First of all, Kibbutz style communism (like the quaker societies here in the states) work very well and so does small scale capitalism. The reason is simple: when people deal with each other on a face to face scale -they are more willing to be honest with each other AND NOT cheat the system.
For example if you are in a farming kibbutz and are not pulling your weight -You will sit down to dinner with your fellows and look them in the eye.
Similarly, if you are in a capitalist system and encountering some
Tragedy of the Commons type situation where there is a shared resource and an incentive to overuse the resource. On a very small scale people will be willing to share and preserve their resource -because they understand the importance of it.
However both models (capitalism and communism) break down on the larger scale. In communist models -grabs for power will be made. Certain people won't adhere to the founding principles and they won't have any incentive to react ethically with everyone's best interests in mind.
Similarly, capitalism breaks down on the larger scale; large companies won't feel the need to react ethically to a small community's shared resource.
So in either case, certain checks are needed for the systems in question to function. Historically, there have been few checks on the communist systems and capitalism still has a ways to go.