The Statist of January 17 carried an articles "Dividend Limitation Again?" by John Nash, Managing Director, Samuel Montague. The central argument of the piece is that most forms of profit restraint aro ineffective and that effective profit restraint is incompatible with a dynamic capitalist sconomy, Nash implies that one cither has to dispense with capitalism or with profit restraint if one wishes rapid growth.
"It will be genorally, agrood" ho said"that both dividend limitation and differontial profits taxes failed in the past. The only people who gained from the policy of dividend limitation (between 1945 and 1951 were not the workers to whom this policy was meant as a sop, but the takeover specialists of the sixties, These latter quite correctly found stagnant pools cf economic resources not used in the most economic fashion, but bloated by past limitations, and proceeded to remedy that situation by takeovers and reorganisation, “there companiss wore not in fact “stagnant pools" thoy ropresented a collection of resources that were wrongly priced in the markot, owing to tho distortions of dividend limitation, In cither case, takeover and reorganisation took place, capital gains and capital losses were made by sharcholders, but the objectives of income restraint and income equalisation were not advanced one wWhitee.
"The distortions created ovora period of time by two-tier profits tax (i.e. higher distributed profits tax and lower undistributed profits tax) have been oven more insidious, In a market economy, or in the market sector of a mixed economy, there is hardly a policy which could guarantee misapplication of economic resources more effectively. Dy penalising payout and encouraging retention of profits, one reinforces the position of static companies, oncourages "diversification" for its own sake, and one removes from the market the choice as to where econo= mic resources are to be applied. If the market has any role to play at all, it is surely to determine in which direction resources aro to flow, to reward successful, fast growing companies by making it easier and cheaper for them to raise money (vie their rating or market price of their shares) and to penalise unsuccessful companies.
“Assuming that the present mixed economy will be substantially unchanged structurally in the next five years (complete socialisation is not around the corner) ono of the principal tasks of economic policy will be to co-ordinate the operations of the free market sector within the overall growth policy, Is the best way to go about it to distort the operations of the markot (i.e. make it less efficiont) in ordor to achieve a doubtful advantage on a point of individual morale?"