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Western Europe is More Egalitarian and the People there are Happier. WHY?
Phase II:  The Rise of Social Democracy (1918 - 1970s)

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9 April 2019

Phase I outlines the age of exploitation under feudalism/serfdom and the subsequent intellectual movements which inspired the revolutions that led to the formation of nation states run by democratically-elected governments whose duties and limits were delineated in a constitution. Economically, this period also marked the advent of Industrial Revolution which in turn led to the emergence of the working class and their struggle, inspired by orthodox Marxism, against the exploitation of the capitalists.

In Phase II, we look at how social democracy as we know it today evolved from orthodox Marxism and went on to help Western Europe not only recover economically from the extensive destruction afflicted by the two world wars but also transform into a welfare state within which a government became the guardian of the society and the protector of the citizenry while still embracing capitalism.

Social Democracy after WWI

In the immediate aftermath of the WWI, the demise of four of Europe’s great imperial dynasties — Germany, Austria-Hungary, Russia, and Ottoman Turkey – resulted in the creation of new nation-states including Austria, Hungary, Czechoslovakia, Poland, Yugoslavia, and Romania in Eastern Europe. They too adopted popularly elected parliaments, signifying a wider trend of the spread of parliamentary democracy across postwar Europe.

Economically, the immense amount of debts countries had assumed to finance the war was a major impediment to the reconstruction. Still, production level collectively rose steadily. By 1929, however, the recovery was interrupted by the Wall Street stock market crash. As bankruptcy rose, the US turned protectionist to save jobs. The rest of the world soon retaliated causing world trade to collapse. Governments responded with harsh public spending cuts which further depressed economic activities. What began as a financial market crisis in the US soon evolved into the Great Depression through trade and investment.


During this time, socialism was facing great stress not only because of skilful manoeuvring of the Right but also because of its inherent inadequacies as an ideology in tackling the issues of the day. The orthodox Marxists, for example, saw the Great Depression as the beginning of the end of capitalism as prophesized by Marx. Their passive responses to the economic catastrophe, as prescribed by Marx, provided room for the Right to capture more electoral ground.


As socialist parties stumbled and fell, a growing number of reformist social democrats began to lean more towards Bernstein’s model of evolutionary socialism, openly embracing cross-class cooperation and political activism fighting for programs that would use the power of the state to tame the capitalist system.


Among them, the Scandinavian countries responded most successfully to the challenges from the Right. Sweden, in particular, initiated the single most ambitious attempt to reshape capitalism from within. It was the only country where the social democratic party was able to implement a full and highly inclusive social agenda during the interwar years to become a true “people’s party” championing the welfare of the “little people” and in developing a comprehensive economic program designed to harness the powers of the market for the benefit of common good.


By the mid-1930s, the result was the severance of socialism from Marxism and the emergence of the social democracy that embraced capitalism rather than seeking to replace it. By then, however, the social democrats faced the overwhelming onslaught from not only the well-entrenched conservatives, who had been very effective in building cross-class coalitions and in implementing an activist depression-fighting strategy, but also the increasingly popular fascists and the Nazis. Their calls for national revitalization won the hearts of Europeans looking for order and direction amid very tumultuous socioeconomic and political environments.


Meanwhile, the increasing complexity of the environment was aggravated by the rise of Bolshevism. Communist International (Comintern), created by Lenin to link communist parties around the world, gravely underestimated the threat of Fascism and Nazism. Instead, its hardliners held that social democracy would make capitalism more palatable and would divert the working class from its revolutionary mission. They therefore denounced social democrats as ‘social fascists’. The split of the Left between the communists and the social democrats provided room for the growth of Fascism and Nazism across Europe in the years leading up to the World War II (1939 – 1945).

Europe’s Post-WWII “Embedded Liberalism” & Social Contract


World War II is the deadliest and costliest in human history. To reconstruct their economy in its aftermath, the European countries adopted economic policies featuring varying degrees of state planning. As Marshall Plan aid poured in by 1948, the battered economies of Western Europe soon began to turn the corner. By the early 1950s, economic growth was really beginning to take off in Europe.


Politically, amid the recovery of parliamentary democracy, there was initially a widespread swing to the left. The communists benefited both politically and morally from their prominent role in wartime resistance movements. The years 1945–6 saw communists in coalition in France, Italy, and Belgium while socialist governments held the reign in Britain and Scandinavia. 


At this point, there was a common pervasive conviction that the political chaos and social dislocation of the 1930s were caused by the Great Depression, which in turn was the consequence of unchecked capitalism. After 1945, therefore, Western European nations started to construct a new order that could ensure economic growth while protecting societies from capitalism’s destructive consequences. In that new order, states would become the guardian of society rather than the economy, and economic imperatives could be forced to take a back seat to social ones.


