If you’re like me, you have heard people and places referred to as communist, socialist, or capitalist. You probably already know the basic differences between them but hopefully this article will dive just slightly deeper into their meaning. Is Russia a communist country? The answer is no. Does China operate under a capitalist economic model? The answer is mostly yes. Is Venezuela a socialist country? The answer is not exactly. Let’s clear up a few things about the definition of each term because there meanings are often misunderstood and unfortunately used to label political enemies.
I’m going to start by taking a stab at explaining the differences between capitalism, socialism, and communism in terms of economic theory. I often hear political spin doctors use these terms to categorize someone running for office. Throwing these terms around loosely can create confusion and lead to misinformation. So, below I will try to dissect the meaning of each of these terms. I think you’ll see that there is a lot of overlap in practice, making it hard to draw a line in the sand between the different theories.
Capitalism: A capitalist is someone who subscribes to the belief that the means of production are owned by private corporations or individuals. A capitalist believes in a free market where supply and demand dictate the price, quantity and even production location of goods. As with most theories, the pure sense of capitalism is almost impossible to achieve. Government almost inevitably must step in to institute safeguards in order to prevent the exploitation of workers and some might argue, to maintain a strong middle class. A pure capitalistic society would tend to have a deep class divide where workers rights begin to be overlooked. So, it is not accurate to call the U.S. a capitalist economy but rather a mixed economy. Our government places regulations such as environmental standards, price controls, and anti-trust regulations on various industries. Additionally, the US regulates food production by issuing farm subsidies, and controls trade with the use of tariffs and import limitations. According to the World Population Review’s website, the U.S. ranks number twelve in terms of overall economic freedom. We fall behind the United Arab Emirates, Iceland, and Australia among others. So, it more accurate to refer to our economic structure as capitalistic in nature. We encourage private enterprise and ownership of property and many freedoms are granted in order to conduct business with little interference. The idea of capitalism stems from the belief that humans are inherently competitive and that consumer demand will create a drive towards innovation and choice. One downside to capitalism is the inherent risk of recession, unemployment, and a deep class divide.
Socialism: A socialist is someone who subscribes to the belief that government should control the means of production. Socialism was developed largely as a response to capitalism in the 19th century. Karl Marx and Friedrich Engels wrote of a socialist society as a counter measure to capitalism after seeing first hand the treatment of the poor working class in Europe. Both men witnessed the terrible living conditions of the proletariat, or working class, with no choice but to work long hours for low wages to satisfy the greed of the bourgeoisie, or upper class who owned the means of production. Socialism usually involves intense economic regulation by the state in order to maintain equality and eliminate social class to create a level playing field. In a true socialist society, citizens work in jobs controlled by the state and in exchange receive a modest wage. Goods are redistributed based on need. Private property can be held in a socialist system, but it would be under the strict purview of the state. Today socialist countries include China, Cuba, Vietnam, and India among others. There are broad variations of socialistic systems among those who practice it. In recent years, many of those under socialist systems have adopted more free market policies and loosened restrictions on private enterprise and private property to adapt to globalization. Socialist policies such as welfare, social security, and free public education have been adopted by the United States over the years, but the strict ideals of socialism are squashed by our open market policies. Socialism relies on the decisions of the state for production, and therefor it tends to snuff out individualism, creativity, and competition. However, it holds a belief that with proper planning by the state, economic efficiencies can be obtained and production will meet the needs of the people.
Democratic Socialism: The concept of democratic socialism, which is widely practiced throughout the world, adds to the confusion. In this type of arrangement, some major industries are controlled by the state while others are highly regulated to protect consumers and workers. An example would be Venezuela. The state owns the oil company, which is Venezuela’s largest export and source of revenue. Some U.S. politicians are self-proclaimed democratic socialists. They believe strongly in organized labor, price controls, interest rate controls, and government intervention to avoid an individual or group from having too much control over the means of production. As with all economic systems, the level to which democratic socialism is practiced varies widely. Examples of democratic socialist countries include Brazil, Italy, France, Bolivia, Venezuela, Ireland and a host of others. I think of this type of system as a hybrid between capitalism and socialism.
Communism: This is the hard-left side of the economic theory spectrum. People and/or a single party totalitarian state control all aspects of the economy. Private property does not exist, and everyone works for the common good. That which is generated by the state or through production is redistributed based on need, which of course is highly subjective. In this system there is constant class warfare because a communist society, in theory, would always seek to destroy individualism and creativity to some degree. It’s interesting to note that the communist party does exist in many countries today, but no one has ever achieved a true communist society. The party exists primarily to counterbalance the effects of free markets and globalization. Ultimate communism would eliminate the need for currency, government, and social class altogether. In my opinion, since the fall of the Soviet Union, there are no real communist states remaining, except perhaps North Korea.
If you search the Internet for any length of time, you will find discrepancies on how other countries are labeled. It’s important to remember that socialism and communism can refer to both political and economic theory. For example, I often see China and Cuba referred to as communist countries when in practice; they do not fit the definition. Cuba is a self-proclaimed socialist society and I believe that more accurately describes them. In Cuba, one can own private property and own a business although they are at the discretion of the Cuban government. China now has many privately held manufacturing corporations and has opened up to more free enterprise policies. So, at least in practice, they do not fit the definition of communists and so I do not consider them as such.
It’s interesting to me how these economic theories have taken on different facades throughout history. Similar to political parties here in the United States, you have those who have a very strict interpretation and those who have very loose interpretations of the boundaries that we set to identify each theory. All of them have adapted over time either by peaceful transition or by intentional revolutionary change. As the population of our planet continues to grow, I think that these theories will continue to evolve. With the access to data that we have, the pressures of a globalized society will cause policymakers to continue to look at ways to maintain these systems by embracing change and finding ways to counter balance the negative effects of each economic system.
