Published by EH.Net (October 2015)

Robert E. Wright, Little Business on the Prairie: Entrepreneurship, Prosperity, and Challenge in South Dakota.  Sioux Falls, SD: Center for Western Studies, 2015. x + 340 pp. $17 (paperback), ISBN: 978-0-931170-68-3.

Reviewed for EH.Net by Joseph M. Santos, Department of Economics, South Dakota State University.

In Little Business on the Prairie: Entrepreneurship, Prosperity, and Challenge in South Dakota, Robert E. Wright, the Nef Family Chair of Political Economy at Augustana University (Sioux Falls, SD), evaluates, through the lens of an entrepreneurship growth model, patterns of economic growth and development in the Northern Plains from 10,000 BC to the present.  The model is based on the familiar proposition that incentives shaped by strong social infrastructure — robust economic and personal freedoms, secure property rights, and rule of law more generally — attract and inspire innovative and replicative entrepreneurs who create economic growth and development.  Whereas, weak (or no) social infrastructure attracts and inspires exploitive entrepreneurs who seek rents and, thus, impede economic growth and development.

According to Wright, the Northern Plains and, since November 2, 1889, the state of South Dakota have overwhelmingly attracted and inspired innovative and replicative entrepreneurs.  For its part, the state of South Dakota has done so, thanks to its political economy, whereby a fiercely democratic, locally empowered body politic has long assured economic freedom within a competitive market structure.  Examples of productive innovation and replication throughout the state since its inception abound.  South Dakota’s entrepreneurs have creatively disrupted farming, ranching, food processing, mining, entertainment, tourism, communications, high-technology manufacturing, healthcare, and, perhaps most notably, financial services.  How a cooperative entrepreneurial spirit among public servants and private bankers disrupted financial services amid the Great Inflation, the Volcker experiment, and the Supreme Court’s decision in Marquette Nat. Bank v. First of Omaha Svc. Corp., 439 U.S. 299 (1978) is a must read.  This multilayered and colorful story of interconnected public-policy interventions and private outcomes that attracted Citibank to South Dakota in 1980 is generally misunderstood.  Wright sets the record straight.

Broadly speaking, then, the entrepreneurship growth model and, specifically, strong social infrastructure explains the state’s relatively strong economic performance throughout its history, despite recent decades of outmigration from its most-rural communities.  For example, according to the U.S. Census Bureau, from 2009 to 2013, the average median annual household income in the state was $49,495, or roughly 93% of the average median annual household income in the nation during that time.  Meanwhile, the state unemployment rate (currently 3.7%) has remained well below the national unemployment rate (currently 5.1%) for decades, including during the recent financial crisis, shortly after which the state unemployment rate peaked briefly at 5.2%.

Such economic performance is, at once, extraordinarily impressive and profoundly tragic.  This is because it occurs even though five of the nine Native American reservations in South Dakota encompass five of the nation’s nineteen poorest counties: Oglala Lakota County (Pine Ridge Reservation; 55.1% in poverty), Ziebach County (Cheyenne River Reservation; 48.7% in poverty), Todd County (Rosebud Reservation; 44% in poverty), Corson County (Standing Rock Reservation; 43% in poverty), and Buffalo County (Crow Creek Reservation; 41% in poverty) (US Census Bureau, 2013).  By comparison, Lincoln County, home to bedroom communities south of Sioux Falls, is the seventh least-poor county in the nation, with 4.3% living in poverty.

Wright argues essentially that patterns of economic growth and development in Native American communities — in South Dakota and throughout the United States more generally — have long been shaped by their social infrastructure, both freely determined and imposed.  For example, Wright demonstrates that large-scale, complex specialization, production, and exchange were common among Native Americans of the Northern Plains when social infrastructure was strong; when otherwise, exploitive entrepreneurs — first native and, then, European — reversed the course of economic progress in native communities.  Wright recognizes the federal government as primarily responsible for the relatively poor quality of life of most Native Americans in the state.  Nevertheless, he challenges the state’s government to improve the treatment of Native Americans by, for example, working to establish more depository institutions on the relatively under-banked reservations.  He argues that failing to improve the economic condition of Native Americans in the state is not only immoral, but also impractical: the current situation tarnishes the state’s image and its access to much-needed capital.

In the last chapter of the book, Wright proffers ten challenges that lie ahead for policymakers, businesses, and households in South Dakota.  These challenges range from stewarding the state’s natural resources to fostering its growing cultural diversity to, of course, preserving its entrepreneurial ethos.  On balance, Wright is sanguine about the economic future of the state.  Its biggest challenge, he reasons, “will be spreading [the state’s] entrepreneurial spirit and institutions to the rest of the nation” (p. 221).

Wright has written a timely and well-researched book, in which he showcases how entrepreneurship has created economic growth and development in the highly resourceful, economically vibrant, and strikingly beautiful Mount Rushmore State.  Wright presents his argument in a mostly cheerful and optimistic tone.  Some readers may wish for a more critical evaluation of the state’s social infrastructure and, in particular, how governmental policies contribute to the quality of life of historically underrepresented or otherwise economically challenged South Dakotans.  In any case, Wright persuasively supports the popular notion informed by theories of endogenous growth that social infrastructure causes income and wealth.  And, he effectively conveys how public interventions — most well intentioned and imperfect — and private outcomes are interconnected in complicated and, often, unforeseeable ways.

Joseph M. Santos is the Dykhouse Scholar in Money, Banking, and Regulation in the Department of Economics at South Dakota State University, where he teaches macroeconomics and monetary economics, and writes on financial markets and monetary policy.  He is the author most recently of “Back to the Futures: The Winnipeg Grain Exchange and the creation of the Canadian Wheat Board,” in the Canadian Journal of Economics (Vol. 47, n. 4, November, 2014).

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