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Capitalism vs Communism: Pros and Cons

Updated on November 22, 2017
Sudhir Devapalan profile image

I am a front end developer by profession but I enjoy writing articles about anything mysterious, interesting and fascinating.

We have heard a lot about Capitalism as most of us are from the Capitalist countries. We also know that the Soviet Union was a Communist country and during the Cold War, the spread of Communism around the world was a major threat. After the end of World War 2, America and its allies feared the spread of Communist ideologies in other countries. But why was the spread of Communism a major issue? What is the basic difference between Capitalism and Communism?

Mercantile Capitalism:

Before the Industrial Revolution, common merchants needed some form of money or capital to buy goods which they can later sell at a profit. After making a profit, the merchants can then pay back the person who lent them the money. They would also be required to pay some interest to the lender. This perfectly explains mercantile capitalism. This was the earliest form of Capitalism where common merchants could get the first capital they need to start a trade from an investor who would then be properly compensated with interest. Due to colonialism, there was a boom in trading between countries. It was however risky as pirates or the weather can disrupt the trade route. Thus a group of people would unite to create joint stock companies where multiple people could invest in large trade ventures. This somewhat reduced the risk of losses as multiple people shared the risk. Mercantile capitalism wasn't however widespread and affected only a minor section of the population who were into the trade.

Industrial Capitalism:

The British Empire with its vast colonial empire introduced Industrial Capitalism in the 19th century. Capitalism is an economic and social system in which the industries and capital are privately owned and operated for making a profit. Such an economic system relies on investments in technology to increase production. These goods can then be sold for a bigger profit. For example, the investments made in the field of agriculture introduced new tools and technologies for increasing crop yield which reduced the price of food. This then forced further innovations to increase the yield of crops, even more, to compensate for the drop in prices of crops. With the price of food crops dropping low, the people now had more disposable income which they could now spend on other consumer goods. This meant that people now had an incentive to find new and creative ways to increase production and cut the cost of manufacturing. This also meant that lesser people needed to work in agriculture which dropped from 80% of the population to less than 25% in a few centuries. So far so good. We now know that Capitalism has helped improve the productivity and manufacturing potential which improved the standard of living.

The thorns of Capitalism:

There are however many flaws in this approach. The main concept of Capitalism is the need for private investors to turn a profit for their effort. It required people with money to invest in new innovative and radical technologies which could then pay them back if they succeeded. There were risks involved in investing capital but the rewards would be the profits that they would hopefully produce. This, however, meant that the landlords or investors owned the industry, land or any means to produce goods but the common worker would become very poor. The working conditions for the industrial workers were very poor, the work was monotonous and they were all living in poverty. The workers wanted equality and they were against the current social conditions where the rich kept getting richer and the poor started getting poorer. One way of combating such poor conditions was to worker unions.

"poverty in the midst of plenty"

Das Kapital:

Karl Marx, the father of Communism was a renowned Philosopher and Historian who wanted to bring out the flaws in Capitalism. He wrote the "Das Kapital" which highlighted that Capitalism relied on the work of unpaid laborers which was the source of surplus income. This surplus income was then claimed by the owner based on property rights. In a Capitalist economy, technological improvements and the next increase in production results in diminished profit due to under-utilization - "poverty in the midst of plenty". There are two classes in society - the "worker class" consisting of the manual laborers who do the real work and the "capitalist class" consisting of the land and capital owners who invest in manufacturing. Karl Marx believed that it is the struggle between the classes that define classes themselves. Through conflict only can they get a sense of themselves. The struggle here is between the capitalists who own try to produce goods at the least cost possible and the workers who struggle to work at the most wage possible.

Communism:

According to Karl Marx, it was the workers with their manual labor who are the most important in an economy and as humans, it is only when we share resources that we work effectively. But Capitalism replaces that with a sense of conflict between the capitalists and workers. The word "communism" means "common or universal". It is a socioeconomic order built upon the concept of common ownership of the means of manufacturing goods. It aims at creating a classless cashless and stateless society. This means that the community owns all the factories, lands and properties. There is no incentive for surplus production as it is only based on the needs of the people.The workers get an equal share of the profit. This means that there is an equal distribution of wealth and there are no classes in society. Since the workers own the capital, there is no exploitation. The workers are then expected to work out of a collective responsibility and not a need or compulsion. It is, however, very difficult to create a pure Communist state. Technically there are no purely Communist countries. All the countries which aspire to become Communist are actually Socialist countries.

Socialism:

It is very difficult for a Capitalist country to become a Communist state. Socialism is a middle state through which a country needs to transition to become a Communist state. Wealth distribution in Capitalism is, "to each according to his needs". In Socialism, it is, " to each according to his contribution". Socialism is not a stateless structure but can co-exist with other political systems. The government owns the means of production and wealth instead of the workers. There is also freedom of religion in socialist countries but Communist countries are atheist. In a Socialist country, some sectors of the economy are private but the government controls most of the economy. Healthcare, Education, transportation, etc are all usually run by the government to give access to all people without any constraint.

Failure of Communism:

Although the concept of a stateless, cashless and classless state is attractive, there are various flaws in this approach. Let us consider the following example. A college professor wanted to teach his students the concept of Communism. So he came up with an experiment for the upcoming tests. The final score for each student will be the average score of the entire class and not their individual scores. The students agreed this would be a relatively safe way to get good scores without the risk of failing the exam. During the first test, the students got an average score of 70%. During the next test, the average dropped to 60% and then to 50% until they eventually failed. The students who studied well still got low scores as the class average was lower. This led them to put less effort in their next tests. The students who scored less felt that there was no need to study as the other good students would eventually make up for their low scores and that they would pass. Since the amount of effort going into studying declined they all failed. This was precisely the cause of the downfall of Communism.

Issues in Communism:

In an ideal society, the people work to the best of their ability for the greater good of the society. They should work out of a sense of responsibility for the society. However, the people get rewarded based on their needs and not their contribution. Therefore it is understandable that they won't have the incentive to work more. In a capitalist society the more you work, the more you get rewarded which creates a competitive environment and increases production. But in Communism, the production is low as the people do not tend to work more than they really have to due to lack of rewards. There is no individualism and perks for being productive. So progress is very slow. Corruption is also rampant in Communism. The people who are in power tend to abuse their power for their own personal good. This means that profits do not reach people properly. The government also is not very effective in running industries or handling resources. A privately controlled firm will be more successful in handling such operations and hence will produce more profit.

Which is better?

Although Communism offers a very tempting deal, it is not as it seems. Those kinds of ideals do not exist in the real word and a Communist society will crumble on its own like the Soviet Union. However, Socialism, when combined with Capitalism, provides a good trade-off. Every person should have access to basic amenities like health care and education without any discrimination. They should be provided free of cost to all by the government. The manufacturing industries owned by private capitalists get the ideal output. Even today experts debate on which system would bring about the greater good to society. Both Capitalism and Communism have their set of pros and cons. An economy will prosper if we bring out the best in both Capitalism and Communism.

© 2017 Sudhir

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