Social Democracy Vs Capitalism Essay

John Judis has all the right intentions. He’s looking at the resurgence of openly democratic socialist currents in the United States with a mix of excitement and trepidation. Excitement, because he knows how desperately the country’s workers need social reforms. Trepidation, because he worries that the new left might fall into the familiar traps of insularity and sectarianism.

But while Judis wants us to change society for the better, his response to the failures of twentieth-century state socialism would lead us into the dead end of twentieth-century social democracy.

In his New Republic essay “The Socialism America Needs Now,” Judis makes a passionate plea for the rebuilding of a social-democratic movement — or what he calls “liberal socialism.” He contends that the welfare state and democratic regