near the reservation.5

In 1970, there were approximately 130,000 persons identified

as Navajo estimated to be living on or near the reservation,

5 Robert Young, The Navajo Yearbook (Window Rock, Ari-
zona: Navajo Agency of the BIA, 1961), p. 264; Jane M.
Christian, The Navajo: A People in Transition (El Paso:
West Texas State University Press, 1965), p. 4.

showing an annual rate of population growth that may be as

high as 4 percent. At this rate of growth, the Navajo.

population would reach 300,000 by the year 2000.7

The reservation covers almost as much land as New

Hampshire, Connecticut, Vermont, and Rhode Island combined,

and is similar in size to West Virginia. However, Navajo-

land has not been as hospitable to humans as the states men-

tioned above, and has historically been able to support far

fewer people. There are approximately 5.4 persons per
square mile on the reservation. This man-to-land ratio

is more than twice that of adjacent rural areas populated

by non-Indians. Considering the relatively unproductive

nature of the land, the reservation is actually crowded.

It has been estimated that the reservation can support only

about 35,000 people at a minimum subsistence level through

agriculture alone.9

6 Melvin R. Wise, Director, Branch of Information and
Statistics, BIA, Window Rock, Arizona, private interview,
August, 1970; Young, The Navajo Yearbook, p. 321.
7 Robert Cullum, Assistant Area Director, Division of
Community Services, BIA, Window Rock, Arizona, private
interview, August, 1970.
8 This figure was calculated from the data mentioned
9 Robert F. Spencer and Jessee D. Jennings, The
Native Americans (New York: Harper and Row, 1965), p. 319.



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The Literature

There has been a tendency in this century for white

men to treat the Navajos as an object of curiosity. This

curiosity has generated a great deal of study of the Navajos

by scholars in many different fields.10 However, there have

been no systematic studies of the Navajo economy which can

match the anthropological, educational, and linguistic

studies that have been conducted; yet nowhere are the Nava-

jos more likely to benefit materially from research than

in the field of economics. Of course, some studies of the

Navajo economy have been made, but generally these studies

have been "project-oriented," dealing with such matters as

the feasibility of a sawmill, an irrigation project, or a

wool processing plant. While these studies are generally

very valuable for the success of the projects under consid-

eration, they do not reveal much about the overall structure

and problems of the Navajo economy. The purpose of this

study is to fill a gap in the literature dealing with Navajo

10 For example, see Clyde Kluckhohn and Dorothea Leighton,
The Navajo (Garden City, New York: Doubleday and Co., Inc.,
1962); Robert A. Roessel, Indian Communities in Action
(Tempe, Arizona: Arizona State University Press, 1967T;
Robert W. Young, English as a Second Language for Navajos:
An Overview of Certain Cultural and L-inuistic FTactors
(Albuquerque: Bureau of Indian Affairs, 1968).
11 A fairly complete list of project reports and feasi-
bility studies of the reservation economy can be found in
United States Department of Interior, Bureau of Indian Af-
fairs, Economiic Development of American Indians and Eskimos,
1930-1967, A Bibliogurny (.,ashington, D. C.: Government-
Printing Oflice, 1968) p. 244.

economic development by providing an analysis of the reser-

vation's existing business community and by examining the

unique problems involved in developing small businesses on

the reservation.

Hypothesis to be Tested

This study will test the following hypothesis:

The absence of small businesses on the Navajo
Reservation is, to a large extent, the result
of a number of structural hindrances that stem
from the Navajos' unique legal, financial,
cultural, and educational institutions.

While it is generally assumed that the tertiary sector of

the Navajo economy is underdeveloped, this assumption must

be proved and examined in a comparative context if it is to

be meaningful. This study will show to what extent the

small business community on the reservation is developed

relative to the surrounding counties, the larger areas of

the Southwest (including Arizona and New Mexico), and the

United States as a whole. The study will then isolate and

analyze a number of the Navajos' unique social, legal, and

cultural characteristics and show their relevance to Navajo

small business development. This last section of the analy-

sis will constitute the larger part of the study.

Methodology and Research Techniques

In order to test the hypothesis, it was first neces-
sary to demonstrate that the small business community on

the reservation was underdeveloped relative to surrounding

areas. To demonstrate this underdevelopment, data had to

be gathered from which the state of small business develop-

ment on the reservation could be statistically determined.

In attempting to gather the data the author discovered that

no public inventory of reservation businesses existed. The

only list of reservation businesses in existence was held

by the Bureau of Indian Affairs' (BIA) Office of Real Prop-

erty Management in Window Rock, Arizona, and it was not

normally available for public examination. Through contacts

within the BIA, the author was eventually able to obtain a

copy of this list of businesses and from it construct a

statistically useful inventory of the reservation's small

business community.

The original list contained a record of all business

leases issued by the Tribe, but it was an imperfect register

of existing businesses on the reservation. Some of the busi-

nesses listed had been issued leases without ever having

opened, and some businesses were listed which had recently

closed. In order to determine which businesses on the list

had opened and were still in operation the author had to go

through the entire list with a Navajo tribal official who

was familiar with all of the businesses. Since the list did

not differentiate the businesses by Navajo and non-Navajo

ownership, it was necessary to have the Navajo official

indicate the type of ownership of each business. Once the

inventory of reservation businesses was updated and cate-

gorized according to the Standard Industrial Classification,

it was then possible to compare the reservation business

data with data for surrounding areas obtained from the De-

partment of Commerce's Census of Business.

Once the state of business development on the reserva-

tion had been determined, it was then necessary to gather

information concerning the Navajos' unique legal, financial,

cultural, and educational institutions for use in analyzing

the original hypothesis concerning business development on

the reservation. The gathering of this information necessi-

tated the use of primary research techniques. One primary

research tool employed in the study was the use of personal

interviews. The purpose of the interviews was to discern

local attitudes and ideas concerning Navajo business develop-

ment and to secure information concerning specific business

development problems that could not be found in print. These

interviews were conducted between July IS and January 1,

1970. A variety of individuals were interviewed, including

Navajo businessmen, white merchants and financiers, Bureau

of Indian Affairs officials, Navajo Tribal authorities, and

other governmental officials. In determining the persons

to be interviewed, there were two main techniques of selection.

First, the author asked certain men who were knowledgeable

in Navajo affairs to suggest the names of individuals whom

they thought might give helpful interviews. Second, it was

obvious from the occupation of certain individuals that

they were likely to be knowledgeable about a particular

question under consideration. The author carefully attempted

to obtain a representative cross-section of opinions on prob-

lems whenever this was possible. Whenever a particular prob-

lem necessitated the use of interviews, the author would pre-

pare a list of from ten to fifteen questions which he would

ask each person interviewed. There was a logical succession

in the questions, but the interviews were open-ended and

whenever the conversation demanded it, the order of the

questions was altered. Frequently, during the course of

the conversation, the persons interviewed would answer ques-

tions without the interviewer having to ask them. Follow-

ing each interview the author would immediately transcribe

his notes in order to prevent later misinterpretation. The

author met with great success in obtaining interviews with

individuals whom he desired to meet. Generally, inter-

viewees were very cooperative and interested in the author's

work; only occasionally did the author encounter any hostil-

ity on the part of those whom he sought to interview.

Another primary research tool, the survey questionnaire,

was used to discover information about the personal back-

ground and business problems of reservation entrepreneurs.

This questionnaire was adapted from a larger questionnaire

used to study entrepreneurs in Georgia and Texas. The

questionnaire was mailed, along with a stamped and addressed

return envelope, to every businessman identifiable from the

inventory of reservation businesses. When response to the

mailed questionnaire proved light, the author personally

traveled around the reservation and distributed question-

naires to all of the business owners he encountered. A copy

of the questionnaire and the accompanying introductory let-

ter may be found in Appendices B and C.

During the research, the author found two local news-

papers to be particularly helpful through their reporting

of news items that were relevant to the reservation economy;

they were the Navajo Times and the Gallup Independent.

Other primary written materials examined included records

of the BIA and the Navajo Tribal Council that were avail-

able for public examination. The author was also fortunate

in being allowed to examine several non-public documents

which were important to his research. The majority of the

secondary material used in this study is presented in Chap-

ter V and the initial sections of Chapter VI.

Organization of the Study

In Chapter II the reservation business population will

)be analyzed according to the type of business, the ownership

of the business, and the geographical distribution of

businesses on the reservation. Tables will be developed

comparing reservation business development with development

in surrounding counties, states, and the country as a whole.

In Chapter III, the unique legal and political hin-

drances to Navajo small business development will be exam-

ined. Topics discussed will include Navajo sovereignty,

the reservation's peculiar tax situation, the role of the

Bureau of Indian Affairs in business development, and the

structure and history of the Tribal government. Also dis-

cussed will be the land tenure system on the reservation

and the problems involved in obtaining a business lease.

Chapter IV will be devoted to examining the financial

problems involved in developing Navajo small businesses.

Sources of financial capital will be discussed, and the at-

titudes of local non-Indian bankers and financiers toward

Navajo small business development will be examined. Recent

actions by the Federal government affecting the availability

of capital for Navajo business development will be discussed.

The role of the Small Business Administration in Navajo

business development, insurance problems faced by reserva-

tion businessmen, and the potential of franchising to help

business development on the reservation will also be exam-

ined in Chapter IV.

Chapter V will deal with the influence of Navajo cul-

ture on the reservation's business development. Some of the

topics discussed will be the Navajo family, language,

religion, and personality. Also discussed will be the

Navajos' attitudes toward competition, work, saving, and

property. The discussion of these cultural topics will be

carried only to the depth necessary to determine their

relevance to small business development. It will not be

the purpose of this study to explore the many non-economic

facets of these cultural traits.

In Chapter VI the educational factors which influence

Navajo business development will be examined. The role of

education in developing a business character and disposi-

tion among the Navajos will be discussed, and the history

of the Navajo educational system will be explored in that

context. The relationship between education and entrepre-

neurs will also be examined, and the educational programs

designed to aid Navajo businessmen will be evaluated. The

results of a survey of the background and problems of reser-

vation entrepreneurs will also be presented here.

In Chapter VII, the significant findings of the study

will be presented and recommendations designed to facili-

tate business development on the reservation will be made,

based on these findings.



The Navajo people constitute a distinct cultural group

within the United States. They have a distinct language,

a distinct religion, a unique social structure, and a his-

tory different from that of the larger society which sur-

rounds them.1 As a result of this distinctiveness, the

Navajos generally identify themselves as a people apart

from the dominant culture and tend to prefer living on the

reservation to living in the alien, non-Navajo land.

A recent manpower survey on the reservation showed this

desire to live on the reservation to be a reality when 72

percent of the Navajo labor force indicated that they did

not want to leave the reservation for employment. Further-

more, the same survey found that, out of a labor force of

32,350 persons on the reservation, 20,250 persons were "non-

employed.y3 The combination of this high level of unemploy-

ment coupled with the desire to live on the reservation

Clyde Kluckhohn and Dorothea Leighton, The Navajo
(Garden City, New York: Doubleday and Co., IncE., 1962Z),
p. 23.
2 U. S. Department of the Interior, Bureau of Indian
Affairs. Navajo Manpower Survey. Window Rock, Arizona: Un-
published manuscript, 19-O-.
Ibid., p. 8.

gives rise to two possibilities concerning the state of

business development on the reservation. One possibility

is that there are a number of businesses on the reservation

employing non-Navajo personnel; the other possibility is

that there are few businesses on the reservation and there-

fore few job opportunities for the Navajos.

