Communism: Characteristics, Pros, Cons, Examples

What It Is, How It Works, Comparison

USSR ice breaker
Bow of ice breaker w/ USSR sign, Baffin Island. Credit: Yvette Cardozo PREMIUM/Getty Images

Definition: Communism is an economic system where the factors of production are owned by the collective, instead of the government or private individuals. The four factors of production are labor, entrepreneurship, capital goods, and natural resources.

Karl Marx defined the theoretical underpinnings of communism as "From each according to his ability, to each according to his need."  This economic system would occur when profits weren't siphoned off by capitalistic owners, but distributed among all the workers.

"From each according to his ability," means that people would work hard because they would be doing what they love and were good at. They would be happy to contribute these skills to support the community. (Source: Communism: Work Ethic and Motivation," Stanford School of Engineering.)

"To each according to his need," means that the government would distribute goods and services to who required them. That would take care of those who couldn't work. Those who were able to work would be motivated by enlightened self-interest.

Characteristics of Communism in Theory

In the Communist Manifesto, Marx outlined the following 

  1. Abolition of property in land and application of all rents of land to public purposes.
  2. A heavy progressive or graduated income tax.
  3. Abolition of all right of inheritance.
  4. Confiscation of the property of all emigrants and rebels.
  5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.
  1. Centralization of communication and transport in the hands of the state.
  2. Extension of factories and instruments of production owned by the state, the bringing in the cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.
  3. Equal liability of all to labor. Establishment of industrial armies, especially for agriculture.
  1. The combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country, by a more equable distribution of population over the country.
  2. Free education for all children in public schools. Abolition of children's factory labor. The combination of education with industrial production.

With its mention of ownership and centralization of property, communication, and transportation in the hands of the government, this description more accurately sounds like socialism. However, that is a stage in the transition to communism. (Source: Bertell Olman, "Marx's Vision of Communism," New York University.)

Difference Between Communism, Socialism, and Capitalism

Factors of production are owned byEveryoneEveryoneIndividuals
Factors of production are valued forUsefulness to peopleUsefulness to peopleProfit
Allocation decided byCentral planCentral planLaw of demand and supply
From each according to hisAbilityAbilityMarket decides
To each according to hisNeedContributionIncome, wealth and borrowing ability


Communist Economy Advantages

Centrally planned economies are great at mobilizing economic resources quickly, effectively and on a large scale.

They can execute massive projects, create industrial power and attain imperative social goals. They are able to override individual self-interest and subjugate the welfare of the general population, to achieve a greater agreed-upon goal for the society at large.

Command economies are also good at wholly transforming societies to conform to the planner's vision, as in Stalinist Russia, Maoist China, and Castro's Cuba. For example, the command economy in Russia built up an effective military might and quickly rebuilt the economy after World War II.

Communist Economy Disadvantages

The biggest disadvantage is that it's difficult for any group of planners to accurately get up-to-date information about consumers' needs. Wages and prices are set by the government, so the valuable feedback they provide is lost.

As result, there is often a surplus of one thing and shortages of others.

To compensate, citizens create a black market to buy and sell the things the command economy doesn't. This destroys the trust needed to transition from the socialistic communism of the central planners to the communism envisioned by Marx. 

Communism Examples

These are not examples of true communism but are often referred to as communist: Cuba, North Korea, China, Laos, and Vietnam. These so-called communist economies are still transitioning from socialism, where the components of supply are owned by the state. According to Marx, that is a necessary midway point between capitalism, where capital, labor, and natural resources are owned by private individuals, and the ideal communist economy.

In a pure communist economy, decisions are made by the community. In today's communist countries, most economic decisions are made by the government. Its leaders make all economic decisions, a system known as a command economy. The decisions are outlined in a plan that is carried out with laws, regulations and directives.

The goal of the plan is to give to "each according to his need."  Communist countries usually have free healthcare, education, and other services. The plan also seeks to increase the nation's economic growth, secure national defense, and maintain infrastructure. 

Businesses are owned by the government on behalf of the workers. In effect, the government owns a monopoly. Business owners are rewarded for meeting the targets detailed in the plan.

In communism, central planners replace the forces of competition and laws of supply and demand that operate in a market economy, as well as the customs that guide a traditional economy. Like those types of economies, as well as capitalism and socialism, most communist societies rely on a mixed economy. (Source: Bon Kristoffer G. Gabnay, Roberto M Remotin, Jr., Edgar Allan M. Uy, editors. Economics: Its Concepts & Principles. 2007. Rex Book Store: Manila)