Can Social Democrats Save the World (Again)?

Communism and democratic socialism won’t heal today’s political divisions. But social democracy—which helped ward off extremism following World War II—could.

Dan Saelinger illustration for Foreign Policy
Dan Saelinger illustration for Foreign Policy

Socialism is experiencing a resurgence. Polls reveal its growing popularity in the United States, particularly among young people. Popular politicians like Bernie Sanders and Alexandria Ocasio-Cortez proudly refer to themselves as socialists. And the press and public intellectuals can’t seem to stop talking about it.

Socialism is experiencing a resurgence. Polls reveal its growing popularity in the United States, particularly among young people. Popular politicians like Bernie Sanders and Alexandria Ocasio-Cortez proudly refer to themselves as socialists. And the press and public intellectuals can’t seem to stop talking about it.

The main reason for socialism’s resurgence is capitalism—or rather, its negative consequences. Economic growth has slowed over the past decades, and its gains have become more unevenly distributed: Income inequality in the United States today is at its highest point since the Census Bureau began tracking it, and the top 1 percent of Americans control almost as much of the nation’s wealth as the entire middle class, according to the Federal Reserve. Rising inequality has been accompanied by rising insecurity.

As the Yale University professor Jacob Hacker has argued, income volatility has increased, as has the “distance that people slip down the ladder when they lose their financial footing.” Globalization and technological change, meanwhile, have made citizens across the West more uncertain about their and their children’s futures. Social mobility has also declined, particularly in the United States, threatening to turn “have” and “have-not” into hereditary categories. Today’s have-nots, moreover, are not only more economically distant from the haves and more likely to stay that way than in the past, but they are also more likely to lead shorter lives, have physical and mental health problems, fall prey to alcoholism and addiction, and live in broken communities. These developments have created deep divisions and growing frustration in Western societies and provided fertile ground for nativism, polarization, and populism.

Contemporary capitalism’s negative consequences are extensive and disturbing. They are not, however, new. It is only because of the relative prosperity and democratic stability of the decades after World War II that Americans and Europeans have forgotten how disruptive capitalism can be.

Indeed, during the 19th and early 20th centuries it was commonly believed that capitalism and democracy could not be reconciled. Many liberals and conservatives feared that by empowering the masses, democracy would lead to what John Stuart Mill, for example, called “tyranny of the majority”—as well as prove incompatible, as James Madison put it, with “personal security or the rights of property.” In order to protect against threats to economic freedom, it might be necessary, as Ludwig von Mises, Friedrich Hayek, Milton Friedman, and others suggested, to suspend democracy in favor of some sort of authoritarian liberalism. Many socialists, meanwhile, assumed that capitalists would quickly discard democracy—“resort to bayonets,” as Fredrik Sterky, a late 19th-century Swedish socialist and trade union leader, wrote—rather than allow a democratically elected government to threaten their economic power and privileges.

Yet during the 1930s and especially after 1945, a so-called great transformation occurred across the West, enabling democracy and capitalism to be reconciled. One critical reason for this was the triumph of a social democratic understanding of the relationship between the two.

Social democracy is a variant of socialism distinguished by a conviction that democracy makes it both possible and desirable to take advantage of capitalism’s upsides while addressing its downsides by regulating markets and implementing social policies that insulate citizens from those markets’ most destabilizing and destructive consequences.

Since the world is currently in the midst of another backlash against capitalism and resurgence of socialism, it is worth reviewing what this earlier transformation entailed, how the social democratic principles on which it was built differed from those favored by other socialists, and what this all tells us about the problems we face today.

The spread of capitalism during the 19th century led to unprecedented economic growth and innovation but also dramatic inequality, social dislocation, and cultural upheaval. Not surprisingly, a backlash against these conditions quickly developed. During the last decades of the century, Karl Marx emerged as capitalism’s most powerful critic, establishing his ideas as the dominant ideology of a growing international socialist movement. Marxism’s power came from its ability to combine a scathing critique of capitalism’s nature and consequences with a conviction that they were leading inexorably to its collapse. It was, as Marx put it, “a question of … laws [and] … tendencies working with iron necessity toward inevitable results.”

