Reading: The Disadvantages of Communism

Businesses under Communist system have very strict limitations as to what they can and cannot do, which can hamper productivity and innovation.

KEY Points

  • In a Communist system, the central authority dictates the means and quantity of production, and places strict rules on businesses.
  • Since there is no competition amongst firms, each is given the same amount of money and each worker is paid the same, with the same expectations of each.
  • All businesses are ultimately owned by the government.
  • Populations tend to be treated homogeneously, meaning that common goals or sets of rules will not apply to different segments of the population and community.
  • Without a price mechanism, supply and demand are difficult to balance perfectly over time.

Term

  • Price mechanism:  An economic term that refers to the buyers and sellers who negotiate prices of goods or services depending on demand and supply. A price mechanism or market-based mechanism refers to a wide variety of ways to match up buyers and sellers through price rationing.

Example

  • Ho Chi Minh raised a guerrilla army in Vietnam, promising them a Utopian communist future of rule by the people and a communal country. However, what transpired was a nation ruled by corrupt Party officials, with no rights or civil liberty. The theory peddled by Ho Chi Minh was far removed from the practice of Communism once he was successfully elected. There are many other examples of how Communism has failed the people of a country. Whether this is down simply to corrupt leaders, or to a deeper flaw in the nature of Communism is a subject debated by many scholars .

Disadvantages of Communism

The economic and political system of Communism effectively dictates what can and cannot be done in the realm of business. There are defined limitations for the amount a business can produce and how much money it can earn.

In addition to directly controlling the means of production, Communism places strict rules as to how businesses operate in such a way that a classless society is born. No matter what field a business specializes in, the same amount of funds will be allocated to each, and each worker will receive the same amount of money. This can cause emotional unrest between workers who wish to be specially recognized for their work. It can serve to create uncomfortable conditions for workers in a society without rank or varying specialty. Finally, it can be stifling to entrepreneurial spirit, which is key to a country’s economic growth and development. The U.S., a capitalistic nation, has greatly benefited from that small business and entrepreneurial atmosphere, a backdrop for the American dream.

More specifically, in Communism:

  • The government owns all the businesses and properties (the means of production).
  • There is no freedom of speech.
  • Large or geographically-broad populations tend to be diverse, making it difficult to maintain a common goal or set of rules for shared effort andresources.
  • Central planning is difficult to achieve.
  • Consumers needs are not taken into consideration.
  • Productivity and efficiency are difficult to achieve without profit motive for the workers.
  • It is difficult to achieve internal balances between supply and demand without a price mechanism.

The Kremlin
Only the government has a say in production planning under a Communist system.

GLOSSARY

Productivity

A measure of the efficiency of production and is defined as total output per one unit of a total input. The rate at which goods or services are produced by a standard population of workers. A ratio of production output to what is required to produce it (inputs). The state of being productive, fertile, or efficient. The rate at which products and services are produced relative to a particular workforce.

Profits  

Collective form of profit.

Resource

Something that one uses to achieve an objective, for example a raw material or an employee.

Right

A legal or moral entitlement.