Léim ar aghaidh chuig an bpríomhábhar

Seanad Éireann díospóireacht -
Wednesday, 4 Dec 1957

Vol. 48 No. 11

Prices Bill, 1957—Committee Stage.

Sections 1 to 9, inclusive, agreed to.

I move amendment No. 1:—

In sub-section (3), line 32, after "services" to insert "or to excessive profit margins at any stage".

This amendment arises out of an observation I made on the Second Stage that it seemed to me unfair that among the possible factors of high prices the sub-section should mention "undue labour costs", but should make no mention at all of the possibility of excessive profit margins at any stage. Undue labour costs are recognised as a possibility but excessive profit margins go unmentioned. In authorising the Advisory Committee, as the section does, to inquire into the various factors, and when they actually do mention some of them, it is only fair that we should mention this other potential factor.

I realise that any time one mentions the word "profit" it creates a good deal of confusion and even indignation because if one says there should not be exorbitant profits or excessive profits people get up and say: "Apparently you do not think there should be any profit at all"; as if the only kind of profit was exorbitant profit. I do not believe the only kind of profit is exorbitant profit and the only kind of profit which is stigmatised by by amendment is excessive profit. I would suggest, therefore, that those who are opposed to this amendment of mine should direct their remarks to the defence not of profits but of excessive profits.

I wish to oppose the amendment. I said here the other night when Senator Sheehy Skeffington was absent from the House—I do not mean that as a slur because he is one of the best attenders in this House— that our idea of profits here was wrong; that the American idea of profits was far nearer the facts than ours; that we would solve a lot of the problems in our economy, including the social problem, if the people were allowed to make enough profit. We would have a greater State income as well and there would be more work in industry since more money would be ploughed back into it.

I do not think there is any exorbitant profit made in Irish industry, generally speaking. Perhaps, if one were engaged in a witch-hunt, one could pick out two or three years in 20 when such a profit was made and point to that as an example. If that line of unobjective reasoning were adopted, you could indict any business.

I should like Senator Sheehy Skeffington to elaborate upon his amendment. It is not at all clear to me the way in which the profit of a manufacturer can raise the price of his product. I should have thought it was elementary that the profit to the manufacturer emerges only at the end of the year when the whole selling process is over—the residual after his selling prices and costs had been related to each other. Unless in a case of monopoly, restrictive agreement or something of that kind which is provided for elsewhere in this Bill, I cannot see how the price of any article could be said to be raised by the profit earned by the manufacturer.

I thought it was elementary that profit was the residual when the whole selling process was over; that profit was the result of price rather than price being the result of profit. But even assuming that something in the nature of the relation suggested by Senator Sheehy Skeffington did exist, how can profit be said to be exorbitant? There can be an excessive rate for wages and raw materials, but as profit is essentially the fluctuating residual at the end of the whole manufacturing process, I should like to know what is the yardstick of a reasonable and, therefore, unexcessive, profit. If Senator Sheehy Skeffington would explain precisely what is in his mind, I might be prepared to consider this amendment further.

In relation to what Senator Burke said, I am afraid that despite the fact that he is not absent, and was not absent when I spoke, he did not seem to hear what I said, because I asked Senators who were going to oppose the amendment not merely to oppose it on the grounds that profits were very necessary but on the grounds that excessive profits were necessary. I did not hear Senator Burke support the right to excessive profits. In fact, I heard him say that there is no such thing as excessive profits in this country.

If he believes that, I see no reason for his indignation that the Advisory Committee should be permitted should the occasion arise to consider among the factors for too high a price the possibility of an excessive profit. He does not believe it exists. That is all right, but in that case when the Advisory Committee examines the possibility of there being such a factor as that, they will presumably say there is not. Similarly, one might say there is no such thing as undue labour costs. A labour representative might say to Senator Burke that the phrase "undue labour costs" should not be put in the Act because we all know there is no such thing; that workers are not paid too much; and that they never get too much wages.

Nevertheless, the phrase "undue labour costs" is there, and there is no reference to profits at all. I suggest that the subconscious implication behind that is that it is important not to interfere at all with profit margins, but that if the workers start asking for too much wages then the Advisory Committee must point to that as a factor which affects price.