Analysis of the Business Data

The scope of the analysis which follows was limited

to small retail, wholesale, and service-oriented businesses

(hereafter shown as tertiary industries).4 It is this ter-

tiary sector of the Navajo economy which appears to offer

the greatest opportunity for development by the individual

Navajo entrepreneurs. The development of the manufacturing

and extractive sectors of the Navajo economy is likely to

demand comparatively larger amounts of capital investment

and relatively sophisticated entrepreneurs and managers.

Reservation Businesses According to Type
of Business an-7 Race of Owner

From Table 1, it may be seen that the most common type

of business on the reservation is the general merchandise

store. At the national level the "general store" has not

been of any great significance for a number of years, as the

4 Charles P. Kindleberger, Economic Development (New
York: McGraw-Hill, Inc., 1965), p. 316.



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trend toward specialty stores has grown. To the Navajos,

the general merchandise store is known as a trading post.

And it is the trading post which currently constitutes the

"life blood" of the business community on the reservation.

This situation is largely the result of the credit system

established by the trading posts, which is one of the key

features of the market economy on the reservation. The

credit system is interesting in that it is characterized

by a six-month cycle based on the traditional economy of

the Navajos. In the autumn, the lambs from the flocks pro-

vide a source of revenue to the Navajos while in the spring,

the shearing of the sheep and goats for wool and mohair pro-

vides another round of revenue. In between the two revenue

periods, the trading post has historically been the source

of credit to the Navajos, providing them with credit in

commodities and sometimes in cash. It is believed by some

people, however, that the trading posts will soon lose their

dominant role in the Navajo business community. For as the

Navajos move from their traditional occupations into wage

earning jobs, the role of the trading post credit system

should become less vital.

It is worth noting that approximately 80 percent (see

Table 1) of this key sector of the Navajo economy is con-

trolled by non-Navajos, a fact which has led some Navajo

U. S. Department of Commerce, Bureau of the Census,
Census of Business, 1967,Retail Trade: United States (Wash-
ingt.onUb. --~.: -C~ ou niunt tPint-Ji-ing--i'ce,-I-j6, -.?-p-_ 1-4.

leaders to level charges of colonialism against the non-

Navajo community.

In the area of retailing, the gasoline service station

is the second most common business establishment. It is

here that the greatest absolute number of Navajo entrepre-

neurs are found. One of the main reasons for the large

number of Navajo entrepreneurs in this field is the low

capital requirements necessary for starting such a business

and the correspondingly low levels of managerial resources

that the entrepreneur needs to possess. There is also a

tribal regulation which limits the ownership of gas sta-

tions to Navajos; however, this regulation is circumvented

in a number of cases.

The category "eating and drinking establishments" con-

sists only of eating establishments. The Navajo reserva-

tion has no liquor stores because the selling of alcoholic

beverages is illegal on the reservation. Also, the cate-

gory "automotive dealers" should not be confused with estab-

lishments that sell new and used cars. There are no new or

used car dealers on the reservation; the Navajo businesses

in this category sell new and used automobile parts.7

6 "M4acDonald v. Nakai," Gallup Independent, August 7,
1970, pp. 1 and 6.
7 Because the Department of Commerce's Census of Busi-
ness was not broken down into categories lowFer- TIi-an SC 55
at the county level, it was necessary to use the broader
automotive classification in the comparative tables.

Since there is only one wholesale business on the

reservation (see Table 1), the supplying of the retail

establishments on the reservation is done almost entirely

by wholesale establishments located off the reservation.

It is in the area of service establishments that the

Navajo entrepreneur is proportionately most common. Ap-

proximately three-fifths of the reservation's service estab-

lishments are owned by Navajos. In contrast, only three-

eighths of all establishments on the reservation are owned

by Navajos. The best explanation of this high frequency of

Navajo ownership in service establishments is not the low

capital requirements, but rather the relative newness of

most of these types of businesses on the reservation.

There is today a desire on the part of the Navajo Tribe

to see control of the reservation's business community lo-

cated in Navajo hands. This desire is manifested in an un-

written preference in granting business leases to Navajos

rather than to non-Navajos, when other factors are equal.

As a result, a high proportion of leases on new businesses

are granted to Navajo entrepreneurs. As an illustration,

the first two categories under service establishments con-

tain types of businesses that are relatively new on the

reservation. In the first category, trailer courts and

facilities for camper trailers are included. Of the six

establishments of this type, five are owned by Navajos. In

the "personal services" category, coin operated laundries

and dry cleaning businesses constitute seven of the ten

establishments listed. Of these seven businesses, six are

owned and operated by Navajos. Coin operated laundries

are not a new business in the United States, but they are

a relatively new business on the reservation.

Reservation Businesses According to
Geographic Distribution

In Table 2, the Navajo business population is divided

among the grazing districts of the reservation. These graz-

ing districts are also tribal political boundaries in the

sense that each district contains a certain number of

"chapters" which are the basic community units of the Navajo

Tribe. There are 22 grazing districts, but five of these

districts, 16, 19, 21, 22 and 23, are not located on the

reservation. They are in areas adjacent to or away from

the reservation. There is no district 20, and district

number 6 is actually the Ilopi Indian reservation.

As is apparent from Tfable 2, the business population

is not spread evenly over the reservation but tends to be

concentrated in a few areas. Six districts (3, 8, 10, 12,

17 and 18) contain 13 businesses or 67 percent of the reser-

vation's total business population. Each of these six dis-

tricts is adjacent to tourist attractions and contains large

government facilities--mainly boarding schools. District 3

contains the communities of Cameron and Tuba City, Arizona,

and is near the Grand Canyon; district 8 contains Kayenta,

Table 2

Business Population by Reservation District,
Navajo Reservation, 1970*

All Estab-
District Inhabitants lishments Retail Wholesale Services

1 4,207 S 5 0 0

2 3,282 2 2 0 0

3 5,240 11 11 1 1

4 7,325 3 3 0 0

5 3,061 3 3 0 0

7 6,892 6 6 0 0

8 6,071 25 18 0 7

9 5,784 6 6 0 0

10 8,188 27 22 0 5

11 3,004 9 9 0 0

12 14,930 37 29 0 8

13 3,083 3 3 0 0

14 6,941 9 9 0 0

15 7,692 5 4 0 1

17 9,425 17 17 0 0

18 10,166 30 26 0 4

*Souirces: Business data--see Table 1; population data
obtained from mimeographed "Estimate of
Population: Navajo Chapters and Districts,
April 1, 1970," Bureau of Indian Affairs,
Window Rock, Arizona.

j z

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Arizona, and is near Monument Valley; district 10 contains

Chinle, Arizona, and is at the entrance to Canyon de Chelly

National Monument; district 12 contains Shiprock, New Mexi-

co, and is near Shiprock Peak; district 17 contains Ganado,

Arizona, and is near a national historical site; and dis-

trict 18 contains Fort Defiance and Window Rock, Arizona--

both significant tourist areas and also the seat of govern-

ment for the Navajo Tribe.

Table 3 depicts the population per business according

to reservation districts. Here, the concentration of busi-

nesses in certain areas is even more apparent. At the upper

extreme, there are 2,662 persons per business in district 4;

and at the lower extreme, 243 persons per business in dis-

trict 8. The median is 650 persons per business. Evidently,

certain businesses in the high population/business areas are

heavily patronized or else the Navajos in these areas must

travel long distances to purchase the goods and services

they desire.- The scarcity of businesses in these areas-also

provides the opportunity for higher prices as a result of

the existence of "spatial monopoly" power.

Comparison of the Reservation Business
Population wit OtTher Areas

Tables 4, 5 and 6 show the state of development of the

Navajos' retail, wholesale, and service sectors compared

with the state of development of these sectors in neighbor-

ing counties, surrounding states, and the national economy

as a whole.


Table 3

Population per Business by Reservation District,
Navajo Reservation, 1970*

District Establishments Retail Wholesale Services

1 841 841 0 0

2 1,641 1,641 0 0

3 458 582 5,240 5,240

4 2,662 2,662 0 0

5 1,020 1,020 0 0

7 1,149 1,149 0 0

8 243 337 0 867

9 964 964 0 0

10 303 372 0 0

11 334 334 0 0

12 404 515 0 1,866

13 1,026 1,026 0 0

14 771 771 0 0

15 1,538 1,538 0 0

17 554 554 0 0

18 339 391 0 2,545

*Sources: Data derived from Tables 1 and 2.

Retail Sector

Table 4 shows that, while there are 171 retail estab-

lishments on the reservation, the surrounding counties of

McKinley, San Juan, Coconino, and Navajo have from three

to four times as many retail establishments. Yet the Navajo

reservation has two and a half times as many people as the

largest county--Coconino. Only Apache County does not

greatly surpass the reservation in the number of retail

businesses; however, it does have more retail businesses

than the entire reservation while having only one third as

many people.8 To place the Navajos' situation in a more

vivid context, the city of Gallup, New Mexico, with a popu-

lation of only 14,000 persons, has approximately 100 more

retail stores than the entire reservation with a population

of 130,000 persons.9

The large number of general merchandise stores on the

reservation accounts partially for the small number of re-

tail stores in some of the other categories. A reservation

trading post is likely to carry some merchandise associated

with nearly every other category listed in Table 4. It is

worth noting, however, that there is not a "building

8 Employment Security Commission of Arizona, Population
Estimates of Arizona (Phoenix: Arizona State Employment
Service, 1967-), p. 2.
U. S. Department of Commerce, Bureau of the Census,
Census of Business, 1967,Retail Trade: New Mexico (:as-hing-
ton,.D. C.: GovernmenftPrinting-Uttice, IrY9), p. 8.

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materials-hardware store" or a "drug store" on the entire

reservation of 125,000 square miles.

Wholesale and Service Sectors

The Navajos' comparative situation with regard to

wholesale establishments is no better than that of the re-

tail situation, as Table 5 indicates. There is only one

establishment on the reservation that could be classified

as a wholesale business, and it is a relatively small-scale

sand and gravel operation located near Tuba City, Arizona.

Wholesale business establishments in the surrounding coun-

ties, with their much smaller populations, greatly outnumber

wholesale business establishments on the Navajo reservation.

In the area of service establishments, the reservation

fares no better. As Table 6 shows, with the exception of

Apache County, each of the surrounding counties has from

five to ten times as many service-oriented businesses. And

even Apache County has twice as many service businesses as

the reservation. Thus, there emerges a picture of the Nava-

jo reservation without a well developed tertiary sector.

To the extent that this sector is not developed, the Navajo

economy remains undiversiEied relative to other areas of

the nation.

Comparison of the Population/Business Ratios

The lack of development in the tertiary sector is

further illustrated in Table 7, where population/business

ratios are presented. liere the Navajo ratios of 760/1


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retail, 130,000/1 wholesale, and 4,063/1 services are so

large relative to other areas shown that it is difficult

to believe that the areas are all part of the same national

economy. With the exception of Apache County, all of the

other areas have a minimum of six times fewer people per

retail business, 100 times fewer people per wholesale busi-

ness and fourteen times fewer people per service business.

When only the businesses owned by Navajos on the reserva-

tion are shown, as in Table 8, the Navajo population/busi-

ness ratios grow even larger.

