What Is the Difference Between Communism and Socialism?

Communism and socialism are umbrella terms referring to two cooperative schools of economic thought, both apparently antithetical to capitalism. These economic ideologies have inspired various social and political movements since at least the 18th century.

Several countries have been or are currently governed by parties calling themselves “communist” or “socialist,” though these parties’ policies and rhetoric vary widely. It is important to understand that socialism or communism as economic systems do not necessarily describe a form of government. Indeed, several political regimes that have been labeled as such are, in fact, authoritarian or dictatorships.

In truth, with communism and socialism, where the distinction between a laboring class and owner class is dissolved, freedom and democracy can flourish; however, there would also be a massive redistribution of wealth. The vast majority of Americans would see an increase in their wealth, health, and well-being, but this also means that the wealthy property owners of today, with their billions of dollars of assets, would become mere millionaires.

Defining Capitalism

First, it is important to understand what capitalism is, and what it is not. Capitalism is an economic system, and is not, for instance, a political system of electoral democracy. As a system of government, political regimes that accompany a communist economic system, such as in China, tend to center on a one-party state that bans most forms of political dissent.

These two uses of the term “communism”—one referring to economic theory, the other to politics as they are practiced—need not overlap: China’s ruling Communist Party has an explicitly pro-market capitalist orientation and pays only lip service to the Maoist ideology whose purist adherents regard Chinese authorities as bourgeois counter-revolutionaries.

So what is capitalism as an economic system? First described formally by the Scottish economist Adam Smith in the 18th century, “capitalism” simply refers to a system of production of goods or services whereby a business owner (i.e., “capitalist”) owns all of the means of production, including the tools, equipment, raw materials, property, factories, vehicles, etc.

The capitalist is also entitled to exclusive ownership of all of the finished product and any profits that result from the sale of those products. The capitalist hires workers (i.e., “labor”) who use these tools to produce the product to be sold. The laborers own nothing of the means of production, nor the finished product that they made—and certainly none of the profits from their sale. Instead, the workers are paid wages (or salary) in return for their efforts.

Capitalism relies on a division of labor and technological progress that can increase the efficiency of workers’ efforts to enrich business owners and their investors in terms of greater and greater profitability. Because workers far outnumber business owners, and because workers are entitled to only their wages, capitalism has been associated with both a great increase in a nation’s overall wealth, but also with promoting wealth and income inequality. In fact, clashes between labor unions and owners throughout modern history are paradigmatic of the struggle between labor and capital under a capitalist economic system.

Note that nothing has been said of free markets. Capitalism describes a mode of production, or how things are made. Markets are instead a mechanism for the distribution and allocation of goods once goods have been produced. Markets pre-date capitalist production for centuries, even when goods were produced under craft, guild, or feudal systems. Capitalism and markets together, however, tend to more or less describe the way that most modern Western economies function.

Socialism

Modern socialism traces its roots to ideas that were articulated by Henri de Saint-Simon (1760–1825), who was himself an admirer of Adam Smith, but whose followers developed utopian socialism: Robert Owen (1771–1858), Charles Fourier (1772–1837), Pierre Leroux (1797–1871), and Pierre-Joseph Proudhon (1809–1865), who is famous for declaring that “property is theft.”

These thinkers put forward ideas such as a more egalitarian distribution of wealth, a sense of solidarity among the working class, better working conditions, and common ownership of productive resources such as land and manufacturing equipment. Some called for the state to take a central role in production and distribution. They were contemporary with early workers’ movements such as the Chartists, who pushed for universal male suffrage in Britain in the 1830s and 1840s. A number of experimental communities were founded based on the early socialists’ utopian ideals; most were short-lived.

Marxism emerged in this milieu. Engels called it “scientific socialism” to distinguish it from the “feudal,” “petit-bourgeois,” “German,” “conservative,” and “critical-utopian” strains the Communist Manifesto singled out for criticism. Socialism was a diffuse bundle of competing ideologies in its early days, and it stayed that way. Part of the reason is that the first chancellor of newly unified Germany, Otto von Bismarck, stole the socialists’ thunder when he implemented a number of their policies.

Bismarck was no friend to socialist ideologues, whom he called “enemies of the Reich,” but he created the West’s first welfare state and implemented universal male suffrage in order to head off the left’s ideological challenge. “The Communist Manifesto,” an essay by Karl Marx that laid out a theory of history as a struggle between economic classes, which would inevitably come to a head through an overthrow of capitalist society, just as feudal society was overthrown during the French Revolution, paving the way for bourgeois hegemony (the bourgeoisie being the capitalist class that controls the means of economic production).

Marx and his contemporaries were convinced that the capitalist system of production was inherently unfair and flawed. More concerning was that it was riddled with contradictions that would inevitably lead to its own demise. For instance, capitalism promotes competition between firms to produce the lowest-cost goods, because who will buy cloth for $10 a yard when a competitor is willing to sell the same cloth for $9?