In regard to what Senator O'Brien says, it is quite true that for an individual firm it is not possible to speak in exact terms of profits until the end of a year. Nevertheless, if we are considering the present price of an article of which we know the cost to the manufacturer and the rate of profit he took on it, we can assess in terms related to what we think to be in present circumstances a fair return for money whether, perhaps, in the past year the manufacturer has or has not been a little bit too grasping in relation to the profit he sought, or whether he might not be influenced to reduce his prices.

I am encouraged in this view by the statement made not so long ago by the British Chancellor who said in relation to all these rounds of wage demands that he would appeal to employers not to be whining so much about the five or six rounds of wage demands, but to bring about the first round of price reduction. I should like to see some spokesman of the Irish manufacturers and traders show a good example in that way and ask for the first round of price reduction. It is quite obvious that price reduction does not necessarily mean a reduction in profit.

When the Advisory Committee is asked to report to the Minister on prices or charges, and to find out whether these prices are unduly high, I ask that they be allowed, under this section—which mentions the possibility that these prices may be unduly high due to undue labour costs, this section which should also mention the possibility, however remote, with all due respect to what is suggested by Senator Burke—that they be permitted, nevertheless, to go into the possibility of even Irish manufacturers and Irish traders and middlemen occasionally taking a profit which might be regarded as "undue", that is to say, excessive in the same way as this clause actually refers to labour costs as being perhaps unduly high. If, in other words, we are prepared to imply in our Bill "We think that possibly prices are too high because wages are too high" we should not be afraid to say also "Prices may be too high because the estimated, sought-after profit margin is excessive".

I do not wish to labour this matter because I do not wish to engage in a controversy in regard to the meaning of words. However, it is important for the Seanad to clear its mind in the matter. Irish industry is at present accused of and attacked for making undue profits. A great many Irish industries are not making enough profit to keep up their employment. Attempts to limit the profits of successful businessmen are one of the factors tending to cause unemployment in this country. Business people are discouraged in every way by high taxation, by criticism in the Oireachtas, and so on, when they succeed in making a profit which is the normal test of a successful business.

I suggest that Senator Sheehy Skeffington's analogy between undue labour costs and undue profits is entirely wide of the margin. Labour costs are costs of production. I am not suggesting that wages should not be as high as possible but I suggest that in many cases in this country, owing to restrictive trade union practices, and so forth, the costs imposed on manufacturers by their labour relations are such as to make it very difficult for them to make a profit in their trading.

To suggest that high prices are the result of high profits is entirely putting the cart before the horse. The successful businessman who makes high profits is generally the businessman who sells at the lowest price. The reason he makes a good profit is because he can sell at a lower price. The exhortation of the British Chancellor of the Exchequer to lower prices is not an exhortation to lower profits. The two things are entirely different.

Profit is the reward of the successful businessman. It is determined after the whole process is over. No tribunal can possibly say what is an excessive profit. If a businessman makes a high profit then, unless there is a restrictive trade practice or a ring, his profit will be brought down in the field of competition by other businessmen in his own line of business. To say that profits are ever the cause of high prices is a misconception of the business process. The businessman who makes the biggest profit is very often the man who sells at the lowest price and not the man who sells at the highest price. He is able to sell at a lower price and do better than his competitors and therefore he makes the higher profit.

I have not yet heard from Senator Sheehy Skeffington a reply to the question I asked him earlier, namely, how "excessive profits" can be defined and what the yardstick is in that connection? I should be very interested to know what Senator Sheehy Skeffington would regard as an excessive reward for the risks of business enterprise. I have not yet heard a definition. If it could be offered here this evening, it would be almost, in my opinion, a milestone in business history.

I shall take Senator O'Brien's last point first. It would be very nice if I were to mention a percentage figure, and say that any profit above that figure is excessive. I am sure Senator O'Brien would very much like me to do that. It is obvious, on the other hand, that certain rates of profit may be regarded as legitimate in one set of circumstances and illegitimate in another. The legitimate profit to be anticipated, because it is a question of anticipation, will vary very considerably according to the nature of the business process, the commodity involved, the turnover, and so on. Therefore, to say that such and such a percentage is excessive and that anything under it would be all right cannot be done. I only ask that this Advisory Committee will take into consideration, when looking into the high cost of things, whether or not too grasping a middleman or manufacturer has not inflated prices artificially by seeking too high a profit margin in the circumstances of their trade and of the economy of the country at the moment.