Even after a long depression at the end of the 19th century, however, capitalism showed no signs of the inevitable collapse that Marx predicted. This raised the question: What was to be done? If capitalism was not going to disappear on its own, how should socialists bring a better world into existence?

Some argued that if capitalism was not going to disappear on its own, socialists should eliminate it by force. The Russian revolutionary and eventual Soviet leader Vladimir Lenin was the most important advocate of this view, and his heirs became known as communists. In Lenin’s day, however, most socialists rejected his answer and remained committed to a peaceful, democratic path to socialism.

The democratic camp was split as well. Democratic socialists believed that while Marx might have been wrong about the imminence of capitalism’s collapse, he was right that its inherently inegalitarian nature and devastating consequences for workers and the poor meant it could not and should not persist indefinitely. Reforms of capitalism, in this view, had limited value since they could not fundamentally alter the system. The Polish German activist Rosa Luxemburg was equally opposed to social democracy and Leninist communism, for example, but believed that attempts to “reduce capitalist exploitation” were doomed to fail, while Jules Guesde, a leading French socialist, insisted, “In multiplying reforms, one only multiplies shams”—since as long as capitalism existed, workers would always be exploited.

Another democratic faction, the progenitors of social democracy, rejected the view that capitalism was bound to collapse in the foreseeable future and argued instead that socialism’s goal, rather than trying to transcend capitalism, should be to harness its immense productive capacity while ensuring that it worked toward progressive rather than destructive ends. They were reformers, but they didn’t see reform as an end in itself; they had broader goals.

Eduard Bernstein, a German political theorist and politician who was this group’s most influential early advocate, famously argued, “What is usually termed the final goal of socialism is nothing to me. The movement is everything.” By this he meant that talking about some abstract future was of little value; instead, the goal should be implementing concrete reforms that could cumulatively create a better world.

The story of socialism during the last century is a story of the battle between these alternatives: communism, democratic socialism, and social democracy.

This battle reached a crescendo in the West during the interwar years. In Europe, socialists confronted a political landscape transformed by World War I and growing economic problems, culminating in the Great Depression. One consequence of this chaotic period was growing political extremism, which drew on the suffering of many citizens and their frustration with the inability or unwillingness of democratic governments to address their needs.

Roosevelt recognized that if the Depression were not forcefully addressed, threats to democracy would increase. He accordingly promised “a new deal for the American people.”

Recognizing the dangers—for democracy and the left—of ignoring this suffering and frustration, social democrats argued that the left’s most important goal must be using the state to reform and perhaps even transform capitalism. Democratic socialists did not believe this could or should be done, since they viewed capitalism as unable to be fundamentally reformed and doomed to collapse.

Communists, meanwhile, gleefully welcomed the Great Depression, since it weakened the democratic-capitalist system they were determined to overthrow. Indeed, in some cases, most tragically Germany, communists allied with fascists to try to hurry its demise. (In addition to working with the Nazis to disrupt the German parliament, the Communists also joined them in a vote of no confidence in September 1932, toppling the existing government and ushering in an election, that November, that ultimately brought Adolf Hitler to power and set Europe on the path toward fascism and war.)

In the United States, Franklin D. Roosevelt reached many of the same conclusions as European social democrats. Alongside Germany, the United States was hardest hit by the Great Depression, and although democracy was more deeply rooted there than in Europe, during the early 1930s the number of disaffected American citizens grew, support for populist and racist movements increased, and a surprising number of citizens and politicians, including Henry Ford, Charles Lindbergh, and the Rev. Charles Coughlin, openly praised Hitler.

Roosevelt recognized that if the Depression were not forcefully addressed, threats to democracy would increase. He accordingly promised “a new deal for the American people” that would address the economic suffering ravaging the country and menacing the social order. By showing citizens that government could protect them from the suffering, risks, and insecurity generated by capitalism, the New Deal was designed to restore faith in it and democracy. (As one New Dealer noted, “We socialists are trying to save capitalism, and the damned capitalists won’t let us.”)

