Salient. Victoria University Student Newspaper. Vol. 37, No. 19. July 31, 1974

At last — price control ?

At last — price control ?

Women with a shopping cart standing beside a large cash register

About three weeks ago, the government finally Introduced its grand new scheme for the control of prices, the scheme which It has been promising to introduce ever since its election nearly two years ago. To maintain a pretence of fairness the government had to introduce some form of price control to keep up with its blanket wage controls. However, the new price controls are not like the wage controls which prevent wage increases other than those officially sanctioned by the government; it is very doubtful whether they will affect prices at all.

The basis of the new scheme is to limit the profits that a company may earn. Companies will not, in general, be allowed to earn more, as a percentage pre-tax profit, than their average over the previous four years.

This sounds, on the face of it, like a fair approach to a stabilisation policy by the government. It sounds as if the relative shares of the country's produce are to continue to be divided between capital and labour in the same way as they have in the past. It sounds as if the conflict between capital and labour may be forgotten, as neither side will be able to cheat the other.

But it is all an elegant deception. The profits that a company earns are only the residual between what it receives for the sale of its produce and what it pays out as its costs, a substantial proportion of which are labour costs. Thus, if a firm is in a situation where it might be going to earn increased profits, these increased profits can be quite readily eliminated by simply increasing the firm's expenses. Since the government won't allow wages to be increased, the firm's extra income can in general only be dissipated by such techniques as increasing the expense allowances of the company's executives —providing them all with new company cars, and that sort of thing. Such a scheme to control profits is in no way a scheme which is to be effective in holding down prices, and will merely serve to Increase the perks for the people at the top, while workers' wages continue to be held down.

That is what would happen If, in actual fact, the government wet to impose a freeze on the level of profit). However, to undermine the whole scheme, there Is a section which allows for circumstances In which firms may earn increased' profits. If the firm wishes to expend it may earn larger profits, which in practice will mean that if a firm earns larger profits it can tell the government that it wishes to expand. And anyway, under a capitalist economic system, a firm must either expand or allow itself to wither away. A firm may also be permitted to earn larger prices If it has had a productivity Increase: the boss gets the whole benefit if the worker works harder, while the worker gets none at all. Another reason for which a firm may increase its profits is if it needs a larger profit for its own survival. If the firm has changed its activities, it may also earn a larger profit than before. And finally, if a firm cannot use any of these excuses (and that would be unusual), any other relevant matters may constitute an adequate basis for an increase in profits.

It is obvious that this so-called scheme for profit control is no scheme at all. All it allows for is for the owners to earn more at the expense of workers. In economic terms, it promotes inefficiency, not lower prices. And such a scheme which is obviously of assistance to the employers has not come from a National Government: it has come from a Labour Government which is supposedly concerned with the interests of workers.

—David Tripe