of negotiations and because the high visibility of transportation wage settlements. Informal involvement by high level personnel might be as effective and more durable than review by a lower level board with mandatory "power." On the price side, it was believed that the basic Phase II price control tools could not be effective in improving rate regulation, primarily because of the large number of individual rate cases handled each year. It was hoped that some way might be found to persuade the Interstate Commerce Commission to change some of its regulations to permit more flexible market entry and exit by both rail and motor carriers and to encourage productivity improvement by permitting a greater degree of marginal pricing for certain services. Two organizational possibilities were considered to work on both the regulatory reform and the wage stabilization aspects of the intended program for this sector. The first was a subcommittee of the Cost of Living Council which would be composed of the Director of CLC, the Director of OMB, and the Secretaries of Labor, Commerce, Agriculture and Transportation. No mandatory authority would reside in the subcommittee although the threat of mandatory action could be invoked to encourage cooperation by regulatory agencies and parties in collective bargaining. It was thought that such a subcommittee could draft and work to secure passage of reform legislation ranging from deregulation of an industry to requiring inflationary impact analyses in connection with rulings by regulatory agencies. Members of the subcommittee or staff would involve themselves in wage negotiations to encourage both parties to consider the impact of their actions on productivity and rate levels. Members and staff would appear at ratemaking hearings to present findings and urge appropriate action by the regulatory bodies. A second possibility was to constitute a transportation industries board reporting to the Cost of Living Council. Each independent regulatory agency, carriers, labor organizations, the National Mediation Board and the National Railway Adjustment Board would be represented. The Board would directly control wages in the industry and would develop some sort of strategem to impose restraint on rate increases without reviewing each individual filing-possibly a TLP approach or repromulgation of general guidelines such as those issued by the Price Commission to guide action on rate requests by the regulatory agencies themselves. Such a proposal for direct intervention in the transportation sector was dropped from the plan before it went forward to the President. The concept, as it emerged from the staff, was somewhat vague and it was thought that the objectives could better be achieved without the fanfare of a new board. Changes in regulatory practices could best be accomplished by affirmative Congressional action on a modification of the Administration's deregulation bill, which was then being studied. Informal contact with the wage negotiations could be handled as well as by appropriate individuals within the Administration without placing them in some new organizational environment. Food From the beginning of the planning process it was thought desirable for the post-Phase II stabilization program to include a mechanism for exerting continuing influence on the food sector because of its importance to consumer expectations, the likelihood of continued pressure on prices from supply/demand imbalances, and the possibility of destabilizing impact from farm income maintenance programs. It was thought that the high degree of existing government intervention in the food marketplace made it necessary to coordinate such existing activities with any new stabilization activities. It was also believed that certain long-term governmental actions were desirable or inevitable or both and that the post-Phase II program should maximize internal coordination on long-term action. But it was not planned at the outset to continue any direct controls on the food sector because it was thought impracticable to control raw agricultural products and, absent such control, any real restraint on food price increases would have to come from more fundamental supply enhancement. Existing income support programs functioned essentially by limiting supplies in order to stabilize prices at levels which would provide adequate returns to farmers. The C-8 group believed that development of alternatives to the present income maintenance programs was necessary if inflationary pressures and resulting consumer demands for direct control were to be abated. Thus, the idea emerged of a food stabilization subcommittee of the Cost of Living Council to develop such an alternative income maintenance program and to assume primary responsibility for White House level coordination of Federal programs directly affecting the food sector. In particular, the new subcommittee would review changes in marketing orders, price support levels, acreage diversion and discretionary import quotas. It would also review the functioning of market mechanisms to determine reform possibilities and direct actions to modify international agreements and trade barriers to ensure that stabilization objectives were reflected in such policies. It can fairly be said that the concepts developed for food price stabilization were the only set of ambitious reforms which actually emerged from the planning process and were implemented as a part of Phase III. There was continuing concern during the planning process that food prices might represent the Achilles' heel of the post-Phase II stabilization program-a prophetic thought. There was some concern that aggressive action might be necessary to stabilize meat prices even before the new program could be unveiled, and some momentary thought was given to imposing a freeze on meat prices during the month of December. It was recognized that the outlook for food prices was not good. By late November, the Department of Agriculture had projected the following increases in food prices (change from previous month-seasonally