By the mid-1930s, in short, social democracy had a clear political profile and program grounded in a belief that democratic governments could and should confront capitalism’s negative consequences. During the interwar years, social democrats were unable to implement their agenda—except in Scandinavia and, to a lesser degree, in the United States. With the collapse of democracy across Europe during the 1930s and then World War II, however, came an opportunity to shift toward a social democratic understanding of the relationship between capitalism and democracy.

When the dust settled after 1945, the devastating consequences of fascism became clear, and Europe began to rebuild. There was widespread agreement that for democracy to flourish, the social conflicts and divisions that had destabilized Western societies during the interwar years would have to be confronted head-on. In addition, the experience of the Great Depression—during which capitalism’s failures provided fertile ground for extremism—led to a broad acceptance that finding a way to ensure both economic prosperity and social stability was necessary if democracy was going to succeed.

Social democrats had traditionally insisted on the need to use democracy to address capitalism’s negative consequences; what changed after 1945 was that this view came to dominate the left and other political parties as well.

The 1947 program of the center-right German Christian Democrats, for example, argued, “The new structure of the German economy must start from the realization that the period of uncurtailed rule by private capitalism is over.” In France, meanwhile, the center-right Catholic Popular Republican Movement declared in its first manifesto in 1944 that it supported a “revolution” to create a state “liberated from the power of those who possess wealth.”

This social democratic order worked remarkably well: The 30 years after 1945 were the West’s fastest period of growth ever.

Key American figures also accepted this social democratic view. They understood that for democracy to succeed in Western Europe, preventing the economic crises, class conflict, and political extremism that had plagued interwar Europe was absolutely necessary. Reflecting this, in his opening speech to the 1944 Bretton Woods conference, U.S. Treasury Secretary Henry Morgenthau noted, “All of us have seen the great economic tragedy of our time. We saw the worldwide depression of the 1930s. … We saw bewilderment and bitterness become the breeders of fascism and finally of war.” To prevent a recurrence of this phenomenon, Morgenthau argued, national governments would have to be able to do more to protect people from capitalism’s “malign effects.”

After 1945, accordingly, Western European nations began constructing a new order designed to ensure economic growth while at the same time protecting citizens from capitalism’s negative consequences. So extensive were the reforms, and the shift in expectations accompanying them, that many wondered, as Andrew Shonfield—perhaps the most influential chronicler of postwar European capitalism—put it, whether the “order under which we now live and the social structure that goes with it are so different from what preceded them that it [has become] misleading … to use the word ‘capitalism’ to describe them.”

Of course, capitalism did remain, unlike what communists and democratic socialists had hoped, but it was a capitalism tempered by democratic governments, disappointing classical liberals as well.

This social democratic order worked remarkably well: The 30 years after 1945 were the West’s fastest period of growth ever. During this period, class conflict and support for extremism declined, and for the first time in Western European history, democracy became the norm.

Despite this remarkable success, the social democratic order began to falter during the late 20th century. Economic difficulties beginning in the 1970s provided an opening for attacks on the system, and after 1989, the collapse of its main competitor—Soviet communism—undermined it further. 

With the communist threat gone, the right in the United States and Western Europe was emboldened to attack the social democratic order that it had previously viewed as the lesser evil. More generally, in a tragic inversion of the postwar pattern where a recognition of the dangers of uncontrolled capitalism was widely accepted, communism’s collapse led to a triumphalist belief across the political spectrum in the inherent superiority and stability of capitalist democracy.

Given that communism had been discredited by its violence, authoritarianism, and inefficiency, the contemporary backlash against capitalism has returned to the themes and arguments of democratic socialism instead.

By the late 20th century, economists on both sides of the Atlantic broadly agreed that key macroeconomic problems, including depression prevention, had been solved due to their advanced understanding of the economy and a general conviction that modern capitalism, rather than being inherently troubled—as their postwar predecessors, inspired by the British economist John Maynard Keynes, had viewed it—needed fine-tuning at best. Politicians, even those ostensibly on the left like British Labour Prime Minister Tony Blair, argued that the “old battles between state and market” had become outdated and that rather than being wary overlords of capitalism, as their social democratic predecessors had understood themselves, politicians were now essentially technocrats, managing a system that more or less worked well. U.S. President Bill Clinton reached similar conclusions.

