US & World Economies Economic Theory What Is Communism? Definition and Examples of Communism By Kimberly Amadeo Kimberly Amadeo Kimberly Amadeo is an expert on U.S. and world economies and investing, with over 20 years of experience in economic analysis and business strategy. She is the President of the economic website World Money Watch. As a writer for The Balance, Kimberly provides insight on the state of the present-day economy, as well as past events that have had a lasting impact. learn about our editorial policies Updated on April 8, 2022 Reviewed by Erika Rasure Reviewed by Erika Rasure Erika Rasure, is the Founder of Crypto Goddess, the first learning community curated for women to learn how to invest their money—and themselves—in crypto, blockchain, and the future of finance and digital assets. She is a financial therapist and is globally-recognized as a leading personal finance and cryptocurrency subject matter expert and educator. learn about our financial review board Fact checked by Katie Turner Fact checked by Katie Turner Katie Turner is an editor, fact checker, and proofreader. Katie gained experience at McKinsey by fact-checking content about business, finance, and economic trends. At Dotdash, she began as a fact checker for Investopedia, eventually joining both Investopedia and The Balance as a fact checker, ensuring the accuracy of information across a variety of financial topics. learn about our editorial policies In This Article View All In This Article The Origins of Communism 10 Characteristics of Communism Differences With Competing Systems Advantages and Disadvantages of Communism Communist Countries Other Examples in History Frequently Asked Questions (FAQs) Photo: The Balance / Hilary Allison Communism is an economic system where the group owns the factors of production. The factors of production are labor, entrepreneurship, capital, and land. Although the government doesn't legally own the labor force, the central planners tell the people where they should work. Key Takeaways Karl Marx outlined 10 key principles in his manifesto, which is attributed as the origin of communism.Communism is often set in contrast to capitalism and often compared to socialism, though the two have distinct differences.Communist systems have centrally positioned power structures, which have advantages and disadvantages.The last five remaining Communist countries are China, Cuba, Laos, North Korea, and Vietnam, though their politics are in various states of change. The Origins of Communism German philosopher Karl Marx developed the theory of communism. He said it was, "From each according to his ability, to each according to his need." In his view, capitalistic owners would no longer siphon off all the profits. Instead, the proceeds would go to the workers. To Marx, this meant that people would work at what they loved and did well. They would happily contribute these skills for the good of all. The economy would prosper because they would work harder than in capitalism. "To each according to his need" meant 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. 10 Characteristics of Communism in Theory In the Communist Manifesto, Marx and co-author Friedrich Engels outlined the following 10 points. Abolition of property in land and application of all rents of land to public purposes A heavy progressive tax or graduated income tax Abolition of all rights of inheritance Confiscation of the property of all emigrants and rebels Centralization of credit in the hands of the state The state would control communication and transportation The state factories and instruments of production would cultivate wastelands and improve the soil Equal liability of all to labor and establishment of industrial armies (especially for agriculture) The gradual abolition of the distinction between town and country Free education for all children in public schools and the abolition of children's factory labor The manifesto mentions state ownership in its last three points, making even this pure vision of communism sound like socialism. But Marx argued that state ownership is a valid stage in the transition to communism. Note In a true communist economy, the community makes decisions. In most communist countries, the government makes those decisions on their behalf. This system is called a command economy. The leaders create a plan that outlines their choices, and 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 health care, education, and other services. The plan also seeks to increase the nation's economic growth, secure national defense, and maintain infrastructure. The state owns businesses on behalf of the workers, which, in effect, means 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, as well as the customs that guide a traditional economy. Differences Among Communism, Socialism, Capitalism, and Fascism Communism is most similar to socialism. In both, the people own the factors of production. The most significant difference is that output is distributed according to need in communism. Communism is most different from capitalism, where private individuals are the owners, but it is similar to fascism in that both use central plans. Fascism allows individuals to retain factors of production, and many countries turned to fascism to ward off communism. Advantages and Disadvantages of Communism Advantages Centrally planned economy creates effectivity Promotes equality on a philosophical level Disadvantages Social goals take precedence over individual self-interest Eliminates free market Advantages Explained Centrally planned economy: A communist country with a centralized economy can quickly mobilize economic resources on a large scale, execute massive projects, and create industrial power. Communist command economies can wholly transform 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 strength to defeat the Nazis and then quickly rebuilt the economy after World War II. Philosophical equality: Some say communism's advantages mean it is the next obvious step for any capitalistic society. They see income inequality as a sign of late-stage capitalism and believe that capitalism's flaws mean it has evolved past its usefulness to society. They don't realize that capitalism's flaws are endemic to the system, regardless of the phase it is in. Note America's Founding Fathers included the promotion of the general welfare in the Constitution to balance these flaws. It instructed the government to protect the rights of all to pursue their idea of happiness, as outlined in the