Capitalism, Socialism, Communism - A Quick Catch Me Up

Written by Shravan Kumar

Everything, starting from your mobile to the Ola auto you took this morning to that tasty pineapple cheese pizza you had for dinner, everything, has gone through what economists call ‘means of production’. It is the way all goods (and services) are manufactured (or created) and sold, starting from its raw materials to how it arrives in your hands. Most of these things can only be created as a result of some individual or collective effort, and they cost money; and if money is involved, who’s paying?

When an individual owns the entire means of production, they pay for everything and naturally keep any and all profit made. However, should a bunch of individuals own the means of production collectively, they share the cost and the profit as well. Subsequently based on how this ownership is structured, we see the emergence of multiple economic systems.

Individualism is the belief that every human is individually unique and valuable, and hence are encouraged to pursue their own self interests. If self-interest is a good thing, and personal wealth is a self-interested goal, then widespread personal wealth is a good thing. Thus individual welfare leads to overall social welfare, and individual wealth leads to overall social wealth. This forms the basis for capitalism. In a capitalistic society, private individuals and businesses own the means of production. Supply and demand of goods is determined by the free market of producers and consumers (and not by any centralised entity like a government). Consequently, the market competition also forces people to act in a way that benefits others, regardless of their intentions.

On the other hand, in direct contrast to Capitalism, we have Socialism and Communism, wherein the means of production are collectively owned and shared. It prioritises production for use rather than profit and achieves this through centralised planning (usually the government). The value of a good produced is determined by the amount of time and labour required, not the market supply and demand. The idea that sharing resources and work according to need, rather than out of competition, creates a more equitable and secure society, forms the backbone of these economic systems. Furthermore, both socialism and communism, at their core, work towards limiting worker exploitation, and eliminating the influence of economic classes in society. The Communist Manifesto and other seminal works co-written by Karl Marx and Friedrich Engels essentially have become the guiding philosophy for Communism in the modern era.

During the 19th century, as Europe transitioned from centralized monarchies to quasi-democratic capitalist economies, workers were being exploited by those who owned the means of production. So if you work in a factory or on a farm (as many at the time did), whoever owns the factory or farm is getting more out of you than they are putting in. This created an inherent inequality giving the owners (the elite ‘bourgeoisie’), power over the workers (the ‘proletariat’). To fix this inequality, societies had to shift towards an economic model, wherein the proletariat held this power instead by collectively controlling the means of production. And here’s where socialism and communism come into play. Marx and Engels argue here that, socialism is the next logical step after capitalism, and the precursor to communism. In socialism, a democratic state controls the means of production rather than having private companies hold ownership. Instead of competing with each other as in a capitalist society, socialism has workers contribute as much as they can to the greater good, and then they all share equally in that good. However, once the state controls all the means of production, the next step is total collective ownership. Not just of production, but all aspects of society and economy, including private property. And that’s communism. The intention is to abolish all private property and create a classless, moneyless and stateless society in which everyone works towards a common collective goal of being happy, healthy and free. Everybody does what they can to contribute and takes only what they need in return.

In the history of the modern world, there’s never been a truly communist country. While many have described themselves as communist (for eg. Laos and Vietnam), by definition, there’s never been a truly communist country. Every so-called communist country is actually socialist, with the state controlling employment and economy to either a significant degree or completely. Ironically, this complete control is the major reason why socialist countries struggle to reach the communist ideal (for eg. the former USSR, China, and North Korea). As cynical as it may sound, human nature often is not capable of adopting an egalitarian communist vision. People in power tend to stay in power, and abuse the power in lieu of using it to help the society they control. The human hurdle of overcoming power, greed and government is why we may never see a truly communist country.

Yet, in a strangely beautiful oxymoronic way, socialist ideals when combined with capitalism experience incredible success. A terrific example would be Canada and Nordic countries like Sweden, Finland etc. While being capitalistic, the presence of high taxes levied on everyone (relative to income levels) leads to the creation of a robust social safety net. In this type of ‘social democracy’, the government manages and regulates capitalism thereby make it more beneficial to the average citizen. Subsequently, things like healthcare, education and fire services, are universally available for free. (Note: Social democracy is not to be mistaken with democratic socialism, wherein citizens democratically elect a government that will seize and take ownership of industry; that is about achieving socialism / public ownership via democracy.)

So at the end the day, which economic system would you vouch for? Sure socialism does sound more compassionate and strives for mutual cooperation, but when everyone’s basic needs are already provided for, the engines of economic growth are weakened. Conversely, capitalism harnesses on the ‘greed is good’ philosophy and provides incentives to innovate and increase efficiency. Nonetheless, a free market capitalist economy will invariably experience recession, unemployment and lead to the concentration of wealth at the top income brackets. Truth is, more often than not, it is barebones questions like ‘What are the rights, goods and services that I need, and how do I get them?’ or ‘What is the purpose of government?’ or ‘What does equality and justice mean to me?’ that  inform our varying perspectives and eventually gets written down as policy. When left to themselves, most economies tend to combine elements of each: capitalism develops its safety nets, while strongly communist ones edge towards being full-fledged market economies.

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