ent procurement prices for farm
products. In 1970 the reorganized State Committee for Prices was given
authority to control all prices. Representation on the committee has
been provided for the State Planning Committee; the ministries of
finance, domestic trade, and foreign trade; the Central Statistical
Bureau; and the Central Council of the General Union of Trade Unions.
Participation by delegates from economic ministries and other organs is
to be ensured at all sessions in which problems of interest to them are
brought up for discussion.

The basic criticism leveled against the price system concerned its
tendency to undermine the government's drive for economic efficiency
through the failure of prices to reflect production costs, improper
relationships among prices, and price inflexibility. A comprehensive,
unified approach to price reform was considered beyond the capability of
the authorities; a piecemeal approach of dealing separately with
different types of prices was therefore decided upon. Priority in this
program was given to the improvement of industrial wholesale prices.

Wholesale prices for industrial products have been based on average
costs for each product in the relevant industrial branch. Prices have
therefore been profitable for enterprises having below-average costs,
whereas enterprises with costs above the average have had to rely upon
state subsidies for continued operation. Wholesale prices were last
fixed in 1963, and subsequent changes in technology and other aspects of
production magnified the dissociation of prices and costs. For political
reasons and because of general shortages the closing of uneconomic
enterprises was not considered feasible. Maintenance of fixed prices
over long periods of time has been deemed essential for purposes of
planning.

Under the prevailing price system, which assured high profits to many
enterprises and provided subsidies for unprofitable ones, there was no
incentive for enterprises to reduce costs. This tendency was reinforced
by the methods used to calculate costs and prices. The fact that cost
calculations did not include any charges for rent or capital induced
waste in the use of land and equipment. Prices included an element of
planned profit determined as a percentage of cost. In the price-setting
procedure it was therefore advantageous for enterprises to overstate
actual costs. This practice has been widely prevalent in fixing prices
for new products.