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(e)    Liberalization of foreign trade relations is incompatible with administrative price control.

(f)    Administrative control is the source of constant administrative interventions in various segments of the system.

5.    Prices in our system depend essentialy on movements of personal incomes. Control of incomes automatically places prices also under control. This can be seen from the data according to which producers’ prices were exceptionally stable while incomes were controlled (at that time, that is until 1961, in large part administratively). Until 1958 productivity of labor rosę faster than real incomes, and prices from time to time fell. After that incomes gradually, and then from 1964 rapidly deviated from productivity of labor and the inflationary gamę began.²² In that respect it should be had in mind that inflation does not occur because average personal incomes are too high, but because (a) the increase in productivity of labor is too Iow and (b) because incomes in privileged industries are too high. Since produc-tivity of labor is a function of production, the first cause should be cured by accelerating the growth of production. The second cause indicates that administrative price control should to a great extent be eliminated and replaced by economic control of personal incomes. We shall discuss how that can be done partially in section III of this work. There will be necessary:

(a)    Institutional changes and

(b)    Application of suitable measures of fiscal policy.

In this connection progressive taxation of personal incomes above the standard determined by conditions of stability will represent an important element of economic policy.

6.    Economic control of income distribution represents a key element of economic policy not only because of price stabilization, but above all because it is the basie precondition of equalizing the conditions of economic activity without which the self-managed socialist economy cannot function. Present practice as well as economic-political proc-lamations (distribution according to productivity of labor) negate the socialist approach to distribution according to the results of work. For

In the period 1952-iytiO Yugoslav economic devclopmcnt was the fastest in the world, and exports also cxpanded by one of the fastest rates. Then Japan as-sumed the leadership in the tempo of development, and in the last two dccades is by far the most dynamie economy in the world. For that there are several reasons, and one of the most important is the following. If data for 1953 are designated as 100, then in the next sevcn ycars nominał personal incomes inereased to 148 and productivity of labor to 182. In that way costs of labor per unit of production fell by ll^#/o (index 89). Thus exports received a powerful impulse, and the index of ex-ports in 1960 amounted to 324 (which corresponds to a ratę of growth of 18*/2°/o annualiy). Exports are stimulatcd by significantly lower export prices in relation to domcstic. For examplc, the manufacturer’s price for a color television set is $ 160 for cxport, but $ 530 on the domestic market. The fastest export cxpansion is a necessary component of the fastest ratę of growth. Nominał personal incomes rosę faster than productivity of labor for the first time just in 1969. If Japan continues thus in the following years, then other similarities with our path of 8^r0'^^tl) ^^an soon be predicted. (K. Kojima, »Japan’s Trade Policy., Economic Recor ,    (^ar‘

1965), 54-77; .Japans TV Trade Told to Up Prices., Journal of Commerce (July

28. 1970).

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