The capitalism vs communism argument clearly states the similarities and differences between the two economic systems. In this article, we shall look at capitalism and communism, their meaning, their advantages, and their disadvantages. This will further help us to compare and contrast the two economic systems. In essence, we shall look at their similarities and differences.
Table of Contents
- Capitalism pros and cons
- 1. Advantages of capitalism
- 2. Disadvantages of capitalism
- Higher-income and wealth inequality
- Economic instability
- Fewer advantages for the low-skilled people
- Requirements for successful consumption
- Ignorance of ongoing opportunities
- Consumerism and environmental costs
- Greed while seeking profit
- Monopoly power
- Workforce limitations
- Neglect of social benefits
- Class struggle
- Who is a communist?
- Communist countries
- Advantages of communism
- Disadvantages of communism
- Free market malfunctioning
- Inefficient spending
- Sovereign default
- Currency problems
- Communism may deter international investors
- Difficulties in wealth accumulation
- Lack of incentives
- Confinement of overall freedom
- Self-fulfillment difficulty
- A narrow view of the world
- Poor international trade relationships
- Information handicap
- General public manipulation
- Slow technological progress
- Capitalism vs communism
- Difference between capitalism and communism
- Key differences between capitalism and communism
- Meaning and definition
- Principle basis
- What they promote
- System of government
- Government interference
- Wealth distribution
- Factors of production
- Individual incentives
- Sources of capital
- Nature of market
- Business ownership
- What are the similarities and differences between capitalism and communism?
- Is capitalism similar to communism?
- Which is better communism or capitalism?
What is Capitalism?
Capitalism is one of the major economic systems that exist in most economies in the world. In this economic system, it is the private individuals that own and control all means of production. They possess ownership of capital resources/capital goods or factors of production. In this type of economy, the forces of supply and demand determine the level of production of goods and services. Another name for capitalism is the free-market economy. There is usually no restriction on private individuals from carrying out productions.
Since private individuals own and control factors of production, they decide what to produce, how to produce, for whom to produce, etc. In simple terms, they profer solutions to the basic economic problems in society. They are the ones who determine the prices of goods and services as well as where to invest their capital. In essence, the free-market economy is known as the laissez-faire economy. Individuals under this economy face lesser checks and controls in the course of their operations.
We can, therefore, say that the capitalist economy is a system whereby basic economic- problems undergo resolution. Economic planning is carried out through voluntary and decentralized decisions. That is, central planning is absent here unlike the socialist economy.
Countries that operate under the capitalist economy include the United States, Hong Kong, Japan, Canada, New Zealand, the United Kingdom, etc.
Capitalism pros and cons
1. Advantages of capitalism
Efficient resource allocation
Due to the existence of competition in the free-market economy, the allocation of resources tends to be more efficient. It happens so because companies utilize their factor inputs to increase production and quality. In other words, it makes efficient production become possible. Producers/companies strategize on cutting down their costs as well as increasing productivity and competitiveness. An unproductive firm will certainly go out of business.
On a theoretical basis, capitalism is the invisible hand of the market that makes it possible for firms to distribute resources on the basis of consumer preferences. This implies that no firm gains any reward for producing outside what consumers want. So firms must produce according to the demands of the consumers. In a competitive business environment, inefficient firms cannot survive.
Utilization of available resources
One important upward of capitalism is the optimum utilization of available resources. That is, firms allocate their scarce resources more efficiently and economically. Efficient allocation helps to avoid wastage of resources. In clearer terms, every producer gives in his own best to minimize cost and maximize profit. This is only possible when one uses the resources at his disposal in the most economic way. In turn, this will amount to the efficient production of commodities and services. This is when firms make research on more superior ways to derive high-quality products at the lowest possible cost. This amounts to production efficiency.
There exist the incentives to be more creative and innovative as well as hard work. This is where firms embark on research and development to facilitate expansion. This is to prevent them from going out of business. In essence, there is a high motivation to be constantly innovative. This innovation is for firms to survive in competition. Every producing firm competes for the consumer’s money by improving product quality. So, firms take risks in setting up a business. Of course, there are large financial rewards that follow suit. This means that new firms will not come up if the scope of private profit is absent. In other words, firms only embark on profitable productions.
