Difference Between Capitalism and Communism

An economic system consists of the institutions and the methods by which resources are allocated, as well as products and services distributed, and these are capitalism and communism. Both of these economic systems mainly focus on how to allocate goods to the population.

However, there is a significant difference between capitalism and communism.

Key Takeaways

1. Capitalism is an economic system in which the means of production and distribution are privately owned and operated for profit.
2. Communism is a political and economic system in which the means of production and distribution are owned and controlled by the community.
3. Capitalism emphasizes individual freedom and private property rights, while communism emphasizes equality and shared ownership.

Capitalism vs Communism

The difference between Capitalism and Communism is that capitalism refers to the private individuals who own and control the industries. In contrast, communism means the community controls the trade and industry of a country. The profit earned in capitalism is of the company’s owners, whereas the profit earned in communism is distributed to the people of the economy.

The capitalist economic system is categorized by private ownership of assets and businesses. It relies on free markets to determine incomes, wealth, price, and distribution of goods.

On the other hand, the Communism economic system is characterized by government intervention to reallocate resources equally and efficiently. 

Comparison Table

Parameter of Comparison	Capitalism	Communism
System Of Government	Democratic	Totalitarian
Property Owned	Private Firms	State Government/Co-operatives
Driven By	Free Enterprise	No Free Enterprise
Wealth Distribution	Unevenly	Equally
Education and Healthcare	Provided by Private Entities	Provided by State
Focus on Progress	Individual Progress	Community as a Whole
Taxes	Limited Taxes/Limited Government Spending	High Progressive Taxes/Higher Spending on Public Services
Prices	Determined by Supply and Demand	Price Controls
Efficiency	Market Incentives encourage Firms to Cut Costs	Government Owned Firms have Fewer Incentives to be Efficient
Advantages	Dynamic Economy, Incentives for Innovation and Economic Growth	Promotion of Equality, Attempt to Overcome Market Failure
Problems	Inequality, Market Failure, and Monopoly	The inefficiency of State Industry, Attempt to Overcome Market Failure

What is Capitalism?

Capitalism is an economic system in which private entities own and control the factors of production for profit. The four factors are entrepreneurship, natural production, capital goods, and labour.

This economic system allows business owners and employees to manage their incomes. 

The only Government intervention in this system is taxation and standard regulatory laws. The government has no stance on business operations, nor can it object to how a company and its employees spend their earnings.  

Capitalist ownership means two things: owners control the factors of production, and the other is they drive their income from ownership.

This allows them to operate their companies efficiently and provides them with incentives to maximize profits. 

Advantages

Capitalism results in offering the best products for the best prices. This is because consumers are willing to pay more for what they want.

However, there is cut-throat competition here, and businesses manufacture efficient products to maximize their profits. 

Capitalism’s intrinsic reward for innovation is the most important thing for economic growth. This includes the innovation of more efficient production methods as well as the innovation of new products. 

What is Communism?

Communism is an economic system that relies on society can achieve full social equality by eliminating private property.

Here the government owns most of the factors of production and decides the allocation of resources and what products and services will be provided.

Karl Marx and Frederick Engels in the 1840s devised the concept of communism.  

The Communist Manifesto outlines the following 10 points:

1. Elimination of all rights of legacy
2. Seizure of the property of all immigrants
3. Elimination of property in land and application of all rents of land to public purposes
4. Heavy progressive or graduated income tax
5. Measured elimination of the distinction between town and country
6. Equal liability to labour and establishment of industrial armies
7. Free education to children in public schools and eradication of children’s factory labour
8. Centralization of credit in the hands of the state
9. State factories and instruments of production would cultivate wastelands and improve the soil
10. The state would control communication and transportation

The leaders create a plan that outlines their choices and is executed with laws, regulations, and directives.

The goal of the communist economic system is to give each one what they need.

It offers free healthcare, education, and other services. It also seeks to increase the nation’s economic growth, secure national defence, and maintain infrastructure.

Advantages

Communism quickly mobilizes economic resources on a large scale, execute massive projects, and creates industrial power.

It moves effectively as it overrides individual self-interest and subjugates the general population’s welfare to achieve critical social goals.

Main Differences Between Capitalism and Communism

Capitalism and Communism economy systems have different aims, such as:

Equality

Capitalism is not concerned with equity. It believes that inequality is essential to encourage economic development and innovation. 

Communism is concerned with redistributing resources equally among the rich and the poor. This ensures equal opportunities and, in some forms of communism, equal outcomes. 

Efficiency

Capitalism offers profit incentives encouraging firms to be more efficient. It cuts costs and innovates new products to fulfil the needs of the people.

In this economic system, firms will go out of business if they fail to keep up. However, this business failure allows resources to flow to new or more efficient areas of the economy. 

Communism offers state ownership which often leads to inefficiency as workers and managers lack real incentives to cut costs.

Unemployment

In a capitalist economy system, the government or state does not provide jobs directly. Thus, in times of recession, unemployment in the capitalist economy rises to very high levels.

In Communism, employment is often directed by the government or state. Thus, they provide full employment to workers who cannot do anything essential.

Price Controls

Market forces in capitalism determine prices. Firms with monopoly power may be able to exploit their positions and charge much higher prices.

In a communist economy, prices are usually set by the government, leading to shortages and surpluses.

References

1. https://www.eh.net/page/130/?s=how+much+is+that
2. https://www.ceeol.com/search/chapter-detail?id=529342
3. https://journals.sagepub.com/doi/pdf/10.1177/194277860800100212