A key variable in this situation is the size of the

businesses being considered. If the businesses on the

reservation were several times larger than the off-reserva-

tion businesses, there would be some compensation for the

high population/business ratios. Unfortunately, it has

been impossible to quantitatively compare the size of

Navajo businesses with off-reservation businesses. To have

done this would have required data concerning sales volume,

employment, or other size-revealing information. No such

data are available to private individuals, for the Depart-

ment of Commerce will not reveal information about individual

firms from its Census of Business. However, it is not diffi-

cult to qualitatively evaluate the size of Navajo businesses.

Although simple observation may often be misleading, in the

case of businesses on the reservation it is impossible to

escape the impression that the majority of businesses are

Table 7

Population per Business, Navajo Reservation
and Related Geographic Areas, 1967 and 1970*



Navajo Reservation 760 130,000 4,063

New Mexico 110 721 278

McKinley County 125 1,328 285

San Juan County 116 527 161

Arizona 115 726 160

Apache County



0 608

Coconino County




Navajo County 109 1,253 215

Mountain States



United States 112 635 167


Business data derived from Tables 1 through
6; population data, Department of Commerce,
Bureau of the Census, Current Population
Reports: Population Et ,.tei i.*n.l. i i~ton,
D. C.: GPO, 1967), p.2; Employment Secur-
ity Commission of Arizona, P9opulation Esti-
mates ofArizona 1967, p. 2; Bureau of Busi-
ness Research, New ,Mexico Pop elation Esti-
mates (Albuquerque: University of New Mexico,
1967T, pp. 1-4.


Table 8

Population per Business by Area and
Reservation Ownership, Navajo Reservation
and Related Geographic Areas, 1967 and 1970*



Navajo Reservation,
Navajo Owned 2,321 130,000 7,222

Navajo Reservation,
Non-Navajo Owned 1,240 0 10,000

New Mexico




McKinley County 125

San Juan County


1,328 285



Arizona 115 726 160

Apache County 274



Coconino County 102 801 138

Navajo County




Mountain States 105 595 147

United States 112 635 167

*Sources: Derived from Tables 1 through 7.


small rural operations. Therefore, it may be qualitatively

stated that large business size is not an offsetting factor

to the reservation's high population/business ratios.

The data presented above show that the Navajo reserva-

tion does not have a developed tertiary sector relative to

surrounding areas. The population/business ratios in the

retail, wholesale, and service sectors are many times great-

er than the surrounding areas, and the size of reservation

businesses does not act as an offsetting factor to these

high ratios. While the reservation cannot support an un-

limited number of small businesses, given the present level

of effective demand, the evidence suggests that more reser-

vation businesses than are presently in existence could be

supported by the Navajos. Total personal income on the

reservation is approximately $108 million per year, and

many businesses in peripheral towns, such as Gallup, New

Mexico, and Farmington, New Mexico, are dependent on the
trade of Navajo consumers.

In a developed economy, it is generally assumed that

mobility of the factors of production is a common character-

istic--at least in the long run. The factors associated

with the development of tertiary businesses have not shown

any significant movement from the national to the Navajo

10 Navajo personal income derived from data in Chapter I.
Navajo per capital income x Navajo population = Navajo per-
sonal income.


economy. It is the basic hypothesis of this study that

there are a number of unique, short-run structural hindran-

ces to the development of a tertiary sector in the Navajo

economy. The remainder of the study will be devoted to an

examination of these hindrances.



The political status of the Navajo Tribe might best

be described as one of limited or residual sovereignty.

The limited sovereignty of the Navajo Tribe does not stem

from a delegation of such power by the Federal government;

it comes from the original tribal sovereignty possessed by

the Navajos before their conquest by the United States.

Following the conquest of the Navajos by the armies of the

Federal government, the original tribal sovereignty became

limited by treaty and statutes. However, these limitations

are specific and, like the relationship between the Federal

government and the states, those elements of sovereignty

not specifically restricted are assumed to reside in the

governmental powers of the Navajo Tribe. This right of

sovereignty has been recognized in a number of judicial

decisions which generally adhere to three fundamental


(1) An Indian tribe possessed in the first
instance, all the powers of any sovereign
state. (2) Conquest rendered the tribe
subject to the legislative power of the
United States and, in substance terminated
the external powers of sovereignty of the
tribe, e.g., its power to enter into trea-
ties with foreign nations, but did not by
itself terminate the internal sovereignty

of the tribe, i.e., its powers of local
self-government. (3) These internal
powers were, of course, subject to quali-
fication by treaties and by express legis-
lation of Congress, but, save as thus ex-
pressly qualified, many powers of internal
sovereignty have remained in the Indian
tribes and in their duly constituted or-
gans of government.1

This recognition of Indian tribes as a nation within

a nation took place as early as 1832, when Chief Justice

John Marshall recognized the Cherokee tribe as a nation

constituting a distinct community in which state laws could
have no force.2 The classic case recognizing the Navajo

Tribe's sovereignty was Williams v. Lee, in 1959, in which

Justice Black wrote the opinion. Hle found that

. the internal affairs of the Indians
remained exclusively within the jurisdic-
tion of whatever tribal government existed
. and that the cases in this Court have
consistently guarded the authority of Indi-
an governments over the reservations. Con-
gress recognized this authority of the Nava-
jos in the Treaty of 1868 and has done so
ever since. If this power is to be taken
away from them let the Congress do it.3

The Navajos, therefore, constitute a relatively sover-

eign political body. The Tribe controls all internal af-

fairs unless specified otherwise by treaty or statute, and

the Constitution of the United States does not apply to the

1 Robert WIV. Young, The Navajo Yearbook (Window Rock,
Arizona: Navajo Agency eT Y-e MBTA 196T-, p. 384.
2 Williams v. Lee, 358 U.S. 217 (1958).

3 Ibid., p. 223.

Navajo Reservation unless specifically stated by Congress.

Since Congress has made the Constitution applicable to the

Navajo Tribe in only a few cases, the Tribe is generally

exempt from its provisions.

Structure and History of Tribal Government

The existence of this limited sovereignty places a

large amount of power in the hands of the Tribal govern-

ment. The execution of political power is carried out by

a relatively independent governmental body established by

the Navajo people. A brief examination of this governmental

structure will help in understanding many of the legal prob-

lems involved in developing small businesses on the reser-


Structure of the Government

In the past, Navajo political organization was charac-

terized by informality and decentralization.4 Therefore,

the development in the 1920's of a centralized governmental

authority constituted a significant landmark in the politi-

cal history of the Navajo people. This central authority

is the Tribal Council, founded in 1923, and established to-

day in Window Rock, Arizona, at the southeastern boundary

of the reservation.

4 Robert F. Spencer and Jesse D. Jennings ., The
Native Americans (New York: Harper and Row, laO5), p. 4.

It is not the purpose of this paper to discuss the

history of the emergence of this body, for this has been

done elsewhere. But it should be noted that this body has

only recently begun to be looked upon by the Navajos as a

significant instrument for Navajo self-determination. This

change in attitude is due largely to the historical inde-

pendence of the local areas on the reservation and to the

former isolation of the reservation from the mainstream of

American life. However, with the emergence of the Navajo

economy and the increasing cosmopolitanism of the Navajo

people, the need for a strong governmental voice to repre-

sent the political needs of the people has increased the

stature and significance of the Tribal Council. The Council

is a legislative body consisting of 74 delegates. It pass-

es upon the expenditure of tribal funds, the issuance of

traders' licenses, the promotion of law and order, and a

vast number of other legislative matters over which it has

jurisdiction. The executive branch of the Tribal government

consists of the Chairman of the Tribal Council, the Vice

Chairman, and their staffs and various administrative

SFor the history of the development of the Tribal Coun-
cil, see Young, The Navajo Yearbook, pp. 371-428; Clyde
Kluckhohn and Doru-lhhea "LegIhton, Ilie Navajo (New York:
Doubleday and Co., Inc., 1962), pp. 139-I7T5; and Lawrence
C. Kelly, The Nayvao Indians and Federal Indian Policy
(Tucson: UniverSity oT A-'-ToniaPress, 19"768p,'passim.
6 Laura Gilpin, The Enduring Navajo (Austin, Texas:
University of Texas Press, r968), p. -62.

divisions. While this branch of the Tribal government is

not powerless, its power has been very limited by a Tribal

Council that has traditionally been reluctant to delegate

significant authority to the Chairman. The Tribal Chairman

does not possess veto powers over the actions of the Tribal

Council or Advisory Committee, and he cannot initiate any

action involving tribal resources without prior authoriza-

tion by the Council.7

The Advisory Committee, mentioned above, was estab-

lished in 1947, and consists of eighteen members selected

from the membership of the Tribal Council. It serves an

essentially executive function although it is structurally

an arm of the legislative branch. This committee has a

very influential role in the reservation's business develop-

ment due to its lease granting powers.8

At the local community level, the Tribal Council has

developed a "Reservation Chapter System." These "chapters"

are designed to deal with local problems of a social or

minor political nature. Their significance as a local ad-

ministrative branch of the Tribal government is minimal,

as the Tribal government functions at the local level more

through its various administrative divisions than through

7 Young, The _Navajo Yearbook-1961, pp. 336 and 391.
8 Young, The_ NavaJjo Yearbook-[961, p. 391; Gilpin, The
Enduring Navaj o, p. 165.z-

the offices of the chapter houses.9 However, the "chapters"

are politically important, and they appear to serve an in-

creasingly significant function in providing a forum for

the diffusion and settlement of minor conflict.10

Recent Federal Programs

The Federal government has been involved in Navajo af-

fairs for over a hundred years through the Indian Service

and various other governmental agencies. Since 1960, sever-

al non-BIA organizations have been established that are of

special interest to small business development. One of the

most controversial organizations to emerge during this

period has been Dinobeiina Nahilna Be Agaditahe or D.N.A.

(which means literally, "Lawyers for the Restoration of

Navajo Life"). This organization operates a legal services

program designed to provide the Navajo people with free

legal advice and also to provide a certain degree of legal

education concerning the Navajos' rights and responsibili-


Two areas of D.N.A.'s activity are of special concern

to the Navajo small business community. First, D.N.A. is

active in the area of debt collection. It attempts to pro-

tect the Navajo people from collection abuses by local

9 Young, The Navajo Yearbook-1961, pp. 335-336; Kluck-
hohn and Leighton, The Navajo, p. -.
10 See the section in this chapter dealing with land
tenure, pp. 48-60.

merchants and salesmen on the reservation, and in so doing,

incurs the wrath of many businessmen who charge D.N.A. with

promoting irresponsibility among the Navajo consumers.I

Another area in which D.N.A. has an impact on business devel-

opment is in the realm of business leases. As will be shown

later, obtaining a business lease on the Navajo Reservation

is very difficult and constitutes one of the chief hindran-

ces to the reservation's business development. The legal

procedure for obtaining a lease is very complex, especially

for a poorly educated individual. D.N.A. has the potential

to help Navajo businessmen obtain leases by providing the

lease applicants with an element of legal guidance that has

heretofore been missing.12

Another federal program on the reservation is the

Office of Navajo Economic Opportunity (ONEO). This is an

innovative organization that has helped Navajo people in

proposing economic programs and in administering federal

money to operate the projects themselves. The program has

grown significantly since its inception and is now one of

the largest employers on the reservation.13

11 Fred Tamony, President of Gallup Federal Savings and
Loan Association, Gallup, New Mexico, private interview,
July 28, 1970; also Joe Vidal, Vidal Insurance Company,
Gallup, New Mexico, private interview, July 28, 1970.
12 Adam Lutynski, legal clerk of D.N.A., Window Rock,
Arizona, private interview, August 26, 1970.
13 Bureau of Indian Affairs, Navajo Manpower Survey-1970
(unpublished manuscript) pp. 51-52.-

Like D.N.A., ONEO engages in a wide variety of activi-

ties. Of special interest to business development is the

former Community Effort for Economic Development (CEED)

Division of ONEO. This program was designed to help pro-

mote small business development at the local chapter level.

