capitalism communism and socialism

Written by M. Umar Irfan Ch 12:20 pm Articles, Current Affairs, Published Content

The Economic Systems in the World: A Comparison of Capitalism, Communism & Islamic Socialism

The author, Mr M. Umar Irfan Ch., compares the currently established economic systems with the Islamic economic system. He has highlighted the shortcomings of capitalism and communism, coming to the conclusion that capitalism works on the fundamental principle of “freedom”, while communism works on “equality”. The Islamic economic system, however, works on the principle of justice so that neither freedom is undermined at the cost of equality nor is equality thwarted at the cost of freedom.
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About the Author(s)
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Mr. M. Umar Irfan Ch. is currently studying English literature at NUML Islamabad. He writes on politics, Islam and literature.

Although the current economic systems in the world are more integrated than before, there is still a question of a perfect system that can eradicate economic conflicts and tensions between human beings. In this article, we will enlighten a brief comparison of the different economic systems—communism, capitalism, and Islamic socialism—and their validity.

An economic system of society describes the organization and distribution of resources among people of that particular society. It includes resource allocations, means of production, and distribution of capital. It has a very pivotal role in defining the socioeconomic and political system of a state or society.

All the governing setups, institutions, and stakeholders revolve around the economy of the country. The economic system is the backbone of any society. It not only improves living standards for human beings but also saves society from destruction and bankruptcy. Therefore, without an economic system, society suffers from economic stagnation and unfair distribution of wealth.

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An economic system can be defined by three basic questions: what to produce? how to produce? To whom it must be distributed? Throughout human history, economic systems have undergone evolutionary stages along with intellectual advancement.


Capitalism or a free-market economy is an economic system in which private owners control the economy and trade rather than the state. It encompasses private enterprises, economic freedom, competition, profit, wealth accumulation, and less intervention of government. It finds its slightest precursor in the feudal era during the 16th century in Europe.

After the industrial revolution in 1764, Scottish economist, Adam Smith, gave the idea of modern capitalism in his book “Wealth of Nations”. Soon after Smith’s theory, the French revolution appeared as the demise of feudalism and the whole scenario was changed in the favor of capitalism which dominated as a prominent economic system.

Later on, after the cold war and due to the invasion of western imperialism, it sustained its monopoly as a world economic system. According to the World Economic freedom report 2021, more than 152 states have capitalistic economies. Supporters of capitalism claim that capitalism ensures competition in markets which leads to a wide range of high-quality products with low prices.

It also brings innovations and creativity, making people more hard-working and inclined towards a developed society. It encourages the political freedom of individuals by lessening the government’s influence and also guarantees opportunities for people who want to improve their living standards. Despite all these claims, it is fatal for the lower section of society.

The most destructive facet of a capitalist regime is the way it splits society into different classes. The lower class of society which is the majority is ruled by the minority elite class. They manipulate the working class by suppressing trade unions and gaining high profits in return for very low wages, which leads to the accumulation of 99% of the wealth in the hands of just 1% and vice versa.

Capitalist regimes also monopolize power through imperialism and counter-revolutionary wars. The most lucid example of the capitalist war was the cold war. The prevailing communist manifesto forced the US to wage war against the Soviet Union which led to the division of the Soviet Union and the occupation of Afghanistan by superpowers.

Capitalist regimes also invade countries by making military alliances to grab natural resources, trade routes, and big markets. It also discourages equal opportunities, some are inherited with great wealth, while others are born in poverty with insufficient resources of health and education. Capitalists prefer their interests over social good and environmental safety.

Although most western countries claim that they have now become a welfare state, the class system still exists; there is a class that is earning maximum with minimum or almost zero effort and dominating the world through multinational companies. On the other hand, there is a class that is barely meeting the necessities of life or dwelling on the charities of the elite class.

A national survey by the Pew Research Center claimed that one-third of Americans now consider themselves as lower class. In simple words, this system works to serve the master class by exploiting the working class. Edelman Trust Barometer published a census report which included over 34000 people in more than 28 western liberal democracies.


Communism or command market economy is a political and economic philosophy that was given to oppose capitalism by German philosopher Karl Marx and his associate Friedrich Engels. He was the greatest critic of capitalism and has been quoted to have said that “Capital is dead labor, which, vampire-like, lives only by sucking living labor, and lives the more, the more labor it sucks”.