American Dream. It's the government's role to create a level playing field to allow that to happen. Disadvantages Explained Devaluation of individual welfare and liberty: One of the reasons a communist system can move so effectively is because it overrides individual self-interest and subjugates the welfare of the general population to achieve critical social goals.No free market: The most significant disadvantage of communism stems from its elimination of the free market. The laws of supply and demand don't set prices—the government does. Planners lose the valuable feedback these prices provide about what the people want. They can't get up-to-date information about consumers' needs, and as a result, there is often a surplus of one thing and shortages of others. Note To compensate, citizens create a market to trade the things the planners don't provide, which destroys the trust in Marx's pure communism. People no longer feel the government can give "to each according to his needs." Communist Countries The last five remaining Communist countries are China, Cuba, Laos, North Korea, and Vietnam. They aren't pure communism but are transitioning from socialism, where the state owns the components of supply. According to Marx, that is a necessary midway point between capitalism and the ideal communist economy. Modern communist societies rely on a mixed economy. China In October 1949, Mao Tse Tung established the Chinese Communist Party. In the late 1970s, China began moving toward a mixed economy. It phased out collective farms and allowed private businesses, but it still strictly follows a five-year economic plan. The government's policies favor state-owned enterprises in sectors vital to its goals. In 2009, China became the world's largest exporter. In 2014, it became the world's largest economy. Cuba In October 1965, the Partido Communista de Cuba became the country's official ruling party. The Soviet Union gave economic support to the impoverished country, and in return, Cuba supported its patron in the Cold War against its neighbor, the United States. After the fall of the USSR, Cuba suffered, and in April 2011, it began allowing economic reforms. People in Cuba can now buy appliances, cellphones, real estate, and cars, and in 2013 the Cuban government reported that more than 500,000 people are registered as self-employed. However, many experts estimate it to be much higher. Laos In 1949, the nation won independence from France. In 1986, it began decentralizing control and encouraging private businesses. Laos has created tax incentives to encourage foreign direct investment because it wants to expand its economy beyond exporting its natural resources. Laos currently is under a single-party system and is ruled by the Lao People's Revolutionary Party (LPRP). North Korea In 1953, North Korea's allies China and Russia helped create North Korea to end the Korean War. The country followed strict central planning with communal farming. It suffered famine and poor living conditions in the 1990s and 2000s, and in 2002, it allowed semi-private markets to sell some goods. In 2016 it used government power to spur two mass mobilizations in producing goods for market. Vietnam In 1945, communist leader Ho Chi Minh declared his country's independence from France. The French, backed by the United States, seized southern Vietnam. Ho, backed by China, took the northern part. France continued to rule until 1954. In 1975, the communists were successful, and in 1986, Vietnam began transitioning toward a more market-based economy. Other Examples in History In 1922, the Union of Soviet Socialist Republics was established with six communist countries: Russia, Belorussia, Ukraine, and the Transcaucasian Federation. In 1936, the Federation became Georgia, Azerbaijan, and Armenia. By 1991, when it dissolved, the USSR contained 15 total countries. The additional nine were Estonia, Latvia, Lithuania, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan. In 1955, the USSR created the Warsaw Pact with other communist military allies. They included Albania, Bulgaria, East Germany, Hungary, Poland, and Romania. The USSR had many other communist allies. Many became communists in the 1970s but shifted to another form of government after the USSR collapsed. They included Afghanistan, Angola, Benin, Congo, Ethiopia, and Mongolia. Cambodia was a communist country from 1975 to 1979. Frequently Asked Questions (FAQs) Who invented communism? Philosophies emphasizing cooperation, equality, and communal ownership of property go back hundreds, if not thousands, of years. The modern notion of communism is usually traced back to "The Communist Manifesto." In that 19th-century work, authors Karl Marx and Friederich Engels defined their idea of communism while noting its historical roots in earlier movements. What is the difference between Marxism and communism? "Marxism" refers to a theory of the relationship between social classes and the economy. Communism, on the other hand, is a revolutionary political movement that actively seeks to change society. There is plenty of overlap, but not all Marxists would call themselves communists. Economists and sociologists may use Marxist theory as a method of analyzing trends and current events, but that doesn't necessarily mean they advocate for the abolition of private property or for any other communist principles. Can you own property in a communist society? Theoretically speaking, property ownership is one of the key distinctions between communism and socialism. In a strictly communist system, individuals have no rights to private property, as all property is communally owned, whereas a socialist society allows for individual property rights (though they may be less robust than in a capitalistic society). Practically speaking, strict adherence to the communist theory will vary by country, as some may be more socialist with respect to private property. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Federal Reserve Bank of St. Louis. "Factors of Production - The Economic Lowdown Podcast Series, Episode 2." Karl Marx. “Critique of the Gotha Programme." Progress Publishers, 1970. Karl Marx and Friedrich Engels. "The Communist Manifesto." Project Gutenberg, 2022. Harry Gunnison Brown. "The Appeal of Communist Ideology," The American Journal of Economics and Sociology. U.S. Department of Education. “Social Justice Simplified: How To Teach a Contested Concept,” Pages 81, 82. The Library of Economics and Liberty. 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