The argument goes that capitalists must compete to become the low-cost producer in order to be able to sell their goods on a free market to cost-conscious consumers and so will create new technological innovates or work to reduce wages in order to be able to undercut the competition. The competition, of course, would be engaging in similar pursuits. The result is that firms are always barely eking out a profit and ultimately the rate of profit tends to zero. This problem of a falling rate of profit was identified by Adam Smith, David Ricardo, and Karl Marx, among several others, as the mechanism that would undo capitalism since it is unsustainable over time.

While businesses compete, workers also compete with one another for wages, driving the amount earned by laborers to what Adam Smith called the “subsistence wage”. This means that at the same time workers are engaged with struggle with the business owners to keep their wages up, for workplace amenities, benefits, safety, and so on; they are also struggling against one another to land a job and to be paid well. Why hire the worker demanding $15 per hour when somebody equally-skilled is willing to work for $10 per hour?

The result is that workers as a social class are limited in their upward mobility and ever-larger inequality emerges between the working and capitalist classes. Evidence for this mechanism is apparent if you look at the growing wage gap between the pay of average workers in a company and their CEOs or other executives. Or in the wealth accumulation of investors who own large amounts of company stock and workers who own little or none of it.

Communism

Following the fall of capitalism, a communist revolution, Marx argued, would take place where workers (which he called the proletariat) would take control of the means of production in a wholly democratic way. After a period of transition, the government itself would fade away, as workers build a classless society and an economy based on common ownership of the means of production. Production and consumption would reach an equilibrium: “from each according to his ability, to each according to his need.” Extreme views later argued that even religion and the family, institutions of social control that were used to subjugate the working class, would also go the way of the government and private ownership.

Marx’s revolutionary ideology inspired 20th-century movements that fought for, and in some cases won, control of governments. In 1917, the Bolshevik revolution overthrew the Russian czar and following a civil war established the Soviet Union, a nominally communist empire that collapsed in 1991. The Soviet Union was only “nominally” communist because, while ruled by the Communist Party, it did not achieve a classless, stateless society in which the population collectively owned the means of production.

In fact, for the first four decades of the Soviet Union’s existence, the party explicitly acknowledged that it had not created a communist society. Until 1961, the party’s official stance was that the Soviet Union was governed by the “dictatorship of the proletariat,” an intermediate stage along with the inevitable progression towards the final stage of human evolution: true communism. In 1961, Premier Nikita Khrushchev declared that the Soviet state had begun “withering away,” though it would persist for another three decades. When it did collapse in 1991, it was supplanted by a nominally democratic, capitalist system.

No 20th- or 21st-century communist state has created the post-scarcity economy Marx promised in the 19th century. More often, the result has been acute scarcity: Tens of millions of people died as a result of famine and political violence after the People’s Republic of China was established in 1949, for example. Rather than eliminating class, China’s and Russia’s communist revolutions created small, enormously wealthy party cliques that profited from connections to state-owned enterprises.

Cuba, Laos, North Korea, and Vietnam, the world’s only remaining communist states (with the exception of de facto capitalist China), have a combined gross domestic product (GDP) roughly the size of Tennessee’s.

When Economic and Political Systems Meet

Since the 19th century, a hard-left brand of socialism has advocated radical societal overhaul—if not an outright proletarian revolution—that would redistribute power and wealth along more equitable lines. Strains of anarchism have also been present in this more radical wing of the socialist intellectual tradition.

Perhaps as a result of von Bismarck’s grand bargain, however, many socialists have seen the gradual political change as the means of improving society. Such “reformists,” as hardliners call them, were often aligned with “social gospel” Christian movements in the early 20th century. They logged a number of policy victories: regulations mandating workplace safety, minimum wages, pension schemes, social insurance, universal healthcare, and a range of other public services, which are generally funded by relatively high taxes.

After the world wars, socialist parties became a dominant political force in much of Western Europe. Along with communism, various forms of socialism were heavily influential in the newly decolonized countries of Africa, Asia, and the Middle East, where leaders and intellectuals recast socialist ideas in a local mold—or vice-versa. Islamic socialism, for example, centers on zakat, the requirement that pious Muslims give away a portion of their accumulated wealth.

Meanwhile, socialists across the rich world aligned themselves with a range of liberation movements. In the U.S., many, though by no means all, feminist and civil rights leaders have espoused aspects of socialism.

At the same time, socialism has acted as an incubator for movements that are generally labeled far-right. European fascists in the 1920s and 1930s adopted socialist ideas, though they phrased them in nationalist terms: economic redistribution to the workers specifically meant Italian or German workers and then only a certain, narrow type of Italian or German. In today’s political contests, echoes of socialism—or economic populism, to critics—are easily discernible on both the right and left.