The results of this shift were predictable but unpredicted. The decline of the social democratic order brought a return of precisely the problems it had been designed to address: Economic inequality and insecurity increased, social divisions and conflicts grew, faith in democracy declined, and extremism spread. As these problems returned, so too did a backlash against the system viewed as responsible for them. Given that communism had been discredited by its violence, authoritarianism, and inefficiency, the contemporary backlash against capitalism has returned to the themes and arguments of democratic socialism instead.

Today, as in the past, democratic socialists argue that capitalism is inherently unjust, unstable, and unable to be reconciled with democracy. As the German sociologist Wolfgang Streeck, perhaps the most forceful of capitalism’s contemporary critics, put it, “disequilibrium and instability” are the “rule rather than the exception” in capitalist societies. There is a “basic underlying tension” between capitalism and democracy—and it is “utopian” to assume they can be reconciled.

Given capitalism’s inherently destabilizing effects, democratic socialists deny the feasibility of fundamentally reforming it, calling instead for its abolition. As in the past, democratic socialists’ goal, as prominent advocates like Bhaskar Sunkara proclaim, is socialism, not social democracy or a new New Deal, since in their view it is only once capitalism is transcended that healthy societies and democracies are possible.

In response to such attacks on capitalism, few on the right have gone as far as their prewar predecessors in openly calling for an end to democracy, but some have edged in that direction, questioning democracy in books such as David Van Reybrouck’s Against Elections, Jason Brennan’s Against Democracy, and David Harsanyi’s The People Have Spoken (And They are Wrong). Others have supported populists who disdain and degrade democracy, such as U.S. President Donald Trump. As the Financial Times’s Edward Luce put it, some of today’s elites “see Trump as a shelter from the populist hurricanes battering at their estates.” (When asked how he could justify supporting a politician with clearly illiberal and anti-democratic tendencies, former Goldman Sachs CEO and current senior chairman Lloyd Blankfein replied, “At least Trump has been good for the economy.”)

Anyone interested in defending capitalism and democracy today should understand what it took in the past to make them sustainable and compatible. The postwar social democratic order was predicated on a commitment to maintaining capitalism’s upsides while at the same time ensuring that citizens were protected from its negative consequences. Turning this conviction into reality required a difficult compromise. Workers and the disadvantaged gave up calls for the abolition of capitalism in return for a more equitable distribution of its rewards, protection from the risk and insecurity it generated, and policies that ensured they had the opportunity to rise up the economic ladder.

The elite, on the other hand, gave up some of their wealth and privileges in return for an end to demands to abolish the system that enabled them to rise to the top in the first place. (To invert a quip from the left, what capitalism’s defenders recognized after 1945 was that “the best way to end attacks on wealth was to attack poverty.”) And on the basis of this compromise, all citizens benefited from declining social conflict and extremism and a strengthened democracy that enabled them to solve their societies’ collective problems over time.

Today, as in the past, democratic socialists see only capitalism’s flaws and are once again calling for its abolition, while many on the right see only capitalism’s benefits and are once again supporting policies that have led these benefits to be distributed narrowly and unjustly and have undermined social and political stability.

It took the tragedies of the interwar years and World War II to get an earlier generation of European and American politicians and citizens to appreciate the dangers of capitalism, the fragility of democracy, and the need to compromise to ensure the compatibility and sustainability of both. This social democratic compromise undergirded the West’s greatest period of success. Some of the policies associated with this order ran out of steam during the late 20th century, but its basic goal—promoting capitalism’s upsides while protecting citizens from its downsides—remains as crucial as ever.

The world is nowhere near the situation it faced in the 1930s and 1940s, but the warning signs are clear. One can only hope it will not take another tragedy to make people across the political spectrum recognize the advantages of a social democratic solution to our contemporary crisis.

This article appears in the Winter 2020 print edition.

Sheri Berman is a professor of political science at Barnard College, Columbia University and the author of Democracy and Dictatorship in Europe: From the Ancién Regime to the Present Day.

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