Institutional Failure, Corruption and low-level equilibrium trap in Manipur

Paikhomba Khuman *

Background: Inflation and corruption are two agents that can change the political fate of any party in any democratic region of the world, except for certain region like Manipur where a prime portion of the economy is sustained through grey transactions. Although there are no formal empirical evidences available, it is an open secret that a major part of the economic transactions in Manipur are generally done through the black channel. As for the transactions under the public domain, creative accounting is the norm in most of the transactions, implying balancing the credit and the debit as per the golden rule, so that there is no leakage in the accounting sense. It is not that transactions under the public domain are not under monitoring, but the crux of the matter is monitoring for sake of monitoring cannot bring the desired results, and this is what we can term as 'Creative Monitoring'.

Institution: The requirement of an institution can be looked from two aspects. One aspect is the in-built informal social and cultural institution which evolved gradually, and it is this which put our society in some order. An informal institution is one which is not regulated by any formal law and its transactions are not recorded but come under the black economy.The other aspect is the formal institution, which may be imposed, borrowed or replicated from outside. These two institutions are very inter-related in a modern economy, and when we talk of institutional failure, it refers to the degradation of both institutions, although the rates of degradation vary. In the context of Manipur and during the last few decades, it is the degradation in the formal institution, which is forcing the informal institution to degenerate in a manner, which appeared to be very alien to us a few decades ago.

Inflation: Inflation technically means a persistent rise in prices of goods and services over a period of atleast one year, and a mild inflation is very good for the economy. Any unanticipated sudden rise in prices for a very short period cannot be technically called inflation. Prices in Manipur are generally higher as compared to neighbouring areas on account of added transaction costs and not due to demand-supply forces. These may be the factors why common people of Manipur are generally immune to high prices of goods and services. The repercussion of such immunity is the sustenance of the low-level equilibrium trap, where the monetary value of the economy will grow but the real value of the economy will remain constant. In such an undesirable situation, inequality will increase across the sectors of the economy, as majority of the people will not be in a position to save but will spend whatever he earns in consuming for sustenance, thereby restricting even the multiplier effect of consumption.

Corruption: Like in Institution, there are also two aspects of corruption-one in the formal institutional structure and the other in the informal institutional structure. We often complain of corruption in the formal institution, but prefer to remain silent about corruption in the informal institution. In a formal institution, we are forced to pay more than what is legally allowed for a document and that margin is called corruption. However, that margin is very high in an informal institution, say a private fee to a doctor, thereby implying the degree and quantum of corruption is higher in the informal institution.

Institutional failure: The institutional failure as prevalent in Manipur leads to an undesirable situation, where it is more beneficial for a common man to accept corruption as an accepted norm else he would end up paying more transaction cost. The ultimate outcome is the strengthening of the low-level equilibrium trap within the economy of Manipur, where there will be restricted vertical growth but accompanied by more than disproportionate degrowth of the masses in general. There will also be illusory increase in societal welfare due to the increase in nominal income although the real income will deteriorate.

Repercussions-A Low Level Equilibrium Trap: The combined effect of institutional failure, corruption and low-level equilibrium trap is the limited supply of public goods and their benefits will also be enjoyed almost free by a section of the people only. As for the masses, their access to the public goods will be very restricted due to the limited supply. Consequently, the common people will be forced to allocate a certain part of their income for buying essential public goods at very high rates or make alternative arrangements on their own at high prices, and those who cannot afford will either free-ride or obtain the same, if possible, from free common-property resources.

At present, Manipur is primarily an agrarian economy and majority of the households in Manipur possess a piece of fertile land that ensure bare minimum needs for sustenance. Geographically, we are very fortunate that we don't face harsh climatic conditions, and free common-property resources are readily available. This is the reason, why the cost of sustenance for most of us is very low, although the prices of essential commodities are relatively high in Manipur. And, it is the low cost of sustenance and our in-built social & cultural informal institution that enhance human development indicators despite low-equilibrium trap. However, given the limited space and resources, the naturally endowed common property resources cannot be overstretched to serve for sustenance beyond its carrying capacity.

There is also another factor which may strengthen the low-level equilibrium trap in Manipur, namely, low-level of people mobility within the state on account of ethnic divide and hill-plain divide, thereby encouraging migration of people from other states. Infrastructure is not the constraint, but this will improve with the increase in the mobility of the people within the state. The lack of people's mobility within the state is mainly responsible for the conflicting demands that emerge from time to time. In a low-level equilibrium trap, the economic contribution of migrants will be very low and marginal, as their services will only be required by those selected few who are already enjoying all the benefits of the institutional set-up disproportionately. As a pass-through effect, the migrants will also gradually replace the natives on jobs at the lower ends. So, there is a need to regulate the mobility of migrants from outside into the economy of Manipur to pull out from the low-level equilibrium trap.

Breaking the low-level equilibrium trap: Digital revolution has been playing a very crucial role in enhancing our knowledge of the globe and in bringing radical changes which were once considered impossible a decade ago. Accessibility to the digital world is very cheap, as the technology required is available at throw-away prices. Despite these boons and availability of the same to certain extent, we are yet to reap the real benefits of digital revolution, as most of us seem to be satisfied with the low-level equilibrium trap. However, this status quo will not remain for long, as the dependence on the common property resources will wither away as it will become unsustainable, thereby opening the door for a forceful change in the formal institutional set-up, and this may be preceded by unanticipated violent movements.

This does not mean that are no other alternatives for breaking the low-level equilibrium trap. One such alternative is foreseeing the future and initiate reforms in the formal institutional set-up at the right time. Any change in the formal institutional set-up will have a deep impact on corruption and will augment the availability of public goods for the people as a whole, both in quantity and quality. In the new scenario, conditions for breaking the low-level equilibrium trap will emerge automatically, and a virtuous cycle of economic growth & development will sustain till we reached the golden state of development. But, to bring about such golden change in our life, we may need to change the way we look at the issues we are facing at present.