COSTS AND PRICES

Auckland Star, Volume LXXVI, Issue 250, 22 October 1945, Page 3

COSTS AND PRICES

PROBLEM FOR INDUSTRY LABOUR PRODUCTIVITY THE KEY With vast war contracts tapered oB", the relationship of industrial costs ancl prices has become a primary Industrial problem in Britain, the United States and the Dominions. During ihe war the prime consideration was output rather than cost, and the principal buyers were Governments, with almost unlimited powers of taxation axd borrowing. In peacetime, however, production in most lines must be at a lower level, which tends to raise certain unit costs correspondingly. Concerns selling in the competitive civilian markets need profitable price-cose relationships, if they are to contribute their share towards large-scale employment. If labour costs are too high, 6i* ceiling prices are too low, relative to each other, the inevitable result is unemployment, leading to pressure to readjust costs downward or prices upward, or both. Termination of war contracts and reconversion of industrial plants have. made determination of specific prices a matter for urgent action in all countries. The way to keep control of prices in to keep control of costs. The dominant element in costs, following the chain of production back to the raw material, is the cost of labour. As long as the cost of living stands at present levels few people would suggest reducing basic wage rates, but there are other ways to reduce costs and keep prices down. The primary need is to reverse the wartime rise In labour cost per unit cf output which has occurred in most civilian industries, and to turn the line downward not through wage cuts but through Increased productivity. Overall of most industries during the war were derived far more largely from war work than from civilian production, and In many eases earnings on wa" work covered up losses, or lack of a remunerative profit, on civilian products. In the United States, tyre manufacturers, for example, made satisfactory overall earnings, due to their war work, but increasing costs, hitting against celling prices, squeezed the margins on civilian tyres to unprofitable levels. The same situation existed in certain textiles. When production of civilian goods Is thus carried on without profit, the buyer of the goods receives a concealed subsidy, which is paid by the buyer of the war products, namely, the armed fences. This is an artificial and unsound condition. Unless prices allowed for civilian goods are set high enough to provide an incentive, their production is discouraged. If one product does not carry its part of the overhead costs, and yield a margin of profit, producers will turn wherever possible! to another. If the inadequate margins become general, the incentive to production generally will be weakened. If current production has to be carried on at a loss or unsatisfactory margin, there is no inducement to expand, but rather to retrench.