Senator O'Brien suggests that somewhere else in this Bill there is effective machinery to deal with price-fixing rings. I would ask him where he finds that in the rest of the Bill. I do not see any reference effectively dealing with rings. One of the worst things I think about this particular Bill is that there is no indication at all in it that it will really deal with price rings. I know that the Fair Trade Commission can make reports and recommend the making of Orders, and so on, in relation to trade rings. We all know, however, that that remains pretty well an empty formula with certain Ministers in respect of the implementation of these Orders. Therefore, in circumstances where we have no effective apparatus for dealing with rings, you will get firms gathering together—I cited an example on the Second Stage in relation to the manufacture of children's perambulators— and deciding to insist that the profit rate to be taken by any retailer shall be, for example, 50 per cent. gross, and doing that behind a tariff barrier of a 50 per cent. duty on imported foreign prams. I cited the fact that, before the Prices Advisory Body, it was shown that a retailer who had committed the "crime" of being willing to take only 33? per cent. profit, and who had estimated that he probably could do it, was prevented from getting any supplies at all of the Irish-made commodity, and could not get the English-made commodity except by paying a 50 per cent. duty.

The Minister said he was powerless. I suggest that he remains powerless under this Bill. So long as we have that kind of price-fixing ring, insisting upon an artificially inflated profit rate in a very narrow circle within the trade, I feel we must look not only at labour costs but also at profit margins, if we are usefully to examine what constitutes too high a price.

Senator O'Brien suggests we cannot possibly fix profit rates but we do so in relation to certain commodities and public utilities. We decide, in relation to certain gas companies, that they must not declare a dividend of more than such and such a percentage. It is possible and feasible. In fact, here we pass Orders to allow that to be done. Yet, I am not suggesting that, under this Bill, profit rates should be fixed. What I am suggesting is that if we write into our Bill as a possible factor for high prices undue labour costs, why not, as a possible factor for too high prices, an excessive profit margin?

It gives me great pleasure to support Senator O'Brien. The political economy of the matter is quite simple. Profits are the result, not the cause. Let me take the last example given by Senator Sheehy Skeffington first. Why are public utility margins fixed? They are fixed because they are monopolies. There is only one E.S.B. There is only one gas company in Dublin. It has no relevance to quote the Gas Company or the E.S.B.

A price ring constitutes a monopoly.

They do not control the great bulk of commodities in this country.

They control quite a lot.

This amendment is misconstrued. Let me give an opposite example to that given by Senator Sheehy Skeffington. A friend of mine was manufacturing a medical type of article during the war years. He was able to produce it at roughly three-fourths the price at which the lowest other competitor in the country could produce it. He was willing to sell it at a lower price than anybody else in the country. That did not prevent his getting the very direct and forceful attentions of the price controlling authority. They said he was taking an excessive margin—the very word that is used here—but he was selling at a lower price than anybody else in the country. He was not in any ring of any sort because his competitors simply were not in the same class as far as efficiency went.

The fact is, the profit margin, if I might make a pun, is determined by the margin of efficiency, that is, the least efficient firm that can remain in the business determines the price. Therefore, the most efficient firm gets a very large profit and, if it is a very efficient firm, deserves to get it. I think this amendment just indicates that the Senator does not understand the matter at all.

Since Senator Sheehy Skeffington asked me the question, I may answer it. He asked me where the provision is in this Bill for dealing with rings and monopolies. The answer is that it is in Section 13. It is perfectly clear for anybody to read that there is provision in this Bill for fixing prices where the Minister is satisfied that there is a ring or restrictive practice or monopoly, but this section, Section 10, is dealing with an entirely different matter, where there is normal competition. Where there is normal competition, the high profit is the reward for a successful businessman and the successful businessman is the man who sells at a low price, not the man who sells at a high price. All the business in this country of restricting profits and cutting down profits and expecting people to invest in Irish industry is a contradiction in terms and shows muddled thinking. The people who at one time are asking people to take the risk of investing in new Irish industries and then say that profits must be limited because they raise prices show an entire misapprehension of the business process. Where there is a monopoly or restrictive practice, the Minister has ample powers to deal with it under Section 13 of this Bill.

I must confess that I cannot see the objection to putting in a reference to excessive profit margins in a section which also refers to undue labour costs.

As I think I said on the Second Stage of the Bill, it would be all right to pay attention to the arguments about profits and so on if, in fact, there was a free competition economy in this country, but we all know very well that, in fact, such is not the case. We are a small country, a small market. Most of our industries are protected. They are operating behind a tariff barrier in a protected market and it is useless, as I said then, comparing our economy with that of the United States and inferring that what is right and successful in the United States would be equally successful in this country.

