Communism, Its Characteristics, Pros, Cons, and Examples

What It Is, How It Works, Comparison to Capitalism and Socialism

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

Communism is an economic system where the collective owns all property. Most importantly, this includes the factors of production.  The four factors of production are labor, entrepreneurship, capital goods, and natural resources.

Karl Marx developed the theory of communism. He said it was, "From each according to his ability, to each according to his need." No longer would capitalistic owners siphon off all the profits.

Instead, the proceeds would go to all the workers.

"From each according to his ability" meant people would work at what they loved and did well. They would be happy to contribute these skills to support the community. The economy would prosper because they would work harder than in capitalism. 

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

Ten Characteristics of Communism in Theory

In the Communist Manifesto, Marx outlined the following 10 points: 

  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. Equal liability of all to labor. Establishment of industrial armies especially for agriculture.
  1. The combination of agriculture with manufacturing industries. The gradual abolition of the distinction between town and country. This will be achieved 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.
  1. Centralization of credit in the hands of the state. It would own a national bank with state capital and an exclusive monopoly.
  2. The state would control communication and transportation.
  3. The state factories and instruments of production. It would cultivate wastelands and improve the soil. This would follow a common plan.

The manifesto mentions state ownership in its last three points. That makes even this pure vision of communism sound like socialism. But Marx argued that state ownership is a valid stage in the transition to communism. 

In a true communist economy, the community makes decisions. In most communist countries, the government makes those decisions on their behalf. This system is called a command economy. The leaders create a plan that outlines their choices. It's executed with laws, regulations, and directives.

The goal of the plan is to give to "each according to his need."  Communist countries have free health care, education, and other services. The plan also seeks to increase the nation's economic growth. It secures national defense and maintains infrastructure. 

The state owns businesses on behalf of the workers. In effect, the government owns a monopoly. The government rewards company managers for meeting the targets detailed in the plan.

In communism, central planners replace the forces of competition and the laws of supply and demand that operate in a market economy. They also replace the customs that guide a traditional economy.

Difference Between Communism, Socialism, Capitalism, and Fascism

Communism is most similar to socialism. In both, the people own the factors of production. The most significant difference is that output is distributed according to need in communism, and according to ability under socialism. Communism is most different from capitalism, where private individuals are the owners. It is similar to fascism in that both use central plans. But fascists allow individuals to retain factors of production. Many countries turned to fascism to ward off communism. 

AttributeCommunismSocialismCapitalismFascism
Factors of production are owned byEveryoneEveryoneIndividualsIndividuals
Factors of production are valued forUsefulness to peopleUsefulness to peopleProfitNation building
Allocation decided byCentral planCentral planLaw of demand and supplyCentral plan
From each according to hisAbilityAbilityMarket decidesValue to the nation
To each according to hisNeedContributionIncome, wealth and borrowing ability

 

Advantages

Communism has a centrally planned economy. It can quickly mobilize economic resources on a large scale. It is able to execute massive projects and create industrial power.

Communism can move so effectively because it overrides individual self-interest. It subjugates the welfare of the general population to achieve imperative social goals.

Communist command economies can wholly transform societies to conform to the planner's vision. Examples include Stalinist Russia, Maoist China, and Castro's Cuba. Russia's command economy built up the military might to defeat the Nazis. It then quickly rebuilt the economy after World War II.

Disadvantages

The most significant disadvantage of communism stems from its elimination of the free market. The laws of supply and demand don't set prices, the government does. Planners lose the valuable feedback these prices provide about what the people want. They can't get up-to-date information about consumers' needs.  As a result, there is often a surplus of one thing and shortages of others.

To compensate, citizens create a black market to trade the things the planners don't provide. This destroys the trust in Marx's pure communism. People no longer feel the government can give "to each according to his needs."

Example

Communist countries are China, Cuba,  Laos, North Korea, and Vietnam. They aren't pure communism but are transitioning from socialism. That's where the state owns the components of supply. According to Marx, that is a necessary midway point between capitalism and the ideal communist economy. Modern communist societies rely on a mixed economy.

China. In October 1949, Mao Tse Tung established the Chinese Communist party. In the late 1970s, China began moving toward a mixed economy. It phased-out collective farms and allowed private businesses. But it still strictly follows a five-year economic plan. The government's policies favor state-owned enterprises in sectors vital to its goals. In 2010, China became the world's largest exporter. In 2016, it became the world's largest economy.

Cuba. In April 1960, Fidel Castro proclaimed the Partido Communista de Cuba to be the ruling party. The Soviet Union gave economic support to the impoverished country. In return, Cuba supported it patron in the Cold War against its neighbor, the United States. After the fall of the USSR, Cuba suffered. In April 2011, it began allowing economic reforms. Cubans can now buy appliances, cell phones, real estate, and cars.  More than 400,000 Cubans have created their own businesses. For example, farmers can now sell goods to hotels.

Laos. In 1949, the nation won independence from France. In 1986, it began decentralizing control and encouraging private businesses. It's created tax incentives to encourage foreign direct investment. It wants to expand its economy beyond exporting its natural resources.

North Korea. In1953, its allies China and Russia helped create it to end the Korean War. The country followed strict central planning, with communal farming. It suffered famine and poor living conditions in the 1990s and 2000s. In 2002, it allowed semi-private markets to sell some goods. 

Vietnam. In 1945, communist leader Ho Chi Minh declared Vietnam independent from France. The French, backed by the United States, seized southern Vietnam. Ho, backed by China, took the northern part. In 1954, the French agreed to divide Vietnam at the 17th parallel. But in 1964, Ho led Viet Cong soldiers to reunite the country. In 1975, the communists were successful.  In 1986, Vietnam began transitioning towards a more market-based economy. It still needs to reform state-owned enterprises, reduce red tape, and increase financial sector transparency.