Prices for raw materials, including products of the extractive
industries and agriculture, were generally set below the cost of
production. This policy has been responsible for a wasteful use of many
materials in manufacturing. A price discrepancy also served to negate
the official fuel policy. Efforts to increase the use of coal in
electric power production were frustrated by the relatively much lower
price for natural gas. This led some economists to advocate that prices
for fuels be based on their caloric content. The price system has also
been reported to have produced various other inimical results, such as
inhibiting innovation and rewarding the continued production of obsolete
goods.

Procurement prices for farm products have been deliberately kept low in
relation to industrial prices; prices for farm requisites and consumer
goods, on the other hand, have been fixed far above cost through the
medium of a turnover tax channeled into the budget. In this manner the
price system has served to transfer resources from agriculture to
industry and to keep consumption low for the benefit of investment.

Pending the completion of price reform legislation, a provisional
measure was adopted in 1970 to lower wholesale prices for export goods
and to reduce excess profits through a so-called regularization tax on
domestic sales of the main products manufactured by state industry. The
measure involved a recalculation of wholesale prices, based on the
average cost of products within an industrial branch and a profit
allowance of only 10 percent of cost. The difference between the
recalculated prices and those in effect at the time was to be channeled
into the budget by the tax. In the case of high-cost producers who would
suffer losses under this procedure, the profit margin included in the
price could be raised to a maximum of 15 percent. The new price measure
put pressure on enterprises to lower the cost of production.

The comprehensive new law on prices for goods and services that will
come into effect in March 1972 will have no immediate impact on prices.
On the basis of criteria outlined in the law and upon approval by the
State Committee for Prices, economic ministries, central government
agencies, collectives, and other public organizations are supposed first
to issue norms for establishing and correlating prices within the areas
of their respective jurisdictions, in accordance with the specific
conditions of each p