In regard to price rings and so on, and the argument that, because Section 13 is there, there is no need for reference to excessive profit margins, maybe I can express a little doubt on that matter. We have had a report of the Fair Trade Commission not acted upon by the Minister and we are generally suspicious and apprehensive of the approach of this Government to prices. We do not think it is reasonable that a reference should be made to undue labour costs and that, at the same time, a hullabaloo should be created if there is any reference to excessive profit margins in the same section.

I do not think that anybody can seriously say that excessive profits, even though it may not be very easy to define that term, should be permitted without drawing attention to them in the report of an Advisory Committee. I, too, find myself in general agreement with Senator Sheehy Skeffington on this amendment and will support it.

I am afraid that I started some of this debate on the section but I did say to Senator Sheehy Skeffington that he was absent when I spoke the other evening and I mentioned that the American experts that came over here and made the much talked-of Ibec Report, few of the provisions of which have ever been acted upon, suggested that what was wrong with our economy was that not enough profit was being made. Profits are an entirely different matter from wages.

They did not advocate excessive profits.

One would imagine that if a small factory made £4,000, the owner could spend that by going to the best restaurants in Dublin. The general position would be that he would want probably about £3,000 of that for re-employment in his business, and the more money that he would have for re-employment in his business, the better.

We ought to get away from trying to control and handicap everybody who wants to do something. When a person makes money, the State, by direct and indirect taxation, will take an adequate amount from him and the people who want social services and social welfare will get it in that way. People who want to see the country prosper and who give employment will give the life blood to industry, which is the money they will have over at the end of the year after all expenses have been paid. That is the incentive to work in industry and it will be to the benefit of anyone who wants a job if these people have the money to expand their businesses.

I am afraid I still have not got my idea across to Senator Burke, because he says that profits are necessary, and that the Americans told us we did not take half enough. I am not suggesting, however, that profits are not necessary. I am not even suggesting that the existing profit margins are too high. All I am asking is that the Advisory Committee be permitted by the terms of this Bill to consider excessive profits as a possible contributory factor to high prices. All that Senator Burke says about profits is irrelevant, unless he is defending excessive profits. The Americans did not say that we must take excessive profits, and all that I have said is related to excessive profits. Senator Burke says all kinds of people are trying to "handicap" businessmen. Does he really believe the insertion of this clause about excessive profits will handicap businessmen?

Senator O'Brien, for whose opinion I have very great respect—I do not want to bandy words and I think there is a misunderstanding of terms—I understood to say that there existed in this Bill effective machinery for dealing with price rings. What it does, in fact, is to refer to the Fair Trade Commission and to say, in Section 13:—

"Where the Minister having considered a report of the Fair Trade Commission under the Act of 1953, is of opinion that—

(a) restrictive practices, in connection with the rendering of any service, exist, and

(b) by reason of the existence of such restrictive practices, excessive charges are being or may be made for rendering that service, the Minister may be Order fix the maximum charges which may be made for rendering that service."

That is not what I call effective machinery. I grant, when Senator O'Brien says that the Minister has "ample powers" under this Bill to deal with price rings, yes, but that is not "effective machinery", because there is no obligation at all on the Minister to use his powers or to take any action. Therefore, when you say that a Minister who has no intention of implementing recommendations of such a body as the Fair Trade Commission is effectively dealing with price rings, I am sorry, I do not think he is.

I think the Senator is looking for an argument because these constant references——

An Leas-Chathaoirleach

That is an interruption and an unnecessary interruption.

I am sorry, I did not hear the "unnecessary interruption". All I want to contend here is that, until you have "effective machinery", not just "ample power", to deal with price rings, you have in relation to a number of commodities in this country a real monopoly situation. I think it has been recognised by several people here that in a monopoly situation you may well have too high profit rates, and I submit very timidly again, that it is just possible that an excessive profit margin at some stage may be a contributory factor towards what our Act calls "unduly high prices", and I should like, if that Advisory Committee is to be permitted to look at unduly high labour costs, that it might also be authorised to look at unduly high capital costs.

Progress reported; Committee to sit again.
The Seanad adjourned at 10 p.m. until 3 p.m. on Thursday, 5th December, 1957.