Evening star., 1949-04-10

Control Plan
Re-exan1ined
Economist Studies
Renesotiation OF
Big Contracts
6y lawrence N. slded

CHICAGO. - EenesotlAtlo1 G.
war contracts has Won is spurs Is
a wartime profit control method
This Is the conclusion reached
IN q nex study made by Richards
&C. Osborn. University OF Illinois
economist. II is q detailed exarni-
nation Of q control device untyted
until 1912
He estimates renegotiation re-
covered more than a fourth Of the
gross profits made by war con-
tractors Government contracts
totaled around $500 900 900 900 in
World War II. while gross rene
gotiation recoyeries amounted tc
$40. .43l .63T 900 This left before
tax pyofits Of some $50 900 900 900
During the period renegotiation
agencies examined $4,000 con-
treats or contractors, Mr., Osborn
noted. They cleared IS 900 cases.
adjusted 10000 by agreernen, and
issued masdatory changes in 1000
The author worked on contract
renegotiation while financial ana
lyst in the price adjustment
branch Of the Detroit Ordnance
District of the War Department
In ls46 he went TO the University
OF Oklahoma as a professor OF
economics. shifting 10 Illinois IN
l947.
Impact on Profits Shown
World War I was a part time
venture compared with World War
H." Mr.. Osborn said. Even in
1918 little more than ope-fifth OF
the national product was devoted
TO war activity. Only in the last
half OF that year did military
requirements make q very serious
inroad on civilian supplies.
BY contrast. one-third OF the
national product was devoted 10
war in 1912 and the proportion
. increased to slightly less than so
per cent from l943 to 1914"
The relative impact OF the two
wars on profits OF all corporations
lis shown, he found, by the fact
that net income increased from
$4,7l4,000 900 before taxes In 1918
to a peak Of $l0.l0l 900 900 in
1917. a rise of ll43 per cent.
After-tax income rose 7o.4 per
cent during this period.
: In contrast to conditions In
World War I. corporate income
rose from s7.l78,000 900 in 1899
to a peak Of s28.079. 900 900 in
l943. an increase of 29l.2 per cent.
The overall effective tax rate Of
| 56.6 per cent reduced this increase
after taxes to 104.8 per cent above
prewar level.
Price control over certain basic
! commodities and high excess
profits taxes on corporations were
instituted in World War /, but
, only after major price increases
had taken place and corporate
profits had already begun To
decline.
, Profits Tax Enacted
/ "As World War II drew closer
, to this country. an excess profits
. tax was enacted. but further con-
/ troll of profits followed rather
than preceded the entrance of the
United States into war.
} The effort to control the profits
Of ordinary industrial enterprises
, through the Renegotiation Act OF
1912 represented a new type of
venture In regulation. Only in
the field of public utilities had this
been attempted.
Although originally conceived
as method Of eliminating excess
siye profits arising out of war
business. through the redeteymina
ton of specific contract prices, the
procedure soon became a recovery
on an overall basis of the excess
sive profits measured before taxes
arising from the contracts and
subcontracts of each company
calculated on a fiscal-year basis. "
Mr.. Osborn noted that during
World War I profits of 80 major
corporations were about three
times as high in 1916. 1917 and
1918 as the average for prewar
years.
The criticism of war profits Is
usually leveled at those specific
businesses or industries which are
making far more than their ordi-
nary rate of return on particular
contracts or for particular
; period.
Price changes were an i'm
portarit factor In World War ]
profits, not only in determining
their size but also in influencing
; the years in which the profits were
acquired. The general level OF
prices rose from a 1913 base OF
100 to lit in 1917 and l94 in 1918,
continuing upward TO a peak OF
226 for 1920.
Unlike the condition existing
in World War I. profits Of manu-
Nacturers In World War II arose
primarily because Of the meteoric
increase in volume Of business.
One aircraft manufacturer in
creased sales from less than $780,
900 900 in 1899 to slightly over
81, 900 .000. 900 in 1914: the volume
of many others increased 10 TO 80
times, or even more for some OF
the smaller companies.
Principal Factor
Except for advances in foods.
farm products and raw materials.
the major increase In wholesale
prices over 1899 took place prior
to our entry into the war. The
index of all commodities had gone
up from 100 in 1889 TO 1914 by
December. l94l. 1t had advanced
to only 1871 by August. l945.
the increase was even less in man
ufactured products. metals and
chemicals.
This degree of price stability