Evening star., 1942-04-26
Curb on Profits
.|sBig Problem
In War Drive
Unwise Moves Might
Slow Production;
Costs Called Key
Bv CLARKE BEACH,
wa1s Ward Ns-v E-az

profteers and still not impede pro.
duction.
II the profiteers-generally con-
ceded TO be a very small proportion
of industrv-can be weeded out skill.
fully. It will aid the production pro-
gram. But the wrong method vii
slow 1t down. officials have saic
many times in the last few weeks
pointing out that the main prob
lem is winning the war and that the
main enemies are the Japs anc
NaZis, not the profiteers.
New weapons for the war on
profteers are invented almost daily
The Army, Navy and Maritime
Commission recently set up corps OF
accountants and administrator:
who are hot on the trail of manu-
facturers who ere making exces-
sive profits. Treasury officials are
insisting that their new revenue bill
which sharply increases excess
profits taxes, is the best anti
profteering device. Congressmer
have introduced a stack Of bills pro-
posing various formulas.
Flat Curb Popular.
Most Of these bills would impose
a fat limitation of 6 to 10 per cent
on the profits from war contracts
This is said to be a politically pop
ular formula, since it sounds like g
simple and foolproof way of Topping
of unjustified gains, and in the
Smith Vinson bill it is coupled with
the proposal to suspend for the du-
ration of the war much New DeaI
labor legislation.
Proponents of the percentage lim-
itation plan feel that It's chief ad-
vantage is that it will get immediate
results and that it will allow nc
proflteer to escape. Advocates oi
other measures admit that they dc
not hope to prevent all profiteerine
and that 1t will take time to get full
results from the methods they are
using.
Administration officials who have
spoken on the subject, however, are
practically unanimously opposed to
percentage limitation. 1t will in
jure many firms and lower their
productive efficiency, they say. They
assert that: 1t does not allow high
enough profits for small industries
and thus weakens their structure
and removes the incentive for maxi
mum productive effort. 1t makes nc
allowance for the firms which lose
money one year to make up the loss
and earn a profit the next; If they
can't recoup their losses during q
business cycle, they can't function.
Fear Opposite Result.
The percentage limitation, the ad-
men continue, actually
will increase and freeze prof1teering
Where maximum profit is allowed
1t tends to become minimum, and
thus very large contracts which
might reasonably be based on profits
as low as . per cent would tend to
go as high as to 10 per cent. The
limitation would require
sc, much bookkeeping. the oficials
add, that before long the production
program would need more account
ants than producers.
The profit allowed, they continue
would not take into account the time
required to complete a contract,
thus a manufacturer who can fur
nish his order in two months makes
the same percentage as the ship
builder who might require three
years to finish his order. Normal
civilian industry, moreover, would
be encouraged to expand at the ex-
pense of war industry, since the
profit limitation would not affect
them.
Costs, rather than profits, are at
the root of the whole problem, some
economists point out. Unless you
find a way to keep costs at a min
imum, the waste there might involve
q loss to the Government of many
times as much money as high rates
of profit would.
Disregard for costs, moreover
means inefficiency in the total pro-
ductive effort. To attain the most
out of the Nations resources in ma
terial, plants, manpower and mana
gerial ability. these must be used
with the maximum of efficiency. The
primary effort should be, therefore
to draw all contracts tightly and
then to watch the production proc
esses carefully, to see that no re-
source is wasted.
If profits are too high, industry
grows fat and lazy, say the econo-
mists; if too low, the incentive to
produce is spoiled.
Contracts Renegotiated.
The Army, Navy and Maritime
Commission now are engaged in q
program of renegotiating contracts
where it is found that they origin
ally allowed too high profits or
where loopholes permitted contrac-
tors to raise costs unnecessarily. And
they have an extensive program OF
auditing the books and inspecting
the plants of war contractors in
order to ascertain actual costs and
see If the work is being done as eco
as possible. This will en-
able the Government agencies TO
determine reasonable prices for fu-
ture contracts.
The work is being carried on
chiefly by the new Price Adjustment
Boards of the War and Navy De-
partments and the Maritime Com
mission. Where their problems
overlap, as in the case of one con-
tractor dealing with two or more
of the agencies. they work Jointly OF
with representatives of the War
Production Board The w. P. B.,
moreover, has cost analysis branch,
which is also examining the con-
tractors costs and providing the
departments with pertinent data.
Authority for this work is con-
tanned chiefly in the war powers bills
A section of the SIG 900 900 900 war
bill which Congress
passed Thursday extends this power
TO enable the departments to re-
Il