CEED actively encouraged the expansion of the Navajo Tribal

Credit Union as a potential source of financial capital for

small businessmen. Coordinated with this expansion of the

Credit Union, CEED worked to secure the adoption of an over-

all plan for Navajo business development. Keeping with the

Navajo tradition of community effort, CEED encouraged the

local chapters to act as entrepreneurs and establish "chap-

ter" or "community businesses" in a number of areas. These

businesses were to have consisted of a service station, a

drive-in-grocery store complex and, in a few areas, motels

and cooperative shopping centers.14 The program as out-

lined by CEED officials appeared very attractive; however,

before the program could be enacted, CEED was dissolved on

September 1, 1970, along with the plan for small business

development. ONEO had nothing concrete proposed to fill

the void of activity in the business development area at

that time.

14 Rex Kontz, Director of Comimunity Effort for Economic
Development, Office of Navajo Economic Opportunity, Port
Defiance, Arizona, personal interview, August 26, 1970.

Tribal Attitude Toward Business Development

The Navajo Tribal government has shown a very positive

attitude toward small business' development on the reserva-

tion. However, not all of the Tribe's efforts in promoting

business development have met with success. During the

period 1951-1954, the Navajo Tribe undertook the founding

of some eighteen different enterprises which were designed

to diversify the tribal economy and employ Navajo people.15

By 1955, almost $900,000 had been invested in these

businesses by the Federal government, and the Tribe had

contributed approximately $40,000 to their financing.16

However, by the end of 1955, only seven of these enterprises

were in tribal hands; most of them had been closed and a

few had been sold or leased to private non-Navajo business-

men.17 The Tribe's first attempt at playing the role of an

entrepreneur proved only partially successful and led to a

re-orientation of its development philosophy.

Following the experience of the mid-1950's, the Tribe

adopted the policy of encouraging established businesses to

locate on or near the reservation. This policy was backed

by cash inducements to some companies in the form of payroll

subsidies supplied by the Tribe for an initial development

15 Young, The Navajo Yearbook-1961, p. 190.

16 Young, The Navajo Yearbook-1954, p. 38.

17 Young, The Navajo Yearbook-1961, p. 190.

period, with the stipulation that the businesses would em-

ploy Navajo personnel. However, when three of the four new

subsidized companies failed soon after using up their sub-

sidies from the Tribe, "the Tribe adopted a policy of cau-

tiously feeling its way in future developments." 18

Thus, during the 1950's, the Navajo Tribe not only

encouraged business development and economic diversifica-

tion, but also actively entered the development arena and

acted as an entrepreneur. The success of these tribal ef-

forts was very limited, however, partially due to the fre-

quent recessions during the 1950's.19 As a result of this

experience, the Tribe has subsequently limited its entre-

preneurial role to endeavors which generally possess the

characteristics of a natural monopoly, e.g., the Navajo

Tribal Utility Authority.

While the Tribe was actively seeking to develop the

business community on the reservation by acting as an entre-

preneur, it also sought to encourage the activities of in-..-.

dividual Navajo entrepreneurs. As early as 1939, the Tribal

Council passed a resolution saying that "Navajos should be

encouraged to go into business for themselves." To further

this goal, the Council, in the same resolution, provided

that only Navajo Indians could be granted licenses to

18 Young, The Navajo Yearbook-1958, p. 85.

19 Young, The Navajo Ycarbook-1961, p. 192.

operate filling stations and that any transfers of filling

station ownership had to be to other Navajos. The same

resolution also encouraged Navajos "to buy out the white

Indian traders."20 However, as the analysis in Chapter II

illustrated, the filling station ownership provision has

not been strictly enforced, and Navajos have not signifi-

cantly bought out the white Indian traders. Nevertheless,

the resolution does reflect the policy or the goals of the

Tribal government and is a positive encouragement to Navajo
small businessmen.2

Acting along similar lines, the Advisory Committee

moved in 1956 to give a rent advantage to new Navajo busi-

nesses. The Committee set the annual rental fee for busi-

ness leases at $10 per year for the first ten years of

operation. This fee was significantly lower than the rental

fee to non-Navajos.22 The philosophy behind this action

was . .

to grant emnibers of the Tribe a reasonable
period of time in which to acquire the
business acumen necessary to enable them
to compete effectively with others engaged
in competing businesses . .23

20 Navajo Tribal Council, Resolution C1-7-39, 1939.

21 Ibid.

22 Advisory Committee of the Navajo Tribal Council,
Resolution ACJ-48-56, 1956.
23 Ibid.

In May, 1970, the Tribal Council passed two more busi-

ness-related resolutions. One resolution was designed to

guarantee the Tribe's right teo control and regulate business

on the reservation; the other resolution was designed to

protect reservation business leases from state taxation.24

Actually, the first resolution only stated a situation that

already existed; however, it did form the basis for the

second resolution which was designed to protect small busi-

nesses on the reservation from having to pay a "lease-hold"

tax levied by the State of Arizona.25

The Tribal government, through its actions and legis-

lation, has demonstrated a desire to assist the development

of small businesses on the reservation. Its efforts during

the 1950's were generally unsuccessful and the reservation

business community is still underdeveloped (see Chapter IT).

However, the Tribal government is continuing to play an

active role in the development process.

Land Tenure

Few of the problems involved in starting a business

on the reservation equal the problem of obtaining a land

lease for building a business. The business lease problem

stems from the unique land tenure status of the Navajo Tribe.

24 Navajo Tribal Council, Resolutions CMY-33-70, 1970,
and CMY-43-70, 1970.
25 See the section in this chapter dealing with taxation.

The Navajo Nation owns some 24,000 square miles of land,

and the title to this land is held in trust for the Tribe

by the United States government.26 Navajo individuals do

not personally own land on the reservation; therefore, they

may neither mortgage nor sell reservation land. The use-

rights to all of the land on the reservation are held col-

lectively by the Tribe, and individual Navajos simply pos-

sess what is known as "inherited use-ownership" of the


Navajo families secure their "use-ownership" from cus-

tom. That is, a Navajo family has use-rights to certain

areas of reservation land because their family has tradi-

tionally lived in that particular area. Such a "family

area" may be inhabited by other Navajo families only if the

original family moves from their traditional area to another

area. Thus, a Navajo family's right to use certain pieces

of reservation land is secured not by the traditional land

titles of the non-Navajo society, but rather by the recog-

nition of their rights to the land by their fellow Navajos.

The Navajo pattern of land "ownership" is based upon

the family rather than the individual or the Tribe as a

whole. Thus, the Navajo pattern differs from that of the

white society's individualism and also from the communal

26 Young, The Navajo Yearbook-1961, p. 263.

27 Kckhohn and Leighton, The Naajo, p. 106.
.Kluckhohn and Leighton, The Navajo, p. 1.06.

land ownership found among several of the "Pueblo" peoples.

And as Kluckhohn points out in The Navajo, attempts by cer-

tain Navajos to impose white practices with regard to prop-

erty rights have been "among the most bitterly resisted of

all innovations. ,,28

Obtaining a Business Lease

Reservation land may not be sold to non-Navajos or be

sold by one Navajo individual to another Navajo individual.

As a result, a person seeking to open a business cannot

obtain land for his business simply by purchasing it as is

customarily done by small businessmen in the larger society.

An individual who wishes to acquire land for building a

business must obtain a lease from the Tribal government.

Many non-Navajo businessmen throughout the country lease

land and buildings rather than purchase them, but, gener-

ally, the leasing procedure in the larger society is trans-

acted between private parties rather than between a private

individual and the government. Furthermore, the obtaining

of a lease in the larger society is facilitated by both

parties' eagerness to perform a transaction which each party

usually sees as personally advantageous. The business leas-

ing procedure on the Navajo reservation, however, is influ-

enced by a number of factors other than the desire of the

budding entrepreneur to open his business.

28 Kluckhohn and Leighton, The Navajo, p. 106.

In order to secure a lease, there are approximately

twenty steps through which a lease application must pass.29

To begin with, an application for a business lease must be

filed with the Bureau of Indian Affairs Agency Superinten-

dent in the area where the business is to be located. The

Superintendent ,iist then obtain clearance of the application

from a number of different sources. The application must be

approved by the Urban Planning Office, the Tribal Land In-

vestigation Department, the Public Health Service, the Divi-

sion of Credit, the BIA Roads Division (and sometimes the

relevant State Highway Department), the Navajo Tribal Utility

Authority, an archaeological authority, and also the local
"'chapter." Furthermore, the Superintendent must get an ap-

praisal from the BIA of the site-rent value. These ten

steps must be carried out before the application can be

forwarded to the BIA's Director of Real Property Management.

At each one of these "approval areas," the division in-

volved may feel that certain questions require further in-

formation or clarification by the applicant. If that hap-

pens, the lease applicant is contacted and asked to submit

the relevant information. It is possible, therefore, that

the applicant could be consulted up to ten different times

29 The following section down to the subtitle "Provisions
of the Lease" is based on a private interview with Thomas
Lynch,Divisionof Real Property Management, BIA, Window Rock,
Arizona, August 26, 1970. See Appendix A for a diagram
illustrating the steps through which a lease application
must pass.

before the application even leaves the Agency Superinden-

dent's office. And at each one of these approval points,

the application could be disapproved for a number of dif-

ferent reasons. Some Navajo individuals especially object

to having to obtain the approval of the local chapter. The

applicant could be rejected at the chapter stage because of

a personality conflict with local individuals rather than

because of any lack of business acumen.

Once the application reaches the BIA's Office of Real

Property Management, it is again examined and if inadequate

sent back to the Agency Superintendent. If the application

is in order, a resolution for its approval is drafted and

sent to the Resolutions Review Committee of the Tribal Coun-

cil. The Resolutions Review Committee may then either send

it back to the Branch of Real Property Management for further

consideration, or they may request that the application be

placed on the agenda of the Advisory Committee of the Tribal


Once it is in the hands of the Advisory Committee,

politics and personality can enter the picture again. If

the applicant is a person in disfavor with powerful figures

on the Advisory Committee, his application may be either

disapproved or never brought up for consideration at all.

If the application is in order and the applicant is not in

disfavor, the Advisory Committee may approve the application

and authorize a lease. This authorization is then sent back

to the Branch of Real Property Management where a land sur-

vey is conducted to see if the desired land conflicts with

any other property leases and also to demarcate the exact

boundaries of the new lease. The lease is then drawn up

and sent to the applicant for his signature. However, this

is not the end of the matter, for the lessee must then ob-

tain a trader's license and obtain a license bond. He must

also file a performance bond guaranteeing his rental pay-

ment for the business lease.

