Central planning of any economy (not just communist ones) results in inefficiencies, reduced innovation, and sometimes catastrophic mistakes.  It is the catastrophic mistakes of communist central planning that are most highlighted by anti-communists. As terrible as they were, the mass famine incidents in communist countries occurred only during part of the time period of communism. Therefore, communists argue those mistakes do not represent typical results under communism. They argue those events should be dismissed as regrettable errors. However, a review of various communist countries throughout the entire time they implemented communism shows their economic and political systems were consistently characterized by inefficiencies, reduced innovation, and mistakes that caused chronic economic underperformance and mediocrity compared to free market capitalism.

The catastrophic mistakes were horrific. Radical, forced agricultural collectivization policies resulted in millions of deaths by starvation under communist regimes, including an estimated 3.9 million during the Holodomor in the USSR in the 1930s, an estimated 15 to 55 million during Communist China’s “Great Leap Forward” from 1959-1961, and up to an estimated 500,000 to 1.5 million during the Khmer Rouge’s communist agrarian reforms in Cambodia from 1975-1979.  Communists argue those were terrible mistakes that do not represent typical results under communism. They are correct that such famines were rare and do not represent the average or typical results under communism. Also, famine is not unique to communist systems. The Great Potato Famine in Ireland in 1845-1852 caused approximately 1 million deaths, which was a greater percentage of the country’s population than the famines in communist USSR and China (and close to the percentage in Khmer Rouge Cambodia). The deaths from famine in Ireland were caused by capitalism in the sense that there was sufficient food grown in Ireland in those years to feed the Irish population, but much of it was exported from Ireland in order to make a profit for private landowners and companies rather than to feed people:

"Throughout the entire period of the Famine, Ireland was exporting enormous quantities of food to England. In "Ireland Before and After the Famine," Cormac Ó Gráda points out, “Although the potato crop failed, the country was still producing and exporting more than enough grain crops to feed the population. But that was a 'money crop' and not a 'food crop' and could not be interfered with.” Up to 75 percent of Irish soil was devoted to wheat, oats, barley and other crops that were grown for export and shipped abroad while the people starved." (Source)

In fairness, it is not appropriate to judge communism only by its famines; just as it would not be fair to judge capitalism only by its worst moments, such as the Irish Potato Famine.

However, communism’s problems have not been not limited to its catastrophic famines. Communist economic and political systems have been consistently characterized by inefficiencies, reduced innovation, and mistakes that caused chronic economic underperformance and mediocrity compared to free market capitalism.  The following is a description and explanation of the problems of central planning under Soviet communism:

"Since virtually the entire economy is in state hands, the Communist Party must centrally determine prices and production targets for every commodity and service in the country. This means that prices are irrational, and have little to do with the cost of production or the scarcity of commodities. It also means that the managers of state-owned enterprises are remunerated based on how effectively they carry out the directives of the plan, rather than how well they serve consumers. They have no incentive to improve product quality or to produce above production targets in order to meet excess demand, since consumers have no choice but to buy products from the state. This lack of incentive to “chase after” consumer demand creates a seller’s market, as opposed to the buyer’s market that usually prevails in capitalist economies. In a seller's market, the producer does not need the consumer, but the consumer does need the producer. Because the state decides what is produced and in what quantities, consumers are systematically frustrated by chronic shortages of the commodities they desire. They are coerced into making forced substitutions between consumption goods, substituting those goods that are available for the ones they actually want. Another important feature of Communist economies is the soft budget constraint. This means state enterprises are not constrained by the threat of going out of business if they don’t balance their books. The state will almost always bail out loss-making firms, since the bankruptcy of an enterprise will incur substantial costs on the state, and will reflect poorly on the higher-level bureaucrats who allowed the firm to fail. The soft budget constraint contributes to the pervasive inefficiencies and waste of resources that the Soviet Union was famous for." (Source)

These problems were not limited to the USSR.  Venezuela’s Bolivarian Socialism caused a devastating collapse in what had been a thriving and wealthy country when it had operated under free market capitalism. The collapse was due to the socialist government “minutely regulating every aspect of economic life and centralizing all decisions” and then making a series of terribly misguided decisions that destroyed the economy:

"A wave of expropriations beginning in 2005 left most medium and large companies in state hands, to be run by bureaucrats who proved often venal and almost always incompetent. Even businesses left in private hands faced an unmanageable thicket of regulation over every imaginable aspect of their operations, hemming them in on all sides. To take one example out of a million possibilities, it is now illegal for a dairy company to move raw milk from a collection center it owns to a processing facility it also owns 2 kilometers away without an explicit permit signed and stamped by a slew of government officials. It is also illegal to fire a worker for basically any reason, including making threats of physical violence against a manager. And, needless to say, it is illegal to set your own prices: The state does that, often setting them below the cost of production, especially for basic goods. Under such circumstances, even “private” firms are in essence state run." (Source)

Any student who has taken a basic economics course could have predicted what would happen when the Venezuelan government required businesses to set prices lower than the price the business had to pay to buy the products – severe shortages, empty shelves, and eventually the stores going out of business. The precipitous drop in the standards of living caused by Venezuela's switch from free markets to centrally-planned socialism is reflected in the HDI scores.  In 1995, the HDI for capitalist Venezuela was #46 in the world (.860). In 2023, Bolivarian Socialist Venezuela was ranked #121 (.709).

To understand why free market capitalism has been more successful than communism, it is instructive to examine how capitalism works in contrast to the communist system 
described above.  Capitalism is not, as Marxists claim, a system based on exploitation. Rather, capitalism’s success results from incentivizing and allowing a wide variety of participants to engage in a decentralized manner in a diverse and constant process of competition, innovation, and improvement of variety, quality, and efficiency. (The lack of variety of consumer goods in the Soviet Union was lampooned in this 1980’s Wendy’s commercial.)

