Communism: Characteristics, Pros, Cons, 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 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 were good at. 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. 

Difference Between Communism, Socialism, Capitalism, and Fascism

Communism is most similar to socialism. In both, the people own the factors of production. The largest difference is that production 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. 

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



A centrally planned economy can mobilize economic resources on a large scale. That allows it to execute massive projects and create industrial power. It does this by overriding individual self-interest. It subjugates the welfare of the general population to achieve imperative social goals.

Command economies are also good at wholly transforming 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.


The main problem is that it is difficult for the planning group to get up-to-date information about consumers' needs. The government sets wages and prices. That means planners lose the valuable feedback these indicators provide about supply and demand.

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

To compensate, citizens create a black market to trades the things the command economy doesn't provide. This destroys the trust in the planners. That's needed to transition from the socialistic communism to the Marx's pure communism. 


Communist countries are Cuba, North Korea, China, Laos 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. In capitalism, private individuals own capital, labor, and natural resources.

In a pure communist economy, the community makes decisions. In today's communist countries, the government makes those decision on their behalf. This system is called a command economy. The leaders create a plan that outlines their decisions. 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 healthcare, 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. Most communist societies rely on a mixed economy. (Source: Economics: Its Concepts & Principles, Bon Kristoffer G. Gabnay, Roberto M. Remotin, Jr., Edgar Allan M. Uy, editors, Rex Book Store: Manila, 2007.)