Capitalism is a mechanism that brings people together thereby overcoming discrimination. The system encourages domestic and international trade. In turn, this incentive gears towards breaking down trade barriers. Through this, people and countries come together thereby ignoring racial, tribal, and religious differences. People who hate one another can deal with their hatred and help one another. Gary Becker stated that profit motive will penalize those who practice racial discrimination. Whether individuals or firms.
Raising the standards of living
This system reduces poverty thereby improving the standard of living. That is, economic growth leads to a rise in the standard of living in an economy. A rise in the standard of living is traceable to a decrease in the rate of poverty. Poverty reduces when a country’s GDP grows, this is the result of production and entrepreneurship.
Consumers have free choices on the price to pay for a specific commodity. Also, they can make a choice of the brand to go for. In essence, you choose whatever you want to consume as a consumer. Now, competition comes about as a result of these choices. Producers tend to work harder to produce goods and services that are of the best quality. This advantage heightens the level of a producer’s innovation. This dances to the tone of the fact that every consumer desires to buy what he can afford at its best quality. So, a capitalist economy avails affordable items with better quality.
A firm goes out of business when it loses its efficiency. This, in turn, results in short-term problems such as unemployment. In this case, the capitalists become more innovative in terms of handling factors of production (land, labor, and capital). Efficiency in the use of these resources is certain.
Capitalists/producers are highly responsive to the changes in consumer behavior, choices, tastes, and preferences. They are responsive to new consumer trends. That is efficiency in response to the tastes and preferences of consumers.
Minimal government control
In basic terms, when the government attempts to control a capitalist economy, problems will result. Such problems include corruption, poor information, and a lack of incentives. Also, a corrupt government is hazardous to an economy. When such government controls an economy, it does more harm than good. This has a very high tendency of eroding an economy.
Freedom of Choice
Aside from consumers having different brands of a commodity to choose from, every individual has the right to own property. Also, everyone has the right to choose an enterprise and occupation to embark on. because of this, a worker can demand higher pay. There is no need to direct people or impose any occupation on them. There exists the freedom of contract under this system. That is, there is a flexible operation of different units of production. Economic freedom fosters political freedom because they work hand in hand. There is a strong bond between these freedom variables. Everyone is free to set up a new business and choose where to work.
Individuals are free to go after their own self-interests and satisfaction. That is, one has the right to do whatever he wants without any form of civil and political pressure. this bases on the idea that people’s actions benefit the entire society. The most productive factor is humans. Yes, humans earn money which fetches them both political and financial freedom.
The freedom of property ownership has enabled companies to study the demands of consumers. They produce commodities to satisfy their wants. Through the growth of demand, businesses in the market compete with one another for consumer patronage and money. This competition is good because it motivates firms to produce more goods and lower their prices. This, in turn, will call for more labor force and better wages for the labor.
Invention and innovation
The capitalist idea encourages firms to come up with new business ideas. Efficiency in the market moves progressively. When a firm finds new business ideas and applies them to its production processes, there will be rapid expansion, greater employment opportunities, and a greater income level. Innovative individuals enjoy the benefits of their research because they create things that were never in existence.
2. Disadvantages of capitalism
Higher-income and wealth inequality
Usually, under this system, businesses tend not to care about the less privileged and the disadvantaged. People like the disabled, orphans, and the aged. The high competition rate deviates people’s focus from societal benefits which, in turn, amounts to a higher level of income inequality. This happens because the system bases on self-interest rather than societal interests. This is where some businesses begin to exploit consumers.
There tends to be more pleasure during economic expansion under this system. The reverse is the case when the economy contracts. During contraction, an economic recession may occur thereby increasing the rate of unemployment. Wealthier people have the capacity to withstand this period. In such circumstances, they go back to their wealth reserves to maintain their quality of life. The low-income earners will not have the privilege of enjoying such luxury.
