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 major difference between capitalism and communism.
Capitalism vs Communism
The main difference between Capitalism and Communism is that capitalism refers to the private individuals who own and control the industries while communism means the community controls the trade and industry of a country. The profit earned in capitalism is of the owners of the company 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 business. It relies on free-markets to determine incomes, wealth, price, and distribution of goods. On the other hand, the Communism economy system is characterized by government intervention to re-allocate resources equally and efficiently.
Comparison Table Between Capitalism and Communism
|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|
|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||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 a profit. The four factors are entrepreneurship, natural production, capital goods, and labor.
This economic system provides business owners and employees the freedom 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 choose to spend their earnings.
Capitalist ownership means two things, one is owners control the factors of production and the other is they drive their income from ownership.
This gives them the ability to operate their companies efficiently and also provides them with incentives to maximize profits.
Capitalism results in offering the best products for the best prices. This is because consumers are willing to pay more for what they want the most.
However, there is cut-throat competition here and businesses manufacture efficient products to maximize their profits.
The most important thing for economic growth is capitalism intrinsic reward for innovation. 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 that 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.
The concept of communism was devised by Karl Marx and Frederick Engels in the 1840s.
In the Communist Manifesto outlines the following 10 points:
- Elimination of all rights of legacy
- Seizure of the property of all immigrants
- Elimination of property in land and application of all rents of land to public purposes
- Heavy progressive or graduated income tax
- Measured elimination of the distinction between town and country
- Equal liability to labor and establishment of industrial armies
- Free education to children in public schools and eradication of children’s factory labor
- Centralization of credit in the hands of the state
- State factories and instruments of production would cultivate wastelands and improve the soil
- The state would control communication and transportation
The leaders create a plan that outlines their choices and it 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 defense, and maintain infrastructure.
Communism quickly mobilizes economic resources on a large scale, execute massive projects, and create industrial power.
It moves effectively as it overrides individual self-interest and subjugates the welfare of the general population to achieve critical social goals.
Main Differences Between Capitalism and Communism
Capitalism and Communism economy systems have different aims such as:
Capitalism is not concerned about 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 everyone has equal opportunities and in some forms of communism equal outcomes.
Capitalism offers profit incentives encouraging firms to be more efficient. It cut costs and innovate new products to fulfill the needs of the people.
In this economic system, if firms fail to keep up, they will go out of business. 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.
In Capitalism economy system, the government or state does not directly provide jobs. 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 are not able to do anything particularly essential.
Prices are determined by market forces in capitalism. 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 which leads to shortages and surpluses.
Frequently Asked Questions (FAQ) About Capitalism and Communism
What is the opposite of Communism?
The opposite of communism is capitalism according to which business organizations, trade, and industry are owned by the private sector.
How did Capitalism start?
Capitalism started around the 17th century with the emergence of the merchant class. In addition to trade, these merchants engaged in various types of production activities.
They supplied all the raw materials required for production and employed workers and laborers for carrying out the production work in return for regular wages. This gave rise to the concept of capitalism.
What are the 5 main characteristics of Capitalism?
The 5 main characteristics of capitalism are:
Free Enterprise – All business enterprises are free to compete with each other for higher profits.
Property Rights – Private businesses enjoy property and land ownership rights and need not depend on the government for the same.
Minimal Government Involvement – It is non-interference by the government authorities and organizations in trade and business activities.
Profit Motive – Business enterprises function with profit-making as their primary motive.
Technological Advancement – Technological advancement is one of the major characteristics of capitalism as it promotes the concept of employing advanced production techniques.
This has led to the practice of using improved machinery and automated systems for developing superlative products which in turn can bring more profit and revenue for the business.
Is Capitalism a political ideology?
Capitalism has been accepted as a social ideology by several political parties.
Accordingly, there are many countries like the United States of America, Germany, Canada, the United Kingdom, and Chile which are governed by parties that support the prevalence of a capitalist economic system.
What is the goal of Communism?
The main goal of communism is to have a classless society that is not governed by a single state or authority.
Economic equality is the fundamental ideology of communism according to which it seeks to empower the working class by extending all the rights of ownership which otherwise lies with the ruling class.
When did China become Communist?
China became communist on October 1, 1949, with the formation of the People’s Republic of China under the leadership of Mao Zedong who pioneered the Chinese Communist Revolution.
Both Capitalism and Communism are connected with exchange and industry in the economy and talk over the ownership of property. As each coin has two viewpoints, so is the situation with Capitalism and Communism.
In Capitalism, the conveyance of riches is lopsided, because of which the rich get more extravagant and the poor become more unfortunate.
While, in Communism, there is an equivalent distribution of wealth, but it doesn’t enable people to have individual property.