The length of time necessary for processing a lease

application obviously varies depending on the individual

application. The process may take from one to five years

to complete. And a number of applications are neither ap-

proved nor denied; they just become caught in the bureau-

cratic mechanism awaiting further "necessary information"

from an applicant who has long ago lost interest in start-

ing a business.

Provisions of the Lease

In addition to the problems of acquiring land on the

reservation, the standard tribal lease which businessmen

receive contains a number of provisions which are restric-

tive on business behavior.30 Furthermore, the lease ob-

tained by the reservation entrepreneur is sixteen pages

30 The following section down to the subtitle "Complexity
and Delay" is based on an analysis of Navajo Tribe, "Land
Lease," Window Rock, Arizona, 1970. (Mimeographed.)

long and must be submitted in sextuplicate. Thus, the

physical task of reading and completing the lease is no

easy matter.

One provision of the lease states the nature of the

business, and a Navajo businessman is not legally free to

change his establishment into another type of business with-

out first obtaining the consent of the Tribe.31 The entre-

preneur also agrees to make a specified investment in im-

provements on the land within a certain number of years.

At the end of the lease, he is not free to sell his improve-

ments, but rather has to turn them over to the Tribe. Or,

if the Tribe so declares, the entrepreneur must remove the

improvements at his own expense, within ninety days after

the termination of the lease. The entrepreneur, therefore,

is not guaranteed the ability to sell his improvements and

thereby recover all or part of his original investment.32

This situation introduces a negative consideration into the

determination of the profitability of starting a business.

Furthermore, the businessman is not allowed to make altera-

tions or additional improvements on his lease without first

obtaining tribal consent, if the sum of money involved in

the change exceeds a certain specified amount.33

31 Navajo Tribe, "Land Lease," Provision 3.

32 Ibid., Provision 7.

l33 Ibid., Provision 9.

As mentioned earlier, the lessee also agrees to post a

rental and performance bond of a specified amount. This

bond is an actual corporate or U. S. treasury bond, and

must be deposited with the Tribe during the full term of

the lease. Any negative fluctuations in the value of the

bond must be compensated for by the lessee.34 The entre-

preneur, therefore, must not only have capital for starting

his business, but he must also have excess capital so that

he can afford to leave some idle in the vaults of the tribal


The entrepreneur is not free to sublease, assign, or

transfer his lease without first obtaining the approval of

the Tribe.3 Therefore, one potential avenue of recovering

his investment in improvements is not available to him.

Furthermore, he cannot encumber his business or rights to

his lease in order to secure capital for improving the busi-

ness without obtaining the written consent of the Tribe.36

The Tribe also specifies the amount of fire and liabil-

ity insurance the lessee must carry. The lessee then has to

deposit his fire insurance policy with the Tribe and submit

a receipt or other satisfactory evidence that every premium

has been paid on the insurance. If the improvements on the

34 Ibid., Provision 10.

35 Ibid., Provision 11.

36 Ibid., Provision 12.

leased land are destroyed or damaged by fire, the lessee

has to begin reconstruction of the improvements within six

months after the fire. To insure that he does so, all in-

surance proceeds have to be deposited with an institution

specified by the Tribe where they will be paid out as the

reconstruction takes place. This practice insures that

the entrepreneur will not try to recover his investment in

improvements by becoming an arsonist. However, there is a

provision that if the business is destroyed by fire during

the last five years of the lease, the lessee has the option

of deciding whether or not he wishes to reconstruct the

improvements. Here, then, is a positive opportunity to re-

cover the investment in improvements if the entrepreneur can

stay in business until the last five years of his lease and

is then willing to run the risk of being an arsonist. hlow-

ever, if the lessee chooses not to reconstruct the improve-

ments, he is still required to endure the expense of clear-

ing the premises after the fire, which makes it to his ad--

vantage to either be a good arsonist or to pray for a strong

wind in case of an accidental fire.37

Among the other provisions of the standard business

lease is one which declares that the entrepreneur is not al-

lowed to erect any exterior signs without the approval of

the Tribe.38 This provision could be annoying if it were

37 Ibid.., Provisions IS and 16.

38 Ibid., Provision 17.

strictly enforced. Another section provides that busi-

nesses on the leased premises shall be conducted during

the "regular hours" for such a business and on all normal

business days. This requirement is made, according to a

statement on the lease, so that the lessor can "receive

the maximum income under the percentage rental provision."39

(The rent is normally based on a percentage of gross re-

ceipts.)40 Thus, the lessee cannot legally be a part-time

businessman or run a seasonal business unless it is the

"customary" way of operating such a business. The posi-

tive effect of this provision is to encourage businessmen

to have a serious interest in their undertaking before be-

ginning it. Also, this provision would seem to encourage

the employment and training of Navajo individuals so that

the entrepreneur could have a dependable manager to handle

business affairs whenever he had to be absent.

To discourage lingering lessees who seek to remain in

business after their lease has been terminated, the lease

provides that all removable property must be extracted

within sixty days after the termination of the lease or

the lessee will have to pay a daily rent that is double

the daily rent charged during the preceding year until all

of his property is removed.41 There is also a provision

39Ibid., Provision 23.
40 Ibid., Provision 23.

41 Ibid., Provision 29S.
Ibid., Provision 29.

encouraging Navajo employment in the businesses which ob-
tain leases. And there is a provision which provides

that those businesses which drill water wells must make

any "excess" water available free to the Navajos.43

Complexity and Delay

While many of the considerations involved in obtain-

ing a business lease may be significant from an overall

social, cultural, and economic point of view, the net ef-

fect of the leasing process on hastening small business

development is less than optimal. There are a number of

significant criticisms of the leasing procedure which might

be made. But essentially it is the complexity of the pro-

cess and the extended period of time required to obtain a

lease which emerge as the most significant problems.

To many potential Navajo entrepreneurs the frustra-

tion of this jungle of rules is overwhelming. There is no

printed guide which describes the procedure that must be

followed in obtaining a lease, and there is no checklist

which an individual can use in following his lease appli-

cation during the many stages through which it must pass.

As a result, an individual lease applicant must rely on

the information of his agency Superintendent or other knowl-

edgeable officials, who in many cases are either less than

42 Ibid., Provison 31.
Ibid., Provision 31.
Ibid. Provision 32.

perfectly informed or else more interested in other mat-

Due to the long waiting period, many individuals give

up on obtaining their leases and restructure their-long

range economic plans along other lines. One individual

began applying for a business lease in October, 1966, to

operate a gas station. By 1970, when his lease appeared

to be coming up for approval, he had lost interest in pur-

suing the matter and had obtained a position in another

area.45 Another person told about his return from college

and his desire to "show the world how to run a business."

After five years, his application still had not been ap-

proved--or rejected. Ilowever,his desire to be a business-

man had departed and in a personal interview he displayed

a rather marked antipathy toward the individualistic free

enterprise system in this country.46 The point is that the

same difficulties in obtaining land do not generally delay

the starting of small businesses in the larger society.

And from examining individual Navajo cases it can be stated

that the long delay involved in obtaining a business lease

frequently serves to dampen the individual Navajo's inter-

est in starting a business and often forces him to seek a

Based on interview with unnamed BIA official, August
26, 1970.
Adam Lutynski, private interview.
46 Based on interview with unnamed Tribal Official,
August 21, 1970.

livelihood in the meantime which frequently alters his

long-range economic plans.


The tax situation on the Navajo reservation differs

greatly from the tax situation of the surrounding areas

and offers an important potential advantage for the devel-

opment of small businesses.

While the reservation is subject to the various feder-

al taxes, it is exempt from all state, county, and local

taxes. There are no state and local sales, property, in-

come, or lease-hold taxes in existence on the reservation.

Furthermore, while the Tribal government has the authority

to levy any of these various taxes, it has not yet imposed

any on the reservation.

The importance of this situation lies in the fact that

prices could be lower on the reservation than elsewhere.

Or, with similar on and off reservation prices, the poten-

tial gross profit margin could be larger on the reservation.

For example, a $400 set of tires sold by Fed-Mart at Window

Rock would not have the $16 (4 percent) New Mexico sales

tax included in the price that a store in nearby Gallup,

New Mexico, would have to impose on a similar set of tires.

Thus, the reservation commodity could sell for a lower

price, or if similar total prices were quoted on and off

the reservation, the gross profit margin of the reservation

business would be $16 or 4 percent greater. Similar busi-

ness advantages on the reservation occur as a result of

the absence of state and local property, income, and lease-

hold taxes. But before considering these advantages, it

is worthwhile to examine the legal basis of the reserva-

tion's unique tax position.

The Navajos turn to their treaty provisions for their

unique tax status. The landmark case in defense of that

status is Williams v. Lee. While this case did not deal

directly with a tax issue, its findings have been subse-

quently used in defense of the Navajos' state and local tax

exemption. This case dealt with a debt collection suit

filed in the Arizona State Courts which was later appealed

to the United States Supreme Court. Tn writing the opinion

for the Supreme Court, Justice Black said that

. the exercise of state jurisdiction in
this case would undermine the authority of
the tribal courts over Reservation affairs
and hence would infringe on the right of the
Indians to govern themselves, which right
was recognized by Congress in the treaty of
1868 with the Navajos and has never been
taken away.47

This principle of tribal exclusion from state regula-

tion was also applied in the key 1965 case of Warren Trad-
ing Post Co. v. Arizona Tax Commission.4 This case dealt

with a situation wherein the state of Arizona levied a

17 Williams v. Lee, 358 U.S. 217 (1958).
48 Warren Trading Post Co. v. Arizona Tax Commission,
380 U.S. 685 (1965).

2 percent tax on the gross proceeds of sales or the gross

income of the Warren Trading Post, located on the reserva-

tion. The significance of this tax was that Arizona did

not have a "sales tax," but rather had a "tax on doing

business" which businessmen passed on to the consumer, with

the net effect being the same as if there were a sales tax.

In essence, then, Arizona through the levying of this tax

was attempting to extend its "sales tax" onto the Navajo

Reservation. 49

After losing the case in the Arizona Supreme Court,

the Warren Trading Post, with the support of the Navajo

Tribe, appealed the decision to the United States Supreme

Court. Once again Justice Black rendered the decision.

Citing the Navajo Nation's sovereignty and separateness

from the states, Justice Black said:

We think the assessment and collection of
this tax would to a substantial extent
frustrate the evident congressional purpose
of ensuring that no burden shall be imposed
upon Indian traders for trading with Indi-
ans on the reservations. . This state
tax on gross income would put financial bur-
dens on appellant or the Indians with whom
it deals. and could thereby disturb and
disarrange the statutory plan Congress set
up in order to protect Indians against prices
deemed unfair or unreasonabLe by the Indian
Commissioner. And since federal legislation
has left the State with no duties or respon-
sibilities respecting the reservation Indi-
ans, we cannot believe that Congress intended
to leave to the State the privilege of levy-
ing this tax. . with respect to sales made

Warren BachteL, Associate General Counsel, Navajo
Tribe, Window Rock, Arizona, private interview, August 17,

to reservation Indians on the reservation,
these state laws imposing taxes cannot

Thus the Navajo Reservation is exempt from any state

or local sales tax, or anything designed by these govern-

mental bodies to do the same job as a sales tax.

