Learning to Live with Phase II

THE wage-price freeze of Phase I was very clearon lobbyistscome before the commission fully armed with complex cost data, which Chairman C. Jackson Grayson Jr. promises to keep secret from curious competitors and union leaders.

Model Application. Chrysler asked for a 5.9% price hike to reflect the two-step wage increases of 7% that automakers will begin paying this week. The commission bounced the application and demanded more facts. Says Economist Robert F. Lanzilotti, a commission member: "We need to know more about their costs in terms of direct labor, materials, plant burdens, corporate burdens. I know that this information exists, and we want to see it."

American Motors wisely presented what commission members considered a model application, and won prompt approval for an increase of 2.5%ty is not rising sufficiently fast to offset the forthcoming wage boosts. The commission also compared American's past internal forecasts of profits and losses with actual results to determine that the company has developed reliable methods of predicting what earnings will be at a given level what earnings will be at a given level of car sales, and then accepted American's contention that a 2.5% price rise will not increase profit margins. Lanzilotti pledged, however, that the commission will keep a close watch on American Motors' margins, and will roll back the price rise if it finds that they are being excessively fattened.

The commission's attitude will force many companies to keep much closer tab on their productivity and profit margins. Some complain that the task seems impossible. "We have never developed a productivity measure that satisfied us over the short span," says Dean McNeal, vice president of Minneapolis' Pillsbury Co. On the other hand, Grayson, as a business school dean on leave from S.M.U., appears to relish the idea of pressuring companies into stricter cost accounting.

Enough uncertainty remains about what kind of price rises will be approved, though, to turn some big executives into volunteer enforcers of price restraints on smaller concerns. Robert Blythe, executive vice president of Atlanta's Munford-Atlantic Co., warns suppliers that "they cannot pass any price increases on to us." As a company with sales of more than $100 million, Munford-Atlantic must get Price Commission clearance for any increases, and it cannot be sure that it will be allowed to raise its own prices to reflect higher charges by suppliers.

On the wage side, companies' biggest problem has been explaining to the silent minority of salaried employees the rules on merit raises. Each employee can get as much or as little as his bosses deem appropriate, but the company can increase its total salary and benefit costs by no more than 5.5%. Employees of Rollins, Inc., a diversified Atlanta company, got the deliciously wrong idea that everybody's pay would automatically jump 5.5%; executives are disabusing them of that notion. Raises that come as a result of promotions do not count against the 5.5% standardre severe enough to make many businessmen gloomy, despite the efforts to pump up euphoria by a group called Citizens for a New Prosperity. With White House cooperation, the group is passing out bumper stickers, decals and yardsticks whooping up the prosperous prospects of Phase II, even as unions pass out Buy American buttons. Actually, there is plenty of leeway under Phase II rules for sharp gains in profits. Controls apply not to total prof its but to profit margins percentage of sales. hat the gross national product rose more strongly in the third quarter than previously estimated; that is a sign there was a good gain in September, the quarter's final month.

But what if economic recovery does not speed up even more? The Nixon Administration has at least one new stimulant ready. It could ask Congress to postpone a Social Security tax increase, due Jan. 1, that would cost millions of workers $145.20 a year each. Postponement was recommended several months ago by a committee of citizens who advise the Social Security Administration, but their report was almost unnoticed until Elliot Richardson, the HEW Secretary, spoke about it at a White House press briefing last week. Delaying the increase would enable the Administration to claim that it was not pushing a further tax cut but merely adjusting the accounts of a Government trust fund that is heavily in the black, while still stimulating the economy.

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