1. Let us place ourselves in an economy where the level of the NARP, the average rate of profit on capital, which is sufficient to establish or maintain full employment, is known.
This is the case if the conditions for the full exercise of the EPCE feedback have been met for several years.
2. Let us consider three groups of legally constituted enterprises, according to the level of their rate of return over the previous seven years.
In the first group, the level of rate of return is significantly lower than the level of the NARP. In the second group, the level of rate of return is significantly higher than that of the NARP. In the third group, the level of rate of return is of the same order of magnitude as the level of the NARP.
3. The price level at which the enterprises in the third group sell is sufficient.
But this is not sufficient to establish the dispersion of direct rates of return of the same systemic level in each of the enterprises in the third group.
4. Within a legally constituted enterprise, persistent inequalities in direct rates of return of the same systemic level indicate that the sales with the lowest rates of return are subsidized by the sales with the highest rates of return.
As a general rule, comparisons of the profitabilities of the same systemic level do not reveal these internal subsidies, nor do they allow them to be quantified. The smaller the subsidies, the closer prices are to their sufficient levels.
5. Loss of outlets can be avoided by voluntarily reducing inequalities in direct rate of return of the same systemic level.
Where sales whose rate of return is insufficient are massively subsidized by sales whose rate of return is excessive, on supply open to competition, competition sooner or later erodes the excess rate of return. It may then be too late to raise the rate of return of the sales that have been subsidized. This trap is all the more formidable as the margin production with the highest rate of return is frequently the one with the lowest profitability. A general management, failing to commit itself to practising and having practised within the enterprise the distinction between profitability and rate of return, is exposed to doing, in good faith, the opposite of what would be healthiest, namely: investing more in the margin production with the lowest profitability but the highest rate of return, and withdrawing from the sales with the highest profitability but the lowest rate of return after having sought how to raise their rate of return.
6. A deliberate internal subsidy is a direct investment of the parent enterprise in one of its children; it is sound when it is budgeted, bounded in time and recovered.
Let us partition internal subsidies into two subtypes. A persistent internal subsidy has neither a measured amount nor a term: it results from selling prices that equalize profitabilities instead of rates of return (Proposition 11.9), and competition sanctions it sooner or later (argument 5 above). A deliberate internal subsidy is decided, quantified and bounded in time: the launch of a product, the entry into a new market, the ramp-up of a new margin-producing section.
Within a legally constituted enterprise, nothing changes owner: an internal subsidy is a reallocation of margin between enterprises within the enterprise, the internal analogue of a transfer between entities (Proposition 1.3). The analytical accounts treat the deliberate subtype as an investment, not as an expense (Propositions 4.5 and 4.7). The shortfall between the direct margin of the subsidized child and the margin that would equalize its direct rate of return with those of its siblings is a direct investment of the parent in that child, financed by the margins of the siblings. In the nested table, this shortfall is added to the direct investment of the child (line 1). The child then owes a rate of return on it, like on any other direct investment.
Three conditions keep a deliberate internal subsidy sound. Its amount is budgeted in the nested table before the selling prices are set. Its term is fixed in advance. At that term, the direct rate of return of the subsidized child reaches that of its siblings, the accumulated subsidy included. Past its term, a deliberate subsidy becomes persistent, and argument 5 applies. Where a combination of activities or outlets enables an enterprise to sustain it durably, it falls under dumping (Guideline 9).
Equimanagement provides the instrument of this distinction (see the appendix Paul Fabra – Equimanagement). Allocating common costs in proportion to direct investments makes every internal subsidy measurable as a gap between direct rates of return of the same systemic level, which comparisons of profitabilities do not reveal (argument 4). A deliberate subsidy is then a managed quantity: the enterprise knows what it invests in each child, for how long, and at what rate of return it expects the investment to be recovered.
7. The evolution of its sales structure becomes indifferent to an enterprise that manages to equalize its direct rates of return of the same systemic level.
Whether the customer base of such an enterprise increases or decreases its purchases on a particular section of its offer has no effect on the rate of return of the entire offer. This is one of the main conditions under which enterprises make the highest level of their social contribution.
8. Entrepreneurship that wants to be fair, without integrating into its management the conditions under which an enterprise's prices are sufficient, relies too much on its good feelings.
An enterprise that is verbally managed to generate the highest possible earnings may in fact be managed, year after year, to achieve as closely as possible the final result objective established by its general management at the beginning of its process of budgetary decisions and setting objectives. If in this enterprise, the slightest dispersion that brings its sales prices closer to their sufficient levels is allowed, then its management is likely to prove to be fairer for everyone (customers, wage-earners, shareholders in capital) than where the banners of the "social and solidarity economy" and "fair trade" fly at the bow and stern of the ship.