With regard to state and local taxation of Navajo

property, real or personal, the Navajos are once again

exempt from such taxation. A key case in this area was

decided in 1928, in Dewey County, South Dakota v. United

States. In this case, South Dakota had attempted to tax

certain property of the Sioux Indians, including such things

as horses and cattle, farm implements, household furniture,

and improvements on the land. In invalidating the South

Dakota law, the court ruled that,

The jurisdiction of the United States over
the subject was exclusive and the levies
made under the claimed authority and power
of the state were void. And the county hav-
ing exacted the money without right was
bound to make restitution.51

Thus, the Navajos are exempt from all state and local

taxation of their property. However, the state of Arizona,

not content with its defeat in the Warren case, is now at-

tempting to tax lease-hold interests of businesses on the

Navajo Reservation. At present a case is pending where a

SWarren Trading Post Co. v. Arizona Tax Commission,
380 U.S. 685 (1965).
1 Dewey County, S.D. v. United States, 26 F. 2d 434

reservation business is challenging the state's right to

levy this lease-hold tax. The case is Monument Valley Inn

v. State of Arizona. Navajo tribal lawyers are certain

that the tax will be overruled and that the court tradition

as outlined in the Warren case and Dewey County case will

prevail and Navajo Tribal sovereignty will be preserved.52

Actually, it does seem to be a nuisance to the Tribe for

Arizona to continue its attempts to levy these taxes, since

the Arizona Tax Commission has estimated that state land

taxes on the entire Navajo Reservation would be less than

the taxes on a single large bank building in Phoenix.53

The Navajo Reservation, therefore, has a relatively

secure position with regard to taxation from state and lo-

cal governments. This position definitely represents a

tax advantage for businesses located on the reservation,

and could serve as a positive factor for the development

of small businesses on the reservation. For example, a

comparison of reservation taxes with those of the nearby

city of Gallup and with McKinley County as a whole reveals

the following situation. In Gallup and McKinley County,

real and personal property, in 1969, were taxed on an as-

sessment of 33 percent of the market value of the property,

with a tax rate of $46.33 per $1,000. This valuation

2 Warren Bachtel, private interview.
William A. Brophy and Sophie D). Aberle The
Indian, America's Unfinished Business (Norman, Oklahoma:
University OL '- T! -ii l c: 3,, --j-.,p. 39.

included business inventories which were considered per-

sonal property. Furthermore, there was an "occupation tax"

of $6.00 minimum and $100 maximum based on a gross sales

formula in McKinley County and a city occupation tax of

$1.00 per $1,000 of gross sales in the city of Gallup.54

None of these taxes exists on the reservation, and no state

income or sales taxes arc levied on the reservation, as in

Gallup and McKinley County. This practice means that a

Navajo businessman on the reservation whose business is as-

sessed at $33,000 will not have to pay the $1,528 in prop-

erty taxes that his counterpart in Gallup will pay. And

if his volume of sales is $50,000, he will not have to pay

the $150 occupation license tax that his counterpart in

town must pay. This situation is, of course, enhanced by

the fact that reservation prices are already potentially

4 percent cheaper than prices off the reservation due to

the sales tax advantage.

Thus, there is a definite tax advantage for the small

businessman who develops an on-reservation business. How-

ever, it is possible that this tax advantage may not endure.

As the tribal income from royalties and tribally owned en-

terprises shrinks relative to the Navajos' demands for

increased investment in social services and social overhead

capital, increased tribal income will have to come from

Chamber of Commerce, Gallup, New Mexico, "Taxes and
Utility Rates, Gallup, McKinley County, New Mexico 87301,"
Gallup, New Mexico, 1970. (Mimeographed.)

somewhere. This conflict could lead the Tribe to levy its

own sales tax or property tax in order to care for the

social needs of the growing Navajo population.5

The Bureau of Indian Affairs

The Bureau of Indian Affairs is the only bureau in

the Federal government whose mandate is to serve exclu-

sively an ethnic minority of the general population. No

single institution influences the day-to-day activities of

the Navajo people more than the Bureau of Indian Affairs.

In the field of business development, its activities perme-

ate most aspects of the development spectrum.

The BIA is involved in over 15 of the 20 stages through

which a business lease application must pass. Therefore,

its policies and efficiency during the time it has the ap-

plication can greatly influence the speed with which the

application is processed. Also, the structure, efficiency,

and attitudes of the Tribal government have a great influ-

ence on small business development, and the BIA has booeen

largely responsible for the establishment of the Navajos'

present structure of self-government.

These are only two of the legal and political areas

where the Bureau influences Navajo business development.

Everett Wood, Area Credit Officer, BIA, Window Rock,
Arizona, private interview, August 26, 1970.

Subsequent chapters will show the importance of BIA con-

trolled or influenced institutions in financing business

development, in influencing cultural values and individual

initiative, and in providing an education for Navajo con-

sumers and potential Navajo entrepreneurs. This section

will provide some background to the BIA's activities,

philosophy, and structure and will serve to emphasize a re-

curring theme of the study, i.e., that the BIA is involved

in the majority of factors which influence Navajo small

business development.

Structure and Functions of the BIA

The BIA's functions are broadly defined, so that it

can fulfill a wide variety of service and administrative

chores. It has many functions that would elsewhere be per-

formed by banks, realtors, insurance companies, and other

private institutions or businesses.56 The BIA's three main

functions are to assist Indians in securing a higher stan-

dard of living, to promote the Indians' assumption of re-

sponsibility for the management of their own economies, and

to promote the "political and social sophistication of In-

dians with freedom on their part to preserve their culture

and heritage."57

B6 rophy and Aberle, The Indian, America's Unfin-
ished Busine.;s, p. 117.
U. S. Department of the Interior, Bureau of Indian
Affairs. Answers to Your Questions About American Indians.
Washington, ). C. v Go vcrnment Prifl-iYng Office, 196-67

The BIA is a part of the American political system

and, as a result, its policies are frequently subject to

change. These policy changes cause a number of difficul-

ties for the Indians because the solutions to many of

their problems often demand long-range programs that are

above the ebb and flow of political fortune. Major changes

in the BIA's philosophy have been imposed rather frequently.

fn 1897, the Dawes Act marked a significant change in Indi-

an land tenure; in 1934, the Indian Reorganization Act at-

tempted to undo the Dawes Act; in 1952, a senate concurrent

resolution formalized the "termination" policy; during the

Kennedy and Johnson administrations, the "termination" poli-

cy was generally ignored; and in 1970, President Nixon

called upon Congress to formally repeal the termination

resolution. 5 At the receiving end of this political vacil-

lation have been the Indians, whose destiny seems to rest

on every national election.

Behind every change in philosophy since the Dawes Act

has been the idea that the Indians should ultimately be

assimilated into the larger society. Yet one of the key

factors in preventing the success of the various assimila-

tion policies has been a traditional unwillingness on the

part of the Indians to be assimilated in the manner proposed

by the white man. Only recently has it been suggested that

8 Brophy and Aberle, The Indian, America's Unfin-
ished Business, pp. 17-23.

the Indian might not wish to be assimilated or, if he does

so wish, that it might be best for him to determine the
manner and pace of his assimilation.

In recent years, Indians have begun to emphasize their

desire for self-government and self-determination. This

desire has led to their demand that the government agency

which most affects their lives, the BIA, be staffed and

controlled by Native Americans. The BIA has had an Indian

employment preference since 1854 and, although it was slow

to implement the preference in the beginning, presently

more than half of the BIA's employees are Indians, and the

number of BIA Navajo Agency employees who are Indian more

closely approaches two-thirds of the total employment.60

The BIA's Indian employees are in both executive and non-

executive positions, and the current head of the Bureau is

a Mohawk Indian. Today, the BIA's policy of filling every

job opening with Indians is being actively followed, and

in the not-too-far-distant future, an "all Indian" BIA

should exist.

As it has done with other tribes, it is now the goal

of the BIA to contract to the Navajo Tribal government an

Alvin M. Josephy, The American Indian and the Bureau
of Indian Affairs-1969. "-St dvy with Recovmieindations,
(Washington, ]). C.: Unpublished mainuscript, [969) pp. 13-14.
(Hereafter, this report will be cited as IThe Aimerican Indian.)
60 Bureau of Indian Affairs, Answers to Your Questions
About American Indians, p. 13; Melvin Wise, liitector, Divi-
sion of Information and Statistics, BIA, Window Rock,
Arizona, private interview, August, 1970.

increasing number of functions presently performed by the

BIA's Navajo Area Office. It is felt that this policy will

not only increase the involvement of the Navajo people in

solving their own problems but will also shift the focus

of responsibility for the success or failure of the various

programs to tribal officials who, in turn, will be direct-

ly responsible to the Navajo people.

It is not necessary to examine the organizational

structure of the BIA for purposes of this study; however,

its structure is one of the BIA's features that is most

frequently criticized. Perhaps Alvin Josephy has best

described the situation by saying that, while the BIA's

decentralized structure mnay appear necessary for good


. it is management for checks and balances,
caution, resistance and delays, and not for
decisiveness and action. The 'layering' and
compartmentalization, which requires actions
moving up and down to go sideways and back and
forth on each layer results, inevitably, in
slowness, frustration, and negativism as well
as in a continuing Niagara of studies, assess-
ments, opinions and reports. The Bureau, in
consequence, is literally drowned in paperwork
while on the reservation, the Indians wait.61

This problem is well reflected in the business leasing pro-

cedure on the Navajo Reservation.

1 Josephy, The Am r i.can TI nd ilian ,p. 76.

The Critics of the BIA

The Bureau of Indian Affairs is one of the most high-

ly criticized agencies in the Federal government.62 The

BIA is not unaware of its critics or of the reports upon

which its critics rely. But change of a significant nature

is not easy for the BTA to implement. Its structure is

not designed to provide for informality in solving the "non-

standardized" problems, and any major reorganization of its

structure requires the approval of Congress. As Josephy

pointed out:

The B[A structure is designed more than most
for stability. It is doubtful that very much
could be done with or to the people in the
organization, given the present structure,
. the present structure not only serves
to reward unaggressive behavior and docility
but punishes, usually by transfer, those who
persist in behaving like leaders. The reward
system of the BIA discourages leadership.63

If the BIA is characterized by inefficienty, imper-

sonal paternalism, and a number of other faults, why is it

that the Indian people are generally the first to defend

it against outside critics and steadfastly resist any sig-

nificant changes in its structure?64 The best way to

answer this question is to say that the BIA has become the

modern "buffalo" to the Indians. More than the inefficiency

62 Ibid., see Chapter 2 for a list of reports dealing
with the B[A.
63 -nIdap 8
Josephy, The Ajmercan Indian, p. 78.
64 Edgar S. Cahn, ed. Our Brother's Keeper, The [adian
in White America (New York, ewCommuniit. ress, 1969,
p. vii.

of the BIA the Indians fear the termination of the ser-

vices of the BIA, and with it the termination of the Indi-

ans' special relationship with the Federal government. The

preservation of the Indians' way of life depends on their

ability to maintain their separate identity, and this iden-

tity is closely tied to the land. Over time, the Indians

have come to fear that reform of the Federal Indian Service

is synonomous with land loss. The Allotment Act and, more

recently, the movement in Congress to "terminate" the ser-

vices of the BIA have both signalled significant loss of

land and economic well being to many Indians, although both

actions were designed to benefit the Indians.

Today, any significant change in the BIA not originated

by Indians is certain to meet with strong resistance from

the [ndians, in the fear that seemingly legitimate reforms

of the BIA may cloak any number of disastrous ramifications.