In his first inaugural speech in 1981, President Ronald Reagan asserted that the U.S.’s economic success was driven primarily by individuals and individual freedom, not government or collectivism.  Early in that speech, President Reagan referred to government being the problem, not the solution, to the crisis the U.S. faced at the time.  By that, he meant too much government was the problem.  Later in the speech, he made clear that government has an important role to play and that what is needed is a proper balance between government and private actors (with government playing a helpful, supportive role, rather than dominating or stifling private actions):

“Now, so there will be no misunderstanding, it’s not my intention to do away with government. It is rather to make it work -- work with us, not over us; to stand by our side, not ride on our back. Government can and must provide opportunity, not smother it; foster productivity, not stifle it. If we look to the answer as to why for so many years we achieved so much, prospered as no other people on Earth, it was because here in this land we unleashed the energy and individual genius of man to a greater extent than has ever been done before. Freedom and the dignity of the individual have been more available and assured here than in any other place on Earth.”

This perspective has been confirmed by multiple Nobel prize winning economists. 

The 2025 Nobel Prize in economics was awarded to Philippe Aghion, Peter Howitt, and Joel Mokyr for their work showing that economic growth comes from dynamism, creative destruction, and the open exchange of ideas. “Creative destruction” is the term coined by economist Joseph Schumpeter in his 1942 book Capitalism, Socialism and Democracy to describe the process of continuous innovation in free market economies that dismantles old technologies and economic structures and builds new ones, thus driving technological and economic progress.  The existence and continuation of such widespread and ongoing innovation, and resulting economic growth, depend on the freedom of everyone to engage in a decentralized trial-and-error process to challenge, disrupt, and sometimes fail. This requires supportive social (educational and cultural), economic, and political conditions.  In social terms, you need sufficiently widespread education and a culture of innovation and entrepreneurship. In economic terms, you need conditions that make it worthwhile and possible for people to engage in innovation.  Innovation often requires significant time, effort, and/or costs. And it can be risky.  Only a small percent of efforts result in cost-effective success, and even if the effort is successful, it is uncertain how long such success will last.  Because the innovators don’t always have sufficient funds themselves, there must be a functioning system of affordable financing and investment. People will not spend the time, effort, and cost to innovate (or finance innovation) unless there are legally enforceable private property and intellectual property rights and the government won’t take too much through taxation or expropriation.  Finally, the political system must allow for (and in some cases provide) these conditions, including education, property rights, regulations, and taxation that enable and incentivize innovation and investment rather than make it too risky or not cost-effective.

Central economic planning and over-regulation retard the process of creative destruction. Governments that seek to control and direct the economy (which is common in state communism) stifle innovation and creative destruction and risk entrenching mediocrity. This occurs as a result of (1) government choosing what will be produced and which technologies will be used, (2) protecting its chosen “winners” from competition, and (3) slowing innovation by requiring anything new to be approved by a centralized bureaucracy. Such centralized systems succeed over time only to the extent the decision-makers at the top can foresee and support what innovation will be successful. But no group of people can successfully make such predictions better than the decentralized process of the great mass of people independently developing and testing new ideas.  A dynamic economy depends on widespread experimentation, where entrepreneurs can try, fail, and try again without requiring the state’s permission or sponsorship. Government’s role in fostering economic growth is much better suited to protecting the ecosystem that allows ideas to be developed (and financed where necessary) and monetized, and enables economic growth – conditions such as enforceable property rights, open markets for products and financing, reasonable regulation, and education.  State communism typically does not foster or allow for these conditions that enable creative destruction.  The result is mediocre economic growth compared to free market capitalism.

Similar patterns of economic success versus mediocrity have been documented by economists Daron Acemoglu and James A. Robinson, who won the 2024 Nobel Prize in Economics.  They examine this phenomena in detail in their book Why Nations Fail: The Origins of Power, Prosperity, and Poverty (2012). The book examines a wide range of case studies to understand why various nations and economies develop differently, with varying success in achieving prosperity for their members.  They found that countries differ in their economic success because of their different institutions, the rules influencing how the economy works, and the incentives that motivate people. At the risk of oversimplifying, their conclusion is that successful economies that broadly benefit the members of society are (1) inclusive, rather than extractive, and (2) have critical institutional support provided by government and society. Their conclusions and recommendations are similar to those of Philippe Aghion, Peter Howitt, Joel Mokyr, and President Reagan:

“Inclusive economic institutions, such as those in South Korea or in the United States, are those that allow and encourage participation by the great mass of people in economic activities that make best use of their talents and skills and that enable individuals to make the choices they wish. To be inclusive, economic institutions must feature secure private property, an unbiased system of law, and a provision of public services that provide a level playing field in which people can exchange and contract; it also must permit the entry of new businesses and allow people to choose their careers.” (Why Nations Fail, at 74) 

“Inclusive economic institutions foster economic activity, productivity growth, and economic prosperity. Secure private property rights are central, since only those with such rights will be willing to invest and increase productivity. A businessman who expects his output to be stolen, expropriated, or entirely taxed away will have little incentive to work, let alone any incentive to undertake investments and innovations.” (Why Nations Fail, at 75) 

Acemoglu and Robinson conclude that many countries are poor precisely because they have been ruled by a narrow elite that have organized society in an extractive system for their own benefit at the expense of the vast mass of people. (Why Nations Fail, at 3)  Communists mischaracterize free market capitalism as a type of extractive system that operates for the benefit of a narrow elite at the expense of the vast mass of people. Although a wealthy elite does tend to develop under free market capitalism, the system is generally is not exploitative and does not operate at the expense of the vast mass of people; on the contrary, it actually benefits the great mass of people better than communism.