It is an economic system in which all the resources are occupied by the government, while the people contribute and receive according to their ability and needs respectively. Although it has changed its form to socialism, Marxism, or Leninism, the core idea of all these movements remains the same.

It gave the idea of a classless society, common ownership, equal distribution of wealth, and opportunities. The biggest advantage of a communist society is that it refutes the class system and believes in equal allotment of resources. It works on the slogan “From each according to his ability, to each according to his needs”. It also gives the idea of a welfare state which is more prone to social well-being.

In a communist regime, the people are equal regardless of their financial and educational differences, they can access equal opportunities and resources for health, education, and employment. However, it has many shortcomings and drawbacks which decrease its validation. In a communist regime, there are no extra incentives for hard work and innovation which leads to a lack of competition.

If there is no competition in the market, there will be no technological developments, better quality products, and cost-reducing actions. The second most problem is the proletariat or one-party dictatorship, there is no freedom of speech and the right to express political ideas. One is also restrained to speak against government policies and agreements.

The current ruling party in China, CPC, is accused of ethnic cleansing of Uyghur Muslims through massive genocide in the northwestern region of Xinjiang. From 1917 to 2017, according to Wall Street Journal, almost 65 million people died in different communist regimes due to famine, starvation, executions, and the deaths that occurred during forced imprisonment and cruel social engineering.

In a totalitarian regime, the ruling class has more opportunities for corruption. In 2012, Bloomberg revealed that the Chinese president’s extended family had total assets worth $376 million, but due to strict control on media, the report was not published. The Russian communist regime, too, has been accused of massive corruption for decades. Due to these loopholes and frailties, pure communism has never been in its practical form. A mixed form of communism is established in China, Cuba, and Vietnam.

Islamic Economic System

The economic system of Islam is derived from the two basic sources of Islamic jurisprudence, the Quran and the guiding principles of the Prophetic Hadiths. This economic system works on the basic principle of collective justice, which aims at the fair distribution of wealth among all human beings living in a society based on their abilities and capabilities.  

It is believed that the economic system of Islam is not the creation of any human intellect but the law given by God Almighty, which is compatible with human behaviors and temperament. Therefore, it is a perfect system. The comprehensiveness of this law can be gauged from the fact that when Prophet Muhammad (peace be upon him) established the state of Madinah, there was a time when no one was poor enough to take charity from Baitul-Mall.

The Islamic economic system endorses private ownership and economic freedom. It allows humans to do private business and leave a legacy but also sets limitations so that the master class cannot establish its dominance over the subjective class. To control blind capitalism, usury has been declared as absolutely impermissible and forbidden because interest makes the rich richer and spoils the poor deeper into poverty.

Therefore, Islam has chained and controlled capitalism to a certain extent so that a person can fulfill his needs by earning legitimate profit from a private business. In Islamic tradition, it is expected that wealth is legitimate and is earned through one’s own work be it either physical or intellectual. 

To prevent the unjust accumulation of wealth, Islam has given a comprehensive system of Zakat which is 2.5% of the accumulated capital so that wealth can circulate in the whole society instead of being in the few hands. Means of production and personal assets are exempt from Zakat Nisab. The proportion of Zakat (Jizya) for non-Muslims is two percent. Taxation is allowed only if the collected Zakat is not enough to tackle emergencies or disasters.

Welfare programs also started under the umbrella of Islamic socialism during the era of the second Caliph Hazrat Umar R.A. including social security, unemployment insurance, retirement pensions, and economic reforms during famines. Unlike capitalism and communism, which are established on the basic spirit of dialectical materialism, the Islamic system is based on a spiritual concept called faith (Iman).


Capitalism works on the fundamental principle of “freedom”; communism works on “equality”; and Islamic socialism works on the principle of justice so that neither freedom is undermined at the cost of equality nor is equality thwarted at the cost of freedom. Islamic socialism is a moderate theory containing positive aspects of both capitalism and communism.

So, instead of looking towards these imperfect systems, we must establish Islamic socialism which is not only compatible with our tradition but also testified 1400 years ago, when there was no capitalism or communism.

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The views and opinions expressed in this article/paper are the author’s own and do not necessarily reflect the editorial position of Paradigm Shift.

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