The socialization of commodities

Abstract

Usher (1977) provides an interesting analysis of what he terms the ‘socialization’ of commodities. Usher defines a commodity as being socialized when the ‘government appropriates the whole supply by purchase or by production in the public sector and reallocates the supply among consumers, equally or according to some nonpecuniary criterion’.’ He cites the public provision of health care and education as primary examples of socialization. Usher examines a simple general equilibrium model in which all consumers are assumed to have Cobb-Douglas utility functions with a single taste parameter that varies across individuals. The government levies a linear income tax and uses the revenues to finance the provision of equal quantities of the socialized good to all consumers. The decision to socialize the provision of the commodity is made by majority vote. Each voter compares his or her levels of utility under socialization and under competitive supply. As Usher points out, in his model, there are two factors that determine whether society will choose socialization. 2 First, under proportional taxation, people with incomes below the mean pay less than proportional shares of cost of the socialized good. Thus, poorer people tend to favor socialization, while the rich vote against it. Typically, the median income is less than the mean, and one would expect the socialization of all commodities if this factor were the only consideration in the decision to socialize. There is an opposing force, however. In a society with a diversity of tastes, individuals will desire to consume varying amounts of the good. Under socialization, as defined by Usher, all people must consume the same amount