Social democracy

Social democracy holds that democracy should extend from politics into economic and social life, and that this can be achieved gradually and legally rather than by revolution. In practice it has come to mean a predominantly capitalist economy combined with a robust welfare state, regulation of markets, progressive taxation, strong trade unions and a more equal distribution of income and life chances. Its central claim is the 'primacy of politics': that democratic states can and should shape markets to serve social ends.

From revolution to reform

The term was used by Friedrich Engels in 1844, and the Social Democratic Workers' Party of Germany, founded in 1869, adopted Marxism as its official doctrine. Around 1900 Eduard Bernstein argued that capitalism was not collapsing, that workers' conditions could be improved through legislation and that socialists should pursue gradual reform through parliament; Karl Kautsky and orthodox Marxists rejected this 'revisionism'. After the Russian Revolution the movement split between communists and reformist socialists strategically opposed to revolution, and over the twentieth century most social-democratic parties abandoned the goal of abolishing capitalism. Sheri Berman argues that social democracy's distinctive contribution was to reject both laissez-faire liberalism and Marxist determinism in favour of the primacy of politics.

The welfare state

Gøsta Esping-Andersen's The Three Worlds of Welfare Capitalism (1990) distinguished liberal, conservative-corporatist and social-democratic welfare regimes. A key criterion is decommodification — the extent to which people's welfare does not depend on the market, measured through pensions, unemployment and sickness benefits. The social-democratic regime, associated with Scandinavia, is characterised by universal and comparatively generous benefits and a strongly interventionist state that promotes equality through redistributive social security.

Institutions

• Universal health care, education, childcare and pensions
• Progressive income taxation and, often, high consumption taxes
• Centralised or coordinated collective bargaining between unions and employers ('social partnership')
• Active labour-market policies such as retraining and job placement
• Public or co-operative housing and regulation of rents
• In some countries, co-determination: worker representatives on company boards and works councils

The Third Way

In the 1990s parties such as Tony Blair's New Labour and Gerhard Schröder's SPD sought a 'Third Way' combining social-democratic values with economic liberalism — fiscal discipline, labour-market flexibility and a welfare state oriented to employability. Some analysts characterise the Third Way as neoliberal rather than social democratic.

• Sweden. The Social Democratic Workers' Party governed Sweden almost continuously from 1932 to 1976 and built the 'people's home' (folkhemmet), with universal welfare, solidaristic wage bargaining and active labour-market policy; its 1970s proposal for wage-earner funds to gradually socialise company ownership was enacted only in diluted form in the early 1980s and wound up after the centre-right victory of 1991.
• Norway and Denmark. Norway combined social democracy with public ownership of oil revenues through a sovereign wealth fund; Denmark's 'flexicurity' pairs easy hiring and firing with generous unemployment benefits and activation.
• Germany. The SPD's Bad Godesberg programme (1959) formally accepted the market economy; German co-determination laws give workers seats on supervisory boards.
• The United Kingdom. The post-war Labour government (1945–1951) created the National Health Service and nationalised major industries.
• Beyond Europe. Labour parties in Australia and New Zealand pioneered arbitration and minimum-wage systems; parties of the Socialist International have governed in Latin America and elsewhere with varying programmes.

• From the left. Socialists argue that social democracy manages capitalism rather than transforming it, leaving ownership and investment decisions in private hands and remaining dependent on growth and business confidence. The defeat of the Swedish wage-earner funds is often cited as evidence of these limits.
• From the right. Market liberals argue that high taxes and generous benefits reduce incentives to work and invest, that centralised bargaining causes rigidity, and that welfare states become fiscally unsustainable as populations age.
• Conditions of success. Critics question whether the Nordic model depends on conditions hard to reproduce — small, relatively homogeneous populations, high trust, strong unions and favourable trade positions.
• Electoral decline. With deindustrialisation and the Third Way, many social-democratic parties lost working-class voters to radical-right and left parties and educated voters to greens and liberals.
• Bureaucracy. Universal services can be centralised and paternalistic, with limited user voice.

The social-democratic countries of Northern Europe have, for decades, combined high incomes with low inequality, high social mobility, high trust and high scores on measures of well-being, while remaining open market economies. Their experience is the strongest evidence that large welfare states are compatible with prosperity, though scholars debate how much is due to social-democratic policy and how much to prior conditions.

Electorally, social democracy has declined. Benedetto, Hix and Mastrorocco's study of national elections in 31 countries from 1918 to 2017 finds that its support is driven mainly by public-sector spending and the size of the manufacturing sector, and that most of its recent decline correlates with the shrinking number of industrial workers and the reduced propensity of its core supporters to vote for it. Debates about automation and AI have reopened social democracy's agenda: universal basic services, basic income, sovereign wealth funds and worker representation in the governance of technology are presented as ways to share the gains of a post-industrial economy.

• Sheri Berman, The Primacy of Politics: Social Democracy and the Making of Europe's Twentieth Century (2006) — DOI
• Gøsta Esping-Andersen, The Three Worlds of Welfare Capitalism (1990)
• Clare Bambra, 'Going beyond The three worlds of welfare capitalism', Journal of Epidemiology and Community Health (2007)
• Giacomo Benedetto, Simon Hix and Nicola Mastrorocco, 'The Rise and Fall of Social Democracy, 1918–2017', American Political Science Review (2020) — DOI
• Herbert Kitschelt, The Transformation of European Social Democracy (1994)
• 'Social democracy', Wikipedia