There are times in which the growth rate is slow though capitalism works automatically. Here, economic growth and progress are usually incomplete. That is, it does not go round, usually partial economic development. This economy can be unstable in situations whereby there is a recurring business cycle. Economic activities may experience a slump. A fall in the prices of goods and services may cause firms to close down and this will render workers unemployed. This means that the capitalist economy does not always stay on the growth pattern.
Fewer advantages for the low-skilled people
The real capitalist economy requires firms to remain competitive. That is, competition is necessary for one to remain active in the economy. An unskillful firm in demand may have no place to exist in an economy. In this theory, social welfare and security programs seem not to exist. It is either you are contributing or not. And whoever does not contribute will face life-threatening experiences. Everyone looks out for himself above others.
Requirements for successful consumption
If consumers do not spend their money, then capitalism will not be effective. If these consumers decide to save for future purposes, there will be struggles to survive. The struggles come about because the profit motive is a major feature of the free-market economy. Capitalism simply requires consumption to be successful to survive.
Ignorance of ongoing opportunities
This economy does not define the term fairness the same way other marketing systems do. Though everyone has an equal opportunity to pursue success, there are factors that limit its possibility. Wealthier people have more chances to succeed and vice-versa.
Consumerism and environmental costs
The capitalist economy is usually described as the engine of productivity and growth. It has pushed the economy to the future but has also led to environmental disasters. This, in turn, has raised questions that pertain to sustainability. For this economy to remain stable, it requires endless production. So, it is a proven fact that production is highly dependent on the level of consumption. That is, when the consumption rate increases or decreases, there will be a corresponding increase or decrease in the level of production. Higher production equates to higher sales and profits. Usually, production processes have environmental effects.
One of the goals of the capitalist economy is cheaper goods as well as accessibility. It may have a long-term impact, detrimental to the environment. Usually, firms fail to put into consideration environmental pollution and climatic changes in production processes. In the course of production, the system tends to deplete natural resources in the long run. This lowers the overall quality of life in society.
Greed while seeking profit
The profit comes as the first priority before any other thing, this can lead to greed. More focus and emphasis on profit tends to make producers compete among themselves. This further causes them to sell their products at the highest possible price while keeping their costs low. The opportunity does not seem to be equal for everyone. This is because the system favors those more skillful in competition than the less skillful.
Obsession with profit amounts to social and economic inequality. The people in charge of production tend to gather more wealth for themselves than the employees who contributed immensely to the production. That is, employees receive wages that are far below their efforts and productivity. Usually, the rich pass their wealth to their heirs/beneficiaries. This the rich become richer while the poor become poorer. This, in turn, widens the gap that exists between the rich and the poor.
Capitalism makes it very possible for some firms to dominate the market since it is a free enterprise economy. When this happens, dominant firms can charge any price they wish to. This will give consumers no other choice than to pay higher prices for a commodity. This amounts to the abuse of monopoly power thereby exploiting consumers. Few competitors begin to exploit consumers when they gain more understanding. Also, larger firms will easily eliminate smaller firms in such an environment. This usually happens for the larger firms to establish and gain supremacy in specific lines/areas of production. When such firms charge higher prices, they are not under any form of pressure or compulsion to improve their efficiency in production.
Theoretically, factors of production should be able to graduate from an unprofitable to a profitable business. It is unfortunate that this does not work for the labor force. There usually exists some unemployment. This is because the market mechanism is slow to adjust to changing circumstances. The fluctuations in business have more negative effects on the labor force, resulting in massive unemployment. This usually becomes fatal during economic depressions. In this case, workers will not be able to secure full-time jobs unless during an economic boom.
A capitalist economy tends to care less about providing social benefits such as education and healthcare. To capitalists, providing social benefits for the people does not generate profit for capitalists. This is because the profit motive is the main aim. As a result of this deficiency, the government steps in to provide these social benefits.
in the capitalist economy, we cannot do away with class struggles and conflicts. The class of those who have is few while those that do not have been in the majority. This amounts to wage earners facing exploitation from capitalists. This usually results in conflicts between the employers and employees. In turn, this amounts to labor unrest such as strikes and riots. These class conflicts have a negative impact on both production and employment.