For example, it was proposed during the Johnson Administra-

tion that the BI[A be shifted from the Department of the

Interior to the Department of Health, Education and Welfare.

Since the former department deals mostly with land matters

and the latter deals most with human problems, the Johnson

Administration felt that the welfare of the Indians could

be improved by such a shift. However, this move was strong-

ly opposed by the Indians who feared that the special

status they hlid tvwith the BI[A in the Department of the In-

terior would disappear as thel various functions performed

as a unit by the BIA were diffused into the different agen-

cies of HEW. Greater than their desire for efficiency was

the Indians' wish to preserve their visibility, their

separateness. While the BIA may not be efficient, its

existence acts as a symbol for the Indians to the rest of

the country--a symbol of the fact that they are different,

that their problems are different, and that they need a

separate and special approach to the solving of their


Proposals for Change

Upon his election to office in 1968, President Nixon

commissioned Alvin Josephy to do a comprehensive study of

the BIA. Based upon this study President Nixon delivered

a message to the Congress on Indian Affairs in which he

proclaimed a new Federal policy toward the American Indian--

one of self-determination.65 In his address, the President

stressed the importance of listening to the Indians' point

of view and the importance of formulating programs around

the Indians' own interpretation of their own needs. The

President repudiated the policy of "forced termination" of

BIA services to the Indians and called on the Congress to

pass a resolution doing the same. lie rejected a policy of
"constant paterniialism" and proposed "contracting out" legis-

lation to allow tribes to take over the control of federally-

6 Richard M. Nixon, President of the United States,
"Message to Congress on Indian Affairs," July 8, 1970.

funded programs whenever the Tribes voted to do so. Ile

encouraged greater Indian control over Indian education.

And he proposed a $50 millic-i expansion of the Revolving

Loan Fund for Indian economic development. This expansion

of the Loan Fund was to be coupled with the creation of a

$200 million "incentive" fund to encourage private lenders

to lend money for Indian economic projects. The President

further proposed that Indians be allowed to lease their

land for a period up to 99 years in order to encourage busi-

ness development, and he also stressed that greater empha-

sis should be placed on economic development planning. lie

proposed increased services to Indians in urban areas and,

of potential significance to the BIA, he proposed a reorgan-

ization of the Department of the Interior to allow for the

creation of the position of Assistant Secretary for Indian

and Territorial Affairs. The President made other recom-

mendations, but the above proposals contain the key sugges-

tions for changes in the government's relationship with the

Indians. These proposals have been well received among

Indians who see in the program the implementation of a num-

ber of ideas they have long been suggesting. Generally,

the theme of the speech provided for greater participation

by Indians in the control of their own affairs.

Undoubtedly, reorganization will eventually come to

the BIA, for it is desired not only by Indians but also by

the Congress and the Administrati.on. However, any successful

reforms will probably have to originate from ideas based

on Indian suggestions for change. As Alvin Josephy said

in his report to President Nixon, change

should reflect the Indians' own needs,
desires and cultural traits,. . by
bringing the Indians into the planning
and decision-making process, programs
need not fail, as they have done in the
past,. .66

Other Government Agencies

While the BIA bears the major responsibility for

handling Indian affairs in the Federal government, a number

of other agencies also provide services for the Indians.

In 1968, approximately $200 million was spent by other

Federal agencies on various programs for the Indians. The

Department of Health, Education and Welfare spent $125 mil-

lion, most of it being expended by the Division of Indian

Health of the Public Health Service. The second largest

expenditure was made by the Office of Economic Opportunity,

which spent some $35 million.67

In addition to the Bureau of Indian Affairs and the

other agencies that serve the Indian, there are three gov-

ernmental bodies which sometimes present great obstacles

to Indian development. The Bureau of the Budget, the

66 Josephy, The American Indian, p. 93.
6 7
67 Bureau of Indian Affairs, Answers to your n estions
about American Indians, p. 19.

Solicitor's Office of the Department of the Interior, and

the Senate Committee on Interior and Insular Affairs have

traditionally had their own policy with regard to Indian

affairs, regardless of the policy of the BIA or the Presi-

dent. Based on an historically developed antipathy toward

the BIA, these three bodies have maintained a termination-

ist attitude or at least a strong assimilation policy, in

spite of the movement elsewhere toward Indian self-deter-

mination.68 The result is a resistance on their part

toward BIA innovation unless it is designed to hasten

termination.69 Consequently, the BIA can expect to experi-

ence difficulty in obtaining funds for new programs de-

signed to further increase Federal involvement in Indian


The Political Emergence

The discussion in this chapter has centered on the

legal and political factors of the past and present that

have influenced Navajo business development; however, there

are political changes taking place on the reservation, and

these changes will, undoubtedly, have an important impact

68 J. Leiper Freeman, The Political Process: Executive
Bureau--Legislative Committee Relations (Garden City, New
York: Doubleday, 1955), passim.
69 Cahn, Our Brother's Keeper, p. 163; Josephy, The
American Indian, pp. 14-15.

on the future of the reservation's business community.

Since 1964, the Navajos have elected two of their tribes-

men as representatives to the New Mexico House of Repre-

sentatives; they have also elected a Navajo as State Sena-

tor in New :.'xico. Furthermore, it was Navajo votes in

1966 that defeated an incumbent Congressman in northern

Arizona.70 The trend of the future points toward an in-

creased involvement of the Navajos in state politics as

more of them become educated and as their rapidly growing

population becomes numerically more dominant in their dis-

tricts. It is difficult to determine what impact this in-

creased role in state and local politics will have on busi-

ness development. But, at least, when legislation concern-

ing small business is debated, the Navajos will now have

the opportunity to present their point of view.

Stan Steiner, The New Indians (New York: Dell Pub-
lishing Co. Inc. 1968) p. 285.



Obtaining a business lease on the Navajo Reservation

is only one of many obstacles encountered by the reserva-

tion entrepreneurs. The problem of obtaining sufficient

investment capital to start a business is another basic

problem. A lease is of little value if businessmen cannot

obtain the money necessary to construct their businesses

and maintain them during the formative period.

Sources of Private Capital

It is uncommon to find Navajo individuals living on

the reservation who have accumulated large amounts of finan-

cial capital. There are a number of reasons for this phe-

nomenon. First, as was pointed out earlier, real property

on the reservation is held in common by the Navajo people;

therefore, the opportunity to accumulate wealth in the form

of real property is denied to the reservation Navajos.

Secondly, the fact that Navajo people have traditionally

engaged in agrarian pursuits in a relatively unproductive

region has restricted their ability to accumulate wealth

through successful farming and ranching. Finally, while

some Navajos have begun to accumulate wealth through. non-

agrarian activities, this is still a rather recent occur-

rence of only slight significance.

As a result of these factors, there are few wealthy

capitalists among the Navajo people. Consequently, when

a Navajo individual wishes to start a business enterprise,

he is not likely to have accumulated sufficient funds to

finance the project and is usually forced to turn to out-

side sources for his investment-capital needs.

Among these sources of business capital are the private

lending institutions, e.g., banks and savings and loan asso-

ciations. However, private lenders have traditionally been

reluctant to lend significant sums of money to Navajo busi-

nessmen. The primary reason for the private lenders' reluc-

tance to make loans to Navajo businessmen is the fear that

the business venture will not be successful. As one local

banker said,

. timing is the key, the Navajo have a
lot of catching up to do. The Tribe is
pushing it (small business development) very
hard, and you can expect more failures from
trying to go too fast. But these failures
will be due to lack of experience--not from
being Navajo.1

Thus, the Navajo entrepreneur faces a circular problem

in borrowing private capital. lie needs to borrow money for

starting a business, but he is unable to do so because he

John Guest, President of The Merchant's Bank of Gallup,
Gallup, New Mexico, private interview, July 28, 1970.

has never started one before. When the same banker men-

tioned above was asked what factors he considered in making

small business loans, he replied, "We would only see if he
has ever been in the business before."

Another factor influencing the Navajos' ability to ob-

tain private capital is the private financiers' fear of the

property laws of the Navajo Tribe. Private financiers be-

lieve that they have no recourse in claiming property if a

Navajo defaults on his loan. They think that they cannot

obtain a mortgage on a building, and they know that they

cannot obtain a title to reservation land. As a result, the

lenders believe that they have little or no security for

their loans on the reservation. Tribal attorneys think that

this is a misunderstanding of tribal laws on the part of

private lenders and that in time these fears will prove

groundless and lead to increased lending by private finan-

cial institutions.

In addition to the reluctance of private lenders to

make loans for Navajo business development, another signifi-

cant factor in explaining the low level of private invest-

ment capital flowing into Navajo businesses is the reluc-

tance on the part of Navajo businessmen to borrow from

private sources. Interest rates are lower on loans from

2 Ibid.

3 Warren Bachtel, Associate General Counsel, Navajo
Tribe, Window Rock, Arizona, private interview, August 17,

the Tribal government's lending program, and the Navajo

entrepreneurs turn primarily to the Tribe for their finan-

cial needs.4 However, before Navajo entrepreneurs can

borrow money from the Tribe, they must first attempt to

obtain loans from other sources. But since interest rates

charged by private lenders are higher than those charged

by the Tribe, it is to the Navajos' advantage to be turned

down by the private lenders. This desire to borrow from

the Tribe partially explains the low volume of private loans

for Navajo business development, and also helps explain why

private lenders think that a large number of Navajo busi-

nesses are destined to fail. The feasibility reports they

receive from potential Navajo businessmen may be purposely

pessimistic since the Navajos, quite often, may be seeking

a loan denial so that they can borrow from the Tribe.

The Tribal Iending Program

In 1934, Congress passed the Wheeler-Howard Act, also

known as the Indian Reorganization Act. One of the provi-

sions of this act was to establish a revolving loan fund

from which Indians could borrow for purposes of economic

development. The original appropriation for this fund was

4 Everett Wood, Area Credit Officer,
Window Rock, Arizona, private interview, August 21, 1970.
Sec the section of this chapter dealing with the Tribal
lending program.
Based on an interview with an unnamed BIA official,
August, 1970.

$17.8 million, but, in order to be able to participate in

the loan program, the various tribes had to accept the

Indian Reorganization Act.6 The Navajo people rejected

the act in an election in 1934, thereby disqualifying the

Tribe from participating in the revolving loan fund.7

In 1948, in order to help fill the credit vacuum on

the reservation, the Tribe established its own small-scale

revolving loan fund. The original money for this fund came

from the profits of the tribally owned sawmill. During the

1950's and 1960's, the Navajos' revenue from oil, timber,

and uranium production grew, and the Tribe was able to allo-

cate increasing amounts of money to the loan fund. In addi-

tion, the fund was supplemented during this period by loans

from the Bureau of Indian Affairs.8 Thus, from the modest

beginning of the fund in 1948, the Tribe's revolving fund

grew to $1.5 million by 1968.9

Another source of credit was established for the Nava-

jos in 1950, when Congress passed the Navajo-IIopi Long Range

Rehabilitation Act. This act helped fill the void left by

6 William A. Brophy and Sophie I. Aberle, The Indi-
an, America's Unfinished Business (Norman, Oklahloma: UiT-
versity u.L- ,I i '.. '.' :.. i'.,,.,), p 109.
7 Clyde Kluckhohn and Dorothea Leighton, The Navajo
(New York: Doubleday and Co., Inc., 1962), p. 159.
8 Robert. WIV. Young, The Navajo Yearbook-1961 (Window Rock,
Arizona: Navajo Agency, I-.'ULJ pp. -13 1 ..
9 Report to the Navajo Tribal Council of the Activities
of the (-'ir-ir l V.-i .: -'i t .L 1, t e'-I 1_ cal -il -ar' 1'J 6- ,
T6Josph Bi-tsic, ciTiarman -indow R7,kT-7Xrizona: Central Loan
Committee, November 20, 1968), p. 1.

the Navajos' rejection of the Indian Reorganization Act in

1934. One of the provisions of the Long Range Act estab-

lished a revolving loan fund exclusively for the Navajo

and Hlopi people. The original authorization for this fund

was $5 million.10 Thus, through the actions of the Tribal

government and the Congress, the Navajo people now have

governmental credit sources designed exclusively for their

social and economic development.

