12 Difference Between Capitalism And Communism

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What Is Capitalism?

Capitalism is an economic and political ideology in which the trade and industry of the economy is owned and controlled by private individuals to make profit. Central characteristics of capitalism include capital accumulation, competitive market, a price system, private property and the recognition of property rights, voluntary exchange and wage labor.

In a capitalist market economy, decision-making and investments are determined by owners of wealth, property or production ability in capital and financial markets- whereas prices and distribution of goods and services are mainly determined in goods and services market.

Capitalism began to dominate the economies of many countries during the Industrial Revolution, the rapid growth of businesses and their tremendous profitability gave some owners the capital they needed to create enormous corporations that could monopolize an entire industry. Many companies controlled all aspects of the production cycle for their industry, from the raw materials, to the production, to the stores in which they were sold. These companies were able to use their wealth to buy out or stifle any competition

This is the type of economy in place in the United States today. Under capitalism, people invest capital in a business to produce a product or service that can be sold in the market to consumers. The investors in the company are generally entitled to a share of any profit made on sales after the costs of production and distribution is taken out. These investors often reinvent their profits to improve and expand the business or acquire new ones.

To provide their product or services, owners hire workers to whom they pay wages. Wages tend to be set in a certain way, such that people who have talents, skills, education or training that is in short supply and is needed by businesses tend to earn more than people without comparable skills.

What You Need To Know About Capitalism

  • Capitalism is an economic and political ideology in which the trade and industry of the economy is owned and controlled by private individuals to make profit.
  • Capitalism is based on the Principle of individual rights.
  • In capitalism the system of government is democratic.
  • Means of production like land, labor and capital are privately owned by the individuals.
  • Individual freedom and progress is given more preference in capitalism.
  • The profits earned by the enterprise only belong to private owner.
  • The market is privately owned and therefore there is fierce competition among various entities.
  • In a capitalist economy, production is determined by free market forces such as supply and demand.
  • Prices are determined by market competition in a capitalist economy.
  • Education and healthcare are provided by both government and private entities.
  • In capitalism, class exists across the society i.e super rich, rich (upper class), middle class and working class.
  • Wealth distribution in a capitalist economy is uneven.
  • Countries with capitalist economies include: United States, France, United Kingdom, Germany, Canada, Australia, Kenya, South Africa, Nigeria, Brazil, Philippines, South Korea etc.  

What Is Communism?

Communism is a social, political, and economic ideology in which the means of production are owned communally, and it advocates for a classless society with little or no private ownership of property. The Communist theory was founded by German political philosophers and economists Karl Marx and Friedrich Engels in the second half of the 19th century.

In 1848, the pair wrote and published “The Communist Manifesto,” a detailed outline of communist principles. The book was circulated widely and referred to as the “Communist Bible.” It was adopted as the communist handbook by several emergent communist countries in the 19th and 20th centuries.

Through the book, they (Karl Max and Friedrich Engels) desired to end capitalism feeling that it was a social class system that led to the exploitation of workers. The workers that were exploited would develop class consciousness. Then there would be a fundamental process of class conflict that would be resolved through revolutionary struggle. In this conflict, the proletariat will rise up against the bourgeoisie and establish a communist society. Marx and Engels thought of the proletariat as the individuals with labor power, and the bourgeoisie as those who own the means of production in a capitalist society. The state would pass through, a phase, often thought of socialism, and eventually settle on a pure communist society.

In a communist society, all private ownership would be abolished, and the means of production would belong to the entire community. In the communist movement, a popular slogan stated that everyone gave according to their abilities and received according to their needs. Thus, the needs of a society would be put above and beyond the specific needs of an individual.

Communism is considered a variant or an advanced form of socialism. The debate on the distinction is still ongoing as the two are often used interchangeably throughout history, even by Karl Marx himself. However, communist ideology is largely based on Karl Marx’s revolutionary communism philosophy.

What You Need To Know About Communism

  • Communism is an economic and political ideology in which country’s trade and industry are controlled by the community and the share of each individual relies on his ability and needs.
  • Communism is based on the Principle of Community Rights.
  • In communism, the system of government is totalitarian. Totalitarianism is a form of government in which government owns and controls almost everything.
  • The means of production are held by the state.
  • In communism more preference is given to society rather than individual. Focus is on the progress of the community as a whole.
  • In communism, the profit earned by the enterprise is distributed among all the people in the economy.
  • The market is state-owned and controlled and therefore there is low competition among firms and entities.
  • In a communist economy, the government determines which goods and services get produced and how much is available at any given time.
  • In a communist economy, the government sets the prices for goods and services.
  • Education and health care are exclusively provided by the government.
  • In Communism there are no classes among individuals across the society, all members of the society are considered to be equal.  
  • Wealth in a communist economy is distributed equally.
  • Countries with communist economies include: Laos, North Korea, Cuba, Vietnam and China. Though most of these countries have integrated some elements of capitalism or free market in their economy.  

Difference Between Capitalism And Communism In Tabular Form

BASIS OF COMPARISON CAPITALISM COMMUNISM
Description Capitalism is an economic and political ideology in which the trade and industry of the economy is owned and controlled by private individuals to make profit.   Communism is an economic and political ideology in which country’s trade and industry are controlled by the community and the share of each individual relies on his ability and needs.  
Principle Capitalism is based on the Principle of individual rights. Communism is based on the Principle of Community Rights.  
System Of Government The system of government is democratic. The system of government is totalitarian.
Means of Production Means of production like land, labor and capital are privately owned by the individuals.   The means of production are held by the state.  
Preference Individual freedom and progress is given more preference in capitalism.   Focus is on the progress of the community as a whole.  
Profits The profits earned by the enterprise only belong to private owner. The profit earned by the enterprise is distributed among all the people in the economy.
Market The market is privately owned and therefore there is fierce competition among various entities. The market is state-owned and controlled and therefore there is low competition among firms and entities.
Production Production is determined by free market forces such as supply and demand. The government determines which goods and services get produced and how much is available at any given time.
Prices of Goods & Services Prices are determined by market competition in a capitalist economy. The government sets the prices for goods and services.  
Education & Healthcare Education and healthcare are provided by both government and private entities.   Education and health care are exclusively provided by the government.  
Classes Class exists across the society i.e super rich, rich (upper class), middle class and working class.   There are no classes among individuals across the society; all members of the society are considered to be equal.  
Wealth Distribution Wealth distribution in a capitalist economy is uneven.   Wealth in a communist economy is distributed equally.  

Advantages And Disadvantages Of Communism

Advantages

  • It creates stronger social communities. In a communism, there are certain laws and goals which determines resource and responsibility allocation.
  • It allows for employment opportunities to be given out to everyone.
  • People are treated equally in the eyes of the government regardless of education, financial standing etc.
  • There is economic stability as every sector of the economy is under government control.
  • There is no competition and thus everyone can work harmoniously without stepping on each other’s toes.
  • There is fair and efficient distribution of resources across the society.
  • Education and healthcare are provided for free by government to citizens.   

Disadvantages

  • The government owns everything including property, business and production means.
  • There is no freedom of speech in the typical communist government.
  • Central planning is challenging to achieve in a communist government.
  • Efficiency and productivity are not optimal since there is little motivation among workers.
  • The needs of the consumer are not taken into consideration in a communist government.
  •  Internal balance for supply and demand may be impossible to achieve.

Advantages And Disadvantages Of Capitalism

Advantages

  • Consumer enjoys a wider choice of products and services since the system allows firms to compete with other companies in the economy.
  • Businesses are given a greater incentive to work hard since they get to enjoy the profits they generate by determining the means of production.
  • Greater market efficiencies since businesses are encouraged to find innovative ways of cutting costs while retaining the quality of products.
  • Capitalism allows the market forces to set prices instead of government.
  • There is a greater efficiency to the economy.

Disadvantages

  • Class distinction between the rich and the poor. The rich enjoy most of the profits generated by the business while the poor are paid salaries and wages for working for the rich.
  • It allows firms to create monopolies in the supply of products or services. The monopolies can abuse their powers by charging higher prices at the expense of the consumers.
  • Capitalist economies do not always stay in a pattern of growth.
  • It marginalizes the people who are unable to maintain high productivity levels.
  • Capitalism bails out the businesses but not the consumers.
  • Capitalist government use taxation as a way to fund their operation.