To achieve that, almost all social democratic parties turned themselves into champions of Keynesianism and welfarism. The former sought to use fiscal policy to maintain demand needed to support full employment. The latter aimed to guarantee a minimum living standard for even the weakest citizens.


By the 1950s, a new post-WWII social contract underpinned by Keynesianism and welfare state had taken shape between the states and the masses. This form of political-economic organization was known as ‘embedded liberalism’ to signal how market processes were surrounded by a web of social and political constraints and by a protective regulatory environment.

In contrast to the fragilities of the post-WWI settlement after 1918, the post-WWII societal consensus, built on the broad and deep pan-European antifascist popular consensus of 1943–49, proved extremely robust. It not only led to the masses’ popular identification with the state and loyalty to the postwar democratic order. More importantly, it also provided the state with invaluable reserves of moral-political capital that helped to drive the postwar reconstructions based on the ideals of corporatism which emphasized working for the higher level good of the community over  the interests of individuals.


Deindustrialization, the New Middle Class & the New Left


The decade of 1950s was the golden age of post-WWII Western Europe. By the 1960s, however, the European economic miracle could not be sustained. As the thriving European and Japanese economies caught up with the US and international competition heightened, growth plateaued. Even though the decline of “old” labour-intensive industries was accompanied by a corresponding emergence of “new” high-tech industries, net employment in industrial manufacturing contracted.


The deindustrialization was accompanied by a shift to low-skilled white-collar labour in a rapidly expanding tertiary or services sector, as well as other changes such as preferences for women over men and for part-time working. Against the background of the changing social structure, a new breed of managers and experts emerged to replace traditional property owners as the new middle class.


Hence, as a result of structural changes to the European economy, a new social order characterized by diversity, differentiation and fragmentation, rather than the homogeneity and standardization of the Fordist era, was emerging by the 1960s.


Moreover, against the background of disaffected youth afflicted by rising anti-establishment countercultures of the 1960s, a “New Left” encompassing a whole range of ideas that fell outside the dominant socialist traditions was on the rise. By the 1970s, the New Left had generated new social movements on issues such as environmental protection (Green Movement), women’s rights, civil rights, and the US’ imperialistic intervention in the Vietnam War.


To rebuild the socialist tradition, it was clear that a new vision was needed so that the political Left could be reshaped and reassembled to incorporate the new social order and the New Left.



End of Postwar Boom, & Disintegration of the Post-WWII Social Contract


By the 1970s and early 1980s, Western Europe’s postwar golden age ended when she suffered the worst economic decline since the Great Depression. The decline was triggered by two oil shocks attributable to the Arab-Israel war in 1973 and the fundamentalist Islamic revolution in Iran in 1979. As oil prices spiked, energy-intensive industries that had driven growth in the 1950s and 1960s began to falter. Individual countries entered periods of extreme domestic crisis and unemployment rate spiked. Slowly but surely, the post-WWII social contract that promised full employment and rising prosperity began to disintegrate


Social democracy was stigmatized for its politics of “tax and spend.” The welfare state, constantly attacked for being too costly, inefficient, bureaucratic, and corrosive of individual morale, was at risk of being cut back and even dismantled. Unions also lost their special relationship with the government. Planning, public investment, and deficit financing were soon opposed by monetarism, privatization, and neoliberal ideologies. Social democratic parties inexorably fell into disarray.


Developments across Europe weren’t uniform though. In Scandinavia, for example, union density remained high, even increasing. In France, Portugal, and Spain, it sank catastrophically low. Politically, socialist parties in many states survived. But even in office, socialists found it increasingly difficult to avoid policies pioneered by their conservative opponents.


To reduce class tensions and to meet rising expectations that came with the higher living standards, the European governments raised taxes to finance a series of populist social security reforms aimed to enhance the welfare state, despite the economic hard times. By the 1970s, Europeans enjoyed living standards comparable to those in the US but the states suffered from rising budget deficits, national debts, and inflation.  


Amid rising social, economic and political turmoil, Europe was once again challenged by an alternative ideology from the Right, this time a new variant of the same economic liberalism responsible for the unchecked capitalism that brought the Great Depression in the 1930s.

PREVIOUS: 01  Phase I:  The Evolution from Feudalism & Serfdom to Liberal Constitutionalism (5th - 19th Century)

NEXT: 03  Phase III: The Tussles between Social Democracy & Neoliberalism (1970s - Present)


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