Communism is a social and economic system in which the community owns and controls the country’s trade and industry. Each individual’s share is highly dependent on his ability and needs. Under communism, the state owns and controls all means of production and distribution as well as properties. Everyone produces according to his ability and resource allocation is according to their needs. Like socialism, communism is a classless economic system where everyone is regarded as equal. The entire community owns and controls all means of production and properties. Communist economies include North Korea, China, and Cuba.
Who is a communist?
A communist is someone who believes that the challenges of an economy are not a result of capitalism, not the individuals’ faults. It can also mean a person who believes that the solutions to economic depressions, inflation, poverty, etc. lie in the establishment of socialism. A communist is someone who believes in total equality, that is people having equal rights snd opportunities regardless of tribe, religion, nationality, or race. A communist also means a person who believes in, advocates for, or supports communism.
Usually, communist economies do not claim that they have achieved either socialism or communism in their economies. But they are working towards achieving socialism in their economies.
Therefore, the existing communist countries in the world include;
- Vietnam (Socialist Republic of Vietnam)
- North Korea (Democratic People’s Republic of Korea)
Advantages of communism
Communism helps in bridging the gap that exists between the rich and the poor. It happens so because the system creates a classless society. In so many countries around the world, there is a very wide wealth gap between the rich and the poor. It becomes so obvious that only a minority group of people possesses almost all the wealth meanwhile the ordinary people/general public owns almost nothing. This tends to be unfair which calls for the necessity to bridge this gap.
One possible way of narrowing this gap is to introduce the idea of communism. In the communist economy, the people can own almost nothing. By implication, the wealthy ones will lose their wealth while the general public will derive so many benefits from wealth redistribution.
Food and medical supply assured
With this, there is an assurance of an even food supply, medical facilities, infrastructure, etc. This system assures the supply of medical facilities in an event of an emergency. This also applies to the food supply. This is because the state is in charge of everything such as the production process. This helps in protecting the local population against several health challenges as well as hunger. Here, the government can expand production to facilitate the optimal distribution of health facilities and food supply. This eases survival among the people.
Enhancement of the education infrastructure
Under this economy, the government is in control of all education facilities. They fund educational institutions to assure a high education level. With this, more people with a low-income opportunity to access adequate education. In essence, communism amounts to a higher level of educational equality.
Investments in infrastructure
Due to the fact that there is almost no ownership of private property in the communist economy, the government has the responsibility of maintaining and expanding the local infrastructure. This is of great benefit to the general public. here, considerations are being placed more on important projects to accomplish within a short time frame. Most infrastructural facilities aim at benefiting the majority of the local population rather than just small interest groups.
The communist economy places more priority on social goals than the goals of just a few elites. Social benefits and welfare are more important than personal interests. Lobbying in terms of political decisions to benefit few people is absent in communism, unlike the capitalist economy. This system tries to ensure that the general public benefits. This system tends to be a great means of presenting the general public needs as well as avoiding lobbying in political decisions.
Lower unemployment rates
Everyone is to contribute his own part/effort for the benefit of the general public. By implication, almost no one is unemployed. This is because virtually everyone is able to make a positive contribution in their own unique ways. This will therefore make everyone remain busy as well as making certain contributions to improve the overall standard of living in a country.
Overall safety level improvement
Just as the state has the power to control production and employment, there is also a higher chance of improving the overall safety and security level in a country.
For example, a government may decide to cancel certain benefits for someone who misbehaves. Or make such a person work in jobs that have poor and unfavorable conditions. This will discourage violations of the law.
Avoidance of corporate monopolies
In a free-market economy, there are higher chances of corporate monopolies due to the low level of political and economic regulations. This monopoly can be harmful to the general public due to higher prices of goods and services. It also implies the loss of social welfare. Communism is an important mechanism of preventing this from happening. In turn, preventing corporate monopolies increases the social welfare of the people through lowering product prices.
Communism possesses a classless economy where everyone has equal opportunities. This tends to minimize the problem of discrimination against minorities. By implication, this eases the opportunity to succeed as well as access proper education. So, communism helps in increasing the chances of minorities in different aspects of life.
