What is the Difference Between Capitalism and Communism?

Difference Between Capitalism and Communism

An economic system consists of the institutions and methods by which resources are allocated, and products and services are distributed, and these are capitalism and communism. Both economic systems focus primarily on how to allocate goods to the population. However, there is a big difference between capitalism and communism.

Capitalism vs. Communism

The difference between capitalism and communism is that capitalism refers to private individuals owning and controlling industries. In contrast, communism means that the community controls commerce and industry. The profit made in capitalism belongs to the company’s owners, while the profit made in communism is distributed to the people of the economy.

The capitalist economic system is classified according to private ownership of assets and businesses. It relies on free markets to determine income, wealth, price, and distribution of goods. On the other hand, the communist economic system is characterized by government intervention to reallocate resources equitably and efficiently.

Comparative table between capitalism and communism

Parameter of comparison Capitalism Communism

Government systemDemocraticTotalitarian
property on propertyPrivate businessesState Government / Cooperatives
Conducted byfree companyno free enterprise
Wealth distributionUnequalEqually
Education and healthProvided by private entitiesState Provided
focus on progressindividual progresscommunity as a whole
TaxesLimited taxes / limited government spendingHigh progressive taxes/increased spending on public services
PricesDetermined by supply and demandprice controls
EfficiencyMarket incentives encourage companies to cut costsGovernment-owned firms have fewer incentives to be efficient
AdvantagesDynamic economy, incentives for innovation and economic growthPromotion of equality, attempt to overcome market failures
ProblemsInequality, market failure and monopolyState industry inefficiency, 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 labor.

This economic system gives entrepreneurs and employees the freedom to manage their income.

The only government intervention in this system is taxes and customary regulatory laws. The government does not take a position on business operations, nor can it object to how a company and its employees choose to spend their profits.

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

This gives them the ability to run their businesses efficiently and incentives to maximize profits.


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

However, there is fierce competition here, and companies make efficient products to maximize profits.

Most important for economic growth is capitalism’s intrinsic reward for innovation. This includes the innovation of more efficient production methods and the innovation of new products.

What is Communism?

Communism is an economic system based on society’s ability to 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.

The following 10 points are outlined in the Communist Manifesto:

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

Leaders create a plan that outlines their options and is executed with laws, regulations, and directives.

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

Provides free health care, education, and other services. It also seeks to increase the nation’s economic growth, ensure national defence, and maintain infrastructure.


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

It moves effectively as it overrides individual self-interest and subjugates the well-being of the general population to achieve critical social goals.

Main Differences Between Capitalism and Communism

The economic systems of capitalism and communism have different goals, such as:


Capitalism does not care about fairness. He believes that inequality is fundamental to fostering economic development and innovation.

Communism is concerned with redistributing resources equally between rich and poor. This ensures that everyone has the same opportunities and the same results in some forms of communism.


Capitalism offers profit incentives that encourage companies to be more efficient. It cut costs and innovated new products to meet people’s needs.

If businesses fail to keep up with this economic system, they will go out of business. However, this business failure allows resources to flow into new or more efficient areas of the economy.

Communism offers state ownership, leading to inefficiency as workers and managers lack real incentives to cut costs.


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

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

Price Controls

Market forces in capitalism determine prices. Firms with monopoly power can take advantage of their positions and charge much higher prices. In a communist economy, the government usually sets prices, leading to shortages and surpluses.


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