Regulations are not capitalist, definitionally free markets do not account for externalities. Only when an externality has such an effect that it affects market behavior, but then it stops being an externality. Again, definitionaly.
Full capitalism and full communism are not the only options. Not sure why you even brought that up, as I never claimed communism is better? I said capitalism is flawed.
The problem is you are talking about orthogonal concepts, ie. economic policy and social policy. See the Political Compass: https://www.politicalcompass.org/
‘Late stage capitalism’ right now is way less ugly than ‘any stage USSR’, for any sane comparison.