Story at a Glance

Independent wood products industry study demonstrates, among other things, that government controls disrupted rather than stabilized this key segment of our national economy.

ates an efficient price system. Flexibility-was'rfound to be its hallmark.

As the Rinfret report put it:

"When price controls were imposed. on this sup€rbly efficient pricing mechanism for softwood lumber and plywood, the market mechanism stopped norking. The results of imposing rigidity on a system historically characterized by flexibility were disruption and distortions....

"When price controls were removed, the industry immediately began to operate in a more efficient manner as supply expanded and prices decreased.

"Controls were inefficient; the free market is efficient, benefitting producers distributors and consumers."

The Rinfretteport suggested: lumber and plywood industry is the flexibility of its pricing system," with a continuous flow of transactions, interacting on each other. other bie associations) after it recognized that few people understood its complexities, the unique nature ofits operations, and its dependence on a renewable raw material that may be unavailable when needed most.

"The industry's operations demonstrate very clearly that price controls can be effective only under a very limited set of circumstances. Most of the time, price controls will not work in this and similar industries."

-Softwood products are a "true commodity" and like other commodities are highly volatile - sensitive to supply and demand pressures. Like wheat, a small change in the level can produce significant price fluctuations.

-The market for lumber, plywood, millwork and other solid wood products is "real, independent and effective composed of a highly interactive network of individuals operating in an intensely competitive atmosphere. Like an endangered species this market should be prized and protected."

-The onset-of government price controls in 1971 had the practical effect of working "against the efficient management of companies engaged in lumber and plywood production and distribution."

To gain understanding, industry leaders sought comprehensive research and analysis by an unbiased, respected organization. Rinfret-Boston was chosen because of its unquestioned credentials.

The result was a lO-month study focusing on the softwood lumber and plywood industry - backbone of the homebuilding industrysince 1970, and particularly during the price-control period.

A summary of the findings buttresses what the industry has contended and what some price control officials came to admit - that it is a highly competitive industry whose very competitiveness cre-

Was the lesson learned? The Rinfret researchers believe not. While they did not make forecasts for the future, their summary cautioned:

"A major threat to the American economy is the possibility of a return to price controls by a government which doesn't remember the distortions and disruptions which such controls created for industries like softwood lumber and plywood."

These were among other key findings of the study:

-"The production and distribution of softwood lumber provide one of the rare existing examples of a truly competitive industrial organization," without centralized decision-making; without a single, giant pricesetting leader, and with a widely dispersed market whose transactions are a. matter of public record.

-"Perhaps the most important characteristic of the softwood

-Phase Two controls. which followed an initial, 90-day wageprice freeze, exacerbated wood shortages during an unprecedented homebuilding boom in 1972 that rapidly depleted wood inventories. The controls'''further aggravated the sensitive demandsupply relationship by allowing prices to increase on a non-uniform basis."

-Price ceilings in effect on wood producers "failed to take into account increasing demand, thus leading to market distortions and shortages in 1972."

-Phase Two produced some "unusual business practices" and a suspicion by some companies that regulations were not being applied equitably throughout the industry.

-After Phase Three took effect Jan. 11, 1973, the industry gradually began returning to normal and "the havoc and confusion ofPhase Two were not duplicated."