But is the difference not merely a question of terminology?
"The term 'narcissism' tends to be employed diagnostically by those proclaiming loyalty to the drive model (Otto Kernberg and Edith Jacobson, for instance - SV) and mixed model theorists (Kohut), who are interested in preserving a tie to drive theory. 'Schizoid' tends to be employed diagnostically by adherents of relational models (Fairbairn, Guntrip), who are interested in articulating their break with drive theory... These two differing diagnoses and accompanying formulations are applied to patients who are essentially similar, by theorists who start with very different conceptual premises and ideological affiliations."
(Greenberg and Mitchell - "Object Relations in Psychoanalytic Theory" - Harvard University Press - 1983)
Klein, in effect, said that drives (e.g., the libido) are relational flows.
A drive is the relationship between an individual and his objects (internal and external). Thus, a retreat from the world (Freud) into internal objects (as object relations theorists and especially the British school of Fairbairn and Guntrip postulated) - is the drive itself. Drives are orientations (to external or internal objects). Narcissism is also an orientation (a preference, we could say) to internal objects - the very definition of schizoid phenomena. This is why narcissists feel empty, fragmented, "unreal", and diffuse. It is because their ego is still split (never integrated) and because they withdrew from the world (of external objects).
Kernberg identifies these internal objects with which the narcissist maintains a special relationship with the idealized, grandiose images of the narcissist's parents. He believes that the narcissist's very ego (self-representation) fused with these parental images.
Fairbairn's work - even more than Kernberg's, not to mention Kohut's - integrates all these insights into a coherent framework. Guntrip elaborated on it and together they created one of the most impressive theoretical bodies in the history of psychology.
W. R. D. Fairbairn internalized Klein's insights that drives are object-orientated and their goal is the formation of relationships and not primarily the attainment of pleasure. Pleasurable sensations are the means to achieve relationships. The ego does not look to be stimulated and pleased but to find the right, "good", and sustaining object.
The infant is fused with his primary object, the mother. Life is not about using objects for pleasure under the supervision of the ego and superego, as Freud postulated. Life is about separating, differentiating, achieving independence from the Primary Object and the initial state of fusion with it. Dependence on internal objects is narcissism. Freud's post-narcissistic (anaclitic) phase of life can be either dependent (immature) or mature.
The newborn's ego is looking for objects with which to form relationships. Inevitably, some of these objects and some of these relationships frustrate the infant and disappoint him. He compensates for these setbacks by creating compensatory internal objects. The initially unitary ego thus fragments into a growing group of internal objects. Reality breaks our hearts and minds, according to Fairbairn.
The ego and its objects are "twinned" and the ego is split in three (Harry Guntrip added a fourth ego). A schizoid state ensues. The "original" (Freudian or libidinal) ego is unitary, instinctual, needy and object seeking. It then fragments as a result of the three typical interactions with the mother (gratification, disappointment, and deprivation). The Central Ego idealizes the "good" parents. It is conformist and obedient. The Antilibidinal Ego is a reaction to frustrations. It is rejecting, harsh, unsatisfying, against natural needs.
The Libidinal Ego is the seat of cravings, desires and needs. It is active in that it keeps seeking objects to form relationships with. Guntrip added the Regressed Ego which is the "True Self" in "cold storage", the "lost heart of the personal self".
Fairbairn's definition of psychopathology is quantitative. Which part of the ego is dedicated to relationships with internal objects rather than with external ones (e.g., real people)? In other words: how Fragmented (=how schizoid) is the ego?
To achieve a successful transition from internal objects to external ones - the child needs the right parents (in Winnicott's parlance, the "good enough mother" - not perfect, but "good enough"). The child internalizes the bad aspects of his parents in the form of internal, bad objects and then proceeds to suppress them, together ('twinned") with portions of his ego.
Thus, his parents become part of the child (though a repressed one). The more bad objects are repressed, the "less ego is left" for healthy relationships with external objects. To Fairbairn, the source of all psychological disturbances is in these schizoid phenomena. Later developments (such as the Oedipus Complex) are less crucial. Fairbairn and Guntrip think that if a person is too attached to his compensatory internal objects - he finds it hard to mature psychologically.
Maturing is about letting go of internal objects. Some people just don't want to mature, or are reluctant to do so, or are ambivalent about it. This reluctance, this withdrawal to an internal world of representations, internal objects and broken ego - is narcissism itself. Narcissists simply don't know how to be themselves, how to acquire independence and, simultaneously manage their relationships with other people.
Both Otto Kernberg and Heinz Kohut agreed that narcissism is somewhere between neuroses and psychoses. Kernberg thought that it was a borderline phenomenon, on the verge of psychosis (where the ego is completely shattered). In this respect, Kernberg identifies narcissism with schizoid phenomena and with schizophrenia more than Kohut does.