adjusted annual rate). To understate the obvious it can be seen that the problem was much worse than anticipated. One of the President's basic reactions to the package, after he saw it for the first time in mid-November, was that it was not tough enough on food prices. Thus, the staff sought to develop alternatives or supplements to the concept of making Federal food policies less inflationary. Two possibilities emerged from this return to the drawing boards. The milder of the two options would be to establish an advisory panel reporting to the food subcommittee. This panel would represent the opinions of key private interests and encourage their compliance with policy changes implemented or proposed by the policy subcommittee. While the advisory panel would funnel non-government views to the food subcommittee, its more important functions would be to promote cooperation from interest groups and to permit assessment in advance of probable reaction to major changes. A tougher option was to continue direct control of pay and prices at the processor and retailer level and establish a new panel to administer the controls. Basically the direct controls would represent an extension of Price Commission and Pay Board regulations. However, it was proposed that such a controls panel might also act to improve the collective bargaining process, perhaps acting through regional boards similar to the approach of the CISC craft boards. In the end, a hybrid plan was adopted although, substantively, it came closer to the tougher approach. Mandatory controls were continued and an outside food advisory committee was appointed to advise both on the policy and reform aspects as well as the administration of the controls. Ultimately, of course, after Phase III was announced and launched, a separate tripartite wage and salary committee was appointed. DEVELOPMENT OF ALTERNATIVE WAGE Apart from direct intervention in troublesome sectors, there was the difficult question of defining standards for price and wage behavior in the rest of the economy. Alternatives generally ranged between continuation of the Phase II controls-a detailed scheme of mandatory regulations prescribing acceptable wage and price increasesand complete decontrol. Review of Post-Phase II Proposals The search began with a review of a number of proposals which had been made publicly for post-Phase II incomes policies.13 Some commentators proposed eliminating mandatory controls altogether and mounting efforts to improve the competitive nature of markets, as well as strengthening the usefulness and flexibility of available fiscal and monetary tools. Those who favored continuing some kind of direct incomes policy proposed various schemes for providing guidelines, and possibly some form of selective review of large increases. Perhaps the most detailed proposal was published by the Committee for Economic Development (a private "think tank") in July. While emphasizing improved fiscal and monetary tools, CED argued that "some continuing direct governmental concern with significant wage and price decisions must play a role in the overall stabilization strategy." CED advised retaining the compulsory control features of Phase II only until reasonable success was achieved in meeting the goal of a two or three percent rate of price increase. Over the longer run, CED would maintain, at least on a standby basis, "some orderly voluntary mechanism to protect and educate the public in containing inflation that results from important wage and price decisions." It proposed a sector by sector transition from Phase II to the voluntary environment, pursuant to publicly announced criteria. Business, labor and other affected groups would be permitted to petition the CLC, by sector, for full or partial exemption from the existing Phase II mechanism on the basis of evidence that the announced criteria had been met. After decontrol, a Presidentially appointed board would monitor price and wage behavior relative to general guidelines. The CED proposal was reviewed with some interest but was rejected as presenting insuperable difficulties with respect to the antitrust laws, since it called for industry-wide petition of the government. There seemed to be some consensus among outside economists that the government should set guidelines and focus public attention on key increases. Control Options The C-8 group identified five main control options for the rest of the economy; apart from the troublesome sectors: 1. Complete decontrol; 2. Enunciation of voluntary guidelines with an implicit threat of moral suasion, other pressure or mandatory controls in some cases; 3. Substantial reduction of coverage, eliminating from controls retail and wholesale trade, most services and all but the largest units in the rest of the economy; 4. Approximately present coverage with relaxation of standards. 5. Continuation of system in present form. Complete decontrol was eliminated as being too shocking to a public which had not been prepared for the idea. Relaxation of standards did not seem to be a practical ways to reduce substantially the number of cases in which the controls operate, and to do this would seem to signal a higher rate of inflation. Moreover, opening the question of the standards, if the standards were expected to be legally binding, could set off a fight with business and labor. The most common outside suggestion for changing but keeping the control system was to confine it to the largest corporations and the largest labor contracts. However, a relatively small part of the inflation originated in that area. The total corporate sector contributed less than half of the inflation of the previous year. At the same time, the possible adverse effects of controls on investment and productivity in this area could be especially serious because it did account for a large part of total output. Recommendations The group's preference was to enunciate some general standards of price and wage increases as guides to voluntary private behavior with some possibilities of government intervention in particular cases |