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Romania Pricing and Profit
Because the market forces of supply and demand did not
operate
in the centrally planned command economy, prices were
calculated
and assigned to goods and services by a governmental body,
whose
decisions were shaped by political and ideological
considerations
as well as economics. Following the tenets of Marxism,
prices for
basic necessities had been maintained at artificially low
levels
throughout the postwar period until 1982, when 220
different food
items were marked up 35 percent. Even after the increases,
however,
food was priced below the cost of production, and state
subsidies
were required to make up the difference. At the same time,
prices
for what the party categorized as luxury goods--blue
jeans, stereo
equipment, cars, refrigerators--were far higher than
justified by
production costs. Consequently, per capita ownership of
consumer
durables was the lowest in Eastern Europe except for
Albania.
The inflexible system of centrally controlled prices
created
serious economic dislocation. Lacking the free-market
mechanism of
self-adjusting prices to regulate output, the economy
misallocated
resources, producing surpluses of low-demand items and
chronic
shortages of highly sought products, including basic
necessities.
This serious failing notwithstanding, the Ceausescu
government in
the late 1980s adamantly refused to modify the system and
in fact
was moving to strengthen the role of central planners in
setting
prices.
Wholesale and retail prices were assigned by the State
Committee for Prices, with representation from the State
Planning
Committee, the Ministry of Finance, the Ministry of
Foreign Trade
and International Economic Cooperation, the Central
Statistical
Bureau, and the Central Council of the General Trade Union
Confederation. The committee computed the price of an item
based in
part on normative industry-wide costs for the materials,
labor, and
capital used in its production. In addition, the price
included a
planned profit, which was a fixed percentage of the
normative
production cost. After a pricing revision, approved by the
GNA in
December 1988, the profit rate was set at between 3 and 8
percent
of cost. An additional profit margin was factored into the
price of
commodities destined for export--6 percent for
soft-currency and 10
percent for hard-currency exports.
Because prices were based on industry-standard costs,
enterprises with lower than average costs earned
above-plan
profits, but those with high costs ran deficits and had to
be
supported by state subsidies. The New Economic and
Financial
Mechanism had called for making all enterprises
self-financing, and
those unable to break even were subject to dissolution.
But as of
early 1989, no instances of plants closing because of
unprofitability had been reported. A pricing law enacted
in
December, 1988, would allow enterprises to retain all
above-plan
profit earned in 1990 but would require them to transfer
half of
such profits to the state budget during the subsequent
four years.
The enterprises channeled their share of profits into
various bank
accounts and funds that provided working capital and
financed
investments, housing construction, social and cultural
amenities,
and profit sharing. The last fund paid bonuses to
employees if any
money remained following compulsory payments to the state
and the
other funds. But if an enterprise failed to meet its
production
target--an increasingly common occurrence in the
1980s--the profitsharing fund was reduced accordingly.
Data as of July 1989
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