Structure of the Tribe's Revolving Credit Program

The Navajo Tribe's Revolving Credit Program is not

motivated by the same profit principles that motivate pri-

vate lending institutions; the directive of the Tribe's

Credit Program is much broader.

The purpose of loans and advances from the
tribal revolving credit fund shall be to
improve the cultural and economical status
of the members of the Navajo Tribe by estab-
lishing them in productive enterprises which
will enable them to become self-supporting
and will encourage Indian use of Indian-
owned resources, including loans for educa-
tional purposes.11

As the 1968 yearly report of the Central Loan Committee

stated, "The Tribe's credit program may be looked upon as

a training program to enable members to graduate to the

10 Navajo-Hopi Rehabilitation Act, Public Law 474, 81st
Congress, 2-d--Se,-J-li ] c. ','. I lJ O0).
11 Navajo Tribal Advisory Committee, Plan of Operation:
Navajo Tribal Lending_ Program (Window Rock, Ar-izona: Tribal
Advisory Committee, Revised July, 1955), p. 1.

regular sources of credit." 12

This development directive leads the Loan Committee to

approve loans that are often of a high-risk nature. Loans

that are not properly secured are made to individuals who

are unable to obtain financing from other sources. And

loans are also made to persons who have failed in previous

endeavors, but who give evidence of having a "reasonable

chance of being successfully re-established."13

Not only does the Credit Program make high risk loans,

but also, since the goal of the program is to promote devel-

opment rather than maximize profits, the interest rates

charged by the program are lower than those found in pri-

vate lending institutions. These interest rates are estab-

lished by tribal legislation and do not respond quickly or

by an equal degree to interest rate changes in the national

credit market.

In the mid-t960's the Tribe's interest charges for

business loans '6wer5percent for loans on permanent im-

provements and 6 percent for loans on inventory items. Then

with nationally rising interest rates in the late 1960's,

the Tribe raised its rates to 6 percent for permanent im-

provement loans and 7 percent for inventory loans. These

last rates prevailed in 1970 when, at the national level,

12 Report to the Navajo Tribal Council of the Activities
of the Central om tefo the fiscal Year 1967-1968,
p. 2.
13 Ibid., PP. 1-2.

prime interest rates were as high as 8 to 8-1/2 percent.14

These differences in interest rates encourage Navajo

entrepreneurs to obtain financial support from the Tribe.

However, borrowing money from the Tribe for starting a small

business is not as easy as borrowing for other purposes

(e.g., housing and agriculture), because the Tribe has es-

tablished special eligibility requirements for small busi-

ness loans. These requirements help explain why only

15 percent of the Revolving Credit Program's outstanding

loans in 1968 were for small business development.15

To be eligible for a business loan, an applicant must

have completed an approved apprentice-training program or

be able to show a "record of at least three years'successful

endeavor in business, including management and accounting

practices." Furthermore, all borrowers of business loans

are required to spend their full time in managing their

businesses and are not allowed to operate the business as a

part-time endeavor or as an avocation.16 In addition to

these requirements, if an entrepreneur does not have enough

collateral to fully secure his loan, he is required to submit

a plan of operation that has been worked out with Federal

14 ]Everett Wood, private interview.

15 Report to the Navajo Tribal Council of the Activities
of the-i:. Aicr- I--I-3 J--- :.ii t-t c r ic i l ca-TVc- [--- -'J--7:- -8,
p. 1. -------
16 Executive Secretary for the Navajo Tribe, Navajo Tribal
Code (Orford, New Hampshire: Equity Publishing Corporation,
I-97), Title 5 tf214, p. 74. Hereafter this reference will be
cited as Navajo Tribal Code-1962 or Navajo Tribal Code-1967

or State agencies or with designated personnel of the BIA

or Navajo Tribe.17 In essence, these "plans of operation"

are feasibility studies.

In the area of small business development, those who

manage the Navajo Revolving Credit Program see the program

as playing a greater role than simply supplying financial

capital. Citing the primary problem in the business field

as "the individual's problem in obtaining business manage-

ment experience and training," the Central Loan Committee

has said that its efforts might "be viewed. . as a train-

ing program in the field of financial management." And

since this training process involves making high-risk loans

to Navajos who cannot obtain financing elsewhere, the Com-

mittee realizes that many of its clients may fail in their

first endeavors.18

The Central Loan Committee and the BIA

The Revolving Credit Program is administered by a Cen-

tral Loan Committee. This committee consists of five mem-

bers--one from each of the five agency jurisdictions in the

Navajo Area. They are selected from the Tribal Council and

their terms on the committee run concurrently with their

17 Ibid., Title 5 #214, p. 85.

18 Report, to the Navajo Tribal Council of the Activities
of the Central Loan Committee or the Fiscal Year l-7TT6Y,
p. 5.

terms as councilmen.19 The committee members know person-

ally most of the people in their area, and have some knowl-

edge of the constituents' background and general financial

status.20 The members must also have a reputation for

"industry, dependability, honesty, and integrity," and must

have a successful record as businessmen or ranchers or at

least be gainfully employed.21

Generally, this committee is a very effective organiza-

tion. It surveys the loan applications carefully and makes

recommendations concerning their approval or disapproval.22

It also has the responsibility for seeing that loans are

paid up and for liquidating loans in default.23 The Central

Loan Committee must work closely with the BIA. After the

committee approves a loan application, it sends the applica-

tion to the Credit Officer of the BIA's Navajo Area Office

where the application must also be approved.24 Normally,

loans recommended by the Committee are automatically ap-

proved, but there is no legal requirement that this happen,

and the BIA does have the power to reject applications

19 Navajo Tribal Code-1967 Supplement, Title 5 #221, p. 79.

20 Everett Wood, private interview.

21 Navajo Tribal Code-1967 Supplement, Title 5 #221b,
p. 78.
22 Everctt Wood, private interview.

23 Navajo Tribal Code-1967 Supplement, Title 5 #222, p. 79.

24 Navajo Tribal Code-1962, Title S tl21d, p. 31.

approved by the Committee.25

The BIA's Credit Officer at the Navajo Area Office

has a number of responsibilities to the Tribal Credit Pro-

gram. Hle is the chief advisor to the Central Loan Committee;

he is responsible for the bookkeeping,clerical work, records,

reports, and other administrative details necessary for the

proper operation of the Tribe's credit program; he checks

on the property offered as security for loans; he is respon-

sible for keeping minutes of the meetings of the Central

Loan Committee; and he is responsible for notifying borrow-

ers when their payments are in arrears.26 Thus, through its

Credit Office, the BIA is closely involved in the operations

of the Navajo Revolving Credit Program.

Historically the Tribe and the Bureau have worked very

closely and very cooperatively together in the Revolving

Credit Program. This is reflected in the general success

of the program in the area of business loans. The fact

that a great number of business loans have not been made by

the program is due more to the low number of applications

than to an unwillingness to make high-risk loans.27 The

Revolving Credit Pro-rin has an excellent success record in

the area of business loans. It has not yet been necessary

25 Everett Wood, private interview.

26 Navajo Tribal Code-1967 Supplement, Title 5 #225,
pp. 80-81.
27 Everett Wood, private interview.

to "write-off" a business loan. And even though some of

the businesses which have received loans have failed, the

borrowers have always repaid their loans. The program has

also shown a tendency to refinance high risk business loans

when other credit sources were closed to the borrower. In

two recent cases, the Small Business Administration had

made the original loan to Navajo businesses, but, when the

loans had to be refinanced, the SBA would not refinance

them. In both cases, the Revolving Credit Program accepted

the risk and refinanced the loans.

The Navajo Revolving Credit Program has been a very

important source of investment capital in the reservation's

small business development. It is not a perfect program

from the standpoint of producing rapid small business devel-

opment, but any restraint or hesitancy it displays in making

business loans is due more to a lack of funds than to an

unwillingness to take risks in promoting business develop-

ment. In the long run, however, the role of the Revolving

Credit Program in financing Navajo business development is

likely to decrease. The Program has limited funds and these

funds have come primarily from the Tribe. Moreover, the

Tribal government's income is shrinking every year and, un-

less new sources of tribal income are found, the Tribe will

not have sufficient funds to expand the Revolving Credit


Recent Events Affecting Government
Lending to Navajo Small MBus nesses

During the first years of the Nixon administration, an

important development in the field of financing Indian busi-

ness development took place. This event was the passage of

the Indian Business Development Fund, which is designed to

provide "seed" money for new Indian businesses.28 It was

hoped that this fund would help fill an important gap in

the field of Indian business finance and would serve as a

positive impetus to Indian small business development.

Indian Business Development Fund

The purpose of the new Indian Business Development Fund

is to provide "seed" money or equity capital that Indians

need in order to acquire loans from traditional sources of

credit, e.g., banks, savings and loan associations, and cer-

tain governmental agencies. The fund is not designed to

replace traditional sources of credit; it is designed to

help Indians qualify for credit from these sources. The

fund provides $3.4 million of new investment capital, but

one of the main rules of the fund's operation is that grants

will not be given if supplementary loans cannot be obtained.29

28 "Seed" money is defined by the BIA "as the capital
one needs to obtain further financing, such as a bank loan."
Bureau of Indian Affairs, "Indian Business Development
Fund," Washington, 1). C., 1970. (Mimeographed.)
29 This paragraph and the following five paragraphs are
based on B[A, "Indian Business Developivent Fund," pp. 1-10.

Priority in making the grants is given to those businesses

which show promise of "breaking even" during the first

year of their operation. Priority is also given to those

businesses which promise to generate the greatest employ-

ment of Indians and to those businesses which arc located

in the poorer Indian communities. In addition, small grants

are preferred over large grants so that the fund may be

spread among a greater number of individual Indians and


To qualify for a grant under this program, a business

must satisfy a number of basic requirements. It must be

profit-oriented and generate Indian jobs; it must be owned

or controlled by an Indian group or an individual Indian;

it must be located on or near a reservation; and it must

not require a grant of over 40 percent of the total project


The fund is allocated on an agency basis with different

BIA agencies receiving different quotas depending mainly on

the population and per capital income of the Indians in each

area. The maximum that an agency can receive is $50,000

and the minimum is $5,000. In the Navajo Area, there are

five agencies, each of which has received the maximum allow-

able grant of $50,000. This means that a total of $250,000

has been made available for "seed" money in 1971, to help

Navajo small business development. Since this money will

be only a part of the capital each firm obtains for its