In essence, everyone possesses similar chances/opportunities to succeed in life. People with disabilities and handicaps will not be left behind because communism provides more opportunities for a better life for them.
Disadvantages of communism
Free market malfunctioning
The free market can no longer function properly with communism. As the forces of supply and demand determine prices in a free market, it is not so in this economy. Here, government controls and determines the prices of products. When the free market forces no longer work, it can amount to a serious loss of economic welfare. This will happen in the long run thereby lowering the efficiency of a country’s production processes.
The government may spend its money inefficiently. In most cases, governments tend to spend in a wasteful manner. That is wasting a huge amount of money on projects that are not actually useful. Usually, government projects are expensive when we compare them to that of private companies. The system can amount to spending taxpayers’ money in an inefficient manner.
The structure of communism can amount to sovereign default, therefore, it is not sustainable in the long run. This is because it will imply too many frictions. When the government spends inefficiently, the state may run into bankruptcy in the future.
Usually, communist economies have unstable and weak currencies. institutional investors do not usually trust those currencies. They usually sell the currencies instead of buying them. also, the local population may also lose trust in their own currency
Communist countries also often have problems with their currency. This will make them try exchanging their currencies for foreign currencies. The aim is to protect themselves against currency depreciation. Currency problems usually exist in a communist economy.
Communism may deter international investors
Because of the fact that private individuals can own almost nothing, it becomes difficult for institutional investors to invest in such economies. Private enterprises like corporations, sole proprietorships, partnerships, and limited liability companies do not exist. Most times, investors do not trust communist economies. This is because they are afraid of being deprived of their private assets for public use. This will amount to a low volume of the overall private investment. Of course, this will amount to serious problems as important projects may be impossible due to poor financial opportunities.
Difficulties in wealth accumulation
Because communism does not provide room for the ownership of private assets, people face difficulties in accumulating wealth. Even in the course of working in demanding jobs for long hours, they will still not be better off. Because of this, people will not pay attention to saving since they cannot acquire wealth. This may amount to biased consumption decisions. This can hurt a country’s overall welfare in the long run.
Lack of incentives
People in this economy lack the incentives to work hard, there is no motivation with regard to this. This is because there is no room for them to accumulate wealth. so, many people tend to just do the bare minimum. In the long run, this can lead to a massive loss of working power. This is because no one is ready to use his full potential since there is no appropriate reward for working hard.
Confinement of overall freedom
This system greatly confines the overall freedom level of the people. In most cases, there is no freedom of choice of occupation. It is the government that determines the job vacancies for people. So people may be forced to work in those areas in a lifetime. That means, they must work there even if they are not interested in such jobs. Also, this system confines the people’s freedom of speech. People may get imprisoned for airing out their opinions especially if it contradicts the government’s decisions.
It is difficult for people under communism to do the things they desire to do. They should only do things that will benefit the community as well as the government. This implies that individual interests contradict the community goals. Therefore, communism deprives people of their self-interests.
A narrow view of the world
People under communism usually have a narrow perspective of the world. The current political regime tells the people to behave in a specific manner. The system does not allow or encourage people to question things. Children tend to grow in that doctrine thereby causing them to reject other lifestyles. in essence, this builds a myopic thought in people’s hearts.
Poor international trade relationships
Other countries tend to lose interest in engaging in trade with communist countries. This is a result of the conflicts in values and lack of trust in the regimes. This will cause communist countries to suffer a lack of international trade. This reduces a country’s economic power.
Due to the numerous restrictions, many people will want to migrate from the country to other countries. This will lead to a significant decrease in the population of communist countries. The implication will be a decrease in the overall GDP and other economic problems.
communist economies usually face restrictions on information flows. The government controls most media channels. This causes people to only receive information that will help in sustaining the current political regime. Harmful information (to the political leaders) may be unavailable to the general public. Withholding information will cause people not to be able to understand life in general. This polarized people’s view of the world.
General public manipulation
Biased information flows in communism tend to make it easier for the government to manipulate the people. The government, through the mass media, proposes certain actions to the people. These actions, most times, do not favor the people, it only favors the political regime. Manipulating people is usually with the aim of sustaining the current political administration.
Since the government controls everything, it will certainly possess excessive levels of power thereby leading to dictatorship. They can do virtually everything they wish to do. Too much power, however, has a lot of negative effects. It is not good because it can lead to the fact that those in authority can do
Since almost everything is controlled by the government in countries with communist regimes, the government will also have excessive levels of power leading to unfair political outcomes in the long run.
Slow technological progress
This economic system slows down technological progress. This is because there is usually no private investment in such countries. So the overall technology faces limitations due to low financial capacity. Communist countries will actually lose their competitive edge over capitalist countries. In turn, this weakens the country’s economic position.
Capitalism vs communism
Capitalism vs communism similarities
They are both economic systems
The first similarity between capitalism and communism is that they are both economic systems. That is, they both focus on ways to allocate resources and also goods, and services to the population.
Participation in the global market
Capitalism and communism both participate in the global market. They engage in interactions with foreign countries through the mechanisms they favor or voluntarily limit themselves.
The use of state/private property
The two economic systems involve the use of state/private property. While private property is peculiar to capitalism, state property is peculiar to communism. aside from who owns and controls these properties, there tends to be no functional difference in this case.
Both systems make use of incredible amounts of violence to eliminate their opposition thereby enforcing their system. Though this is usually not common.
The same end goal
Both capitalism and communism pursue the same end goal, they both argue that their allocation of resources will amount to the same end goal. Though capitalism appears to take the lead with regard to this, the two systems involve the allocation of resources. They both allocate resources to carry out production. Just that one system is more efficient in resource allocation than the other. Their goals are growth-based.
Difference between capitalism and communism
Capitalism vs communism chart
The table below summarizes the differences between capitalism and communism;
Meaning and definition
Capitalism is an economic system in which private individuals own and control the economy’s trade and industry with the motive of making a profit.
Communism is a social and economic system in which the community owns and controls the country’s trade and industry. Each individual’s share is highly dependent on his ability and needs.
Based on the principle of individual rights.
Based on the principle of community rights.
System of government
Minimal government interference.
High level of government interference.
Distribution of wealth
Every individual works for himself to acquire wealth.
Wealth distribution is based on the needs and abilities of the people.
Factors of production
Nature of market
It is a free and competitive enterprise.
Competition is absent because it is the state that controls everything.
Profit and wages are dependent on the individual’s ability, capacity, and willingness to work.
The system does not allow profit, it compels workers to work for the government’s fame.
Sources of capital
Owners invest capital which they may obtain through borrowing. They can reinvest it out of their earned profits.
It is the state that provides all the resources, to start up the state-owned business.
There is no depreciation
Employees have the freedom to choose their job/occupation and their employer.
It is the government/state that determines the people’s occupations, where they work, and who they work for.
Private individuals are free to have their own business entities.
Private individuals do not have the right to own their business entities. The state/government owns all productive capacity including communes.
Key differences between capitalism and communism
We shall look at the areas in which capitalism is different from communism.
Meaning and definition
Capitalism is an economic system in which private individuals own and control the economy’s trade and industry with the motive of making profit. On the other hand, communism is a social and economic system in which the community owns and controls the country’s trade and industry. Each individual’s share is highly dependent on his ability and needs. In essence, capitalism is a system in ehich private individuals own and control all means of production while under communism, it is the community that owns and controls all means of production.
While capitalism is based on the principle of individual rights, communism is based on the principle of community rights.
What they promote
Capitalism promotes class distinction as well as class conflicts thereby widening the difference and gaps between the rich and the poor. On the other hand, communism promotes a classless society, that is, everyone is equal. Communism is in opposition to division, this makes the gap between the rich and the poor to be narrow or absent.
System of government
The capitalist economy possesses a democratic system of government that gives people the right and freedom to express their public opinion. On the other hand, the operations of a communist economy are based on the totalitarian system of government. This is a situation whereby the people possess little or no authority. Under communism, the state is in absolute control of every sector in the economy/country.
Because of the systems of government in these two economic systems, capitalism possesses minimal government interference while communism has a very high rate of government interference. Capitalism, private individuals control the sectors of the economy while the government maintains laws and regulations. In the communist economy, the government owns and controls everything. Communism is the extreme form of the socialist economy.
In a capitalist economy, wealth distribution is based on every individual working for himself to create and accumulate wealth. On the other hand, communism’s wealth distribution is the people’s needs and abilities.
Factors of production
The capitalist economy gives private individuals the right and freedom to own factors of production (land, labor, capital). On the other hand, communism does not provide room for private ownership of these factor inputs. The state owns and holds everything.
Capitalism gives more preference to individual freedom while communism gives more preference to society. While individual freedom is vital under the capitalist economy, community and societal rights are vital under communism.
Profit and wages are dependent on the individual’s ability, capacity, and willingness to work under capitalism. On the other hand, communism does not allow profit, it compels workers to work for the government’s fame.
In essence, financial incentives are present in the capitalist economy. That is, individuals have the incentives to work harder, become more creative, and innovate to improve efficiency and survive in the competitive market. On the other hand, communism does not give individuals the incentives to work harder or be innovative since extra efforts possess no extra reward for the laborer. No wealth accumulation is allowed in this case.
Sources of capital
In the capitalist economy, individuals/private business owners invest capital which they may obtain through borrowing. They can reinvest it out of their earned profits as they keep gaining their returns on investment. Under communism, It is the state that provides all the resources, to start up a state-owned business. There is no private investment, no private source of capital.
Nature of market
A capitalist economy is a free and competitive market where everyone competes for the consumers’ patronage. There is no competition in the communist economy because the state is in full control of the market and production.
Under the capitalist economy, depreciation is legal while under the capitalist economy, depreciation does not seem to exist.
Under capitalism, employees have the freedom to choose their job/occupation and their employer. On the other hand, it is the government/state that determines the people’s occupations, where they work, and who they work for under communism.
Private individuals are free to have their own business entities under capitalism. They accumulate capital to start up a business enterprise. Under communism, private individuals do not have the right to own their business entities. The state/government owns all productive capacity including communes.
Frequently asked questions
What are the similarities and differences between capitalism and communism?
Capitalism and communism are similar in the following areas;
- They are both economic systems.
- Both economic systems participate in the global market.
- They make use of state/private property.
- Both systems make use of incredible amounts of violence to eliminate their opposition thereby enforcing their system.
- They pursue the same end goal.
The two economic systems are different in the following areas;
- Class distinction and equalitarian society
- Freedom of property ownership
- Democratic and non-democratic
- Level of government interference
- Wealth redistribution
- Occupation choice
- Business ownership
See the differences between capitalism and communism above.
Is capitalism similar to communism?
Yes, they are similar but not the same. They are similar in the sense that they are both economic systems. Another similarity is that they tend to pursue the same end goal. Also, they participate in the global market and make use of property and resources in carrying out production activities.
Which is better communism or capitalism?
Though the two economic systems seem to pursue the same final goal, efficient resource allocation tends to be prominent in the capitalist economy. Under communism, efficient use of resources tends to be poor. Due to the fact that the government owns and controls all factors of production, there could be wastage and mismanagement of resources. The state could invest in unnecessary projects.
Also, under capitalism, competition is at its peak where producers compete for the consumer’s money. This gives the capitalists more motivation to adopt more creativity and innovation. In this case, they minimize the cost of production while maintaining high-quality products. This is not the case in the communist economy.
Freedom of wealth accumulation exists in the capitalist economy while communism does not allow individuals to accumulate wealth. These factors have significant effects on a country’s GDP.
Out of many, these few analyses show that capitalism is better for a country despite the distinction between the rich and the poor. Also, when we look at the pros and cons of capitalism and communism, we can conclude that capitalism is better for an economy.
Chyou is a published author who focuses on the field of international business. After an established career facilitating mergers and acquisitions for medium to large corporations, Chyou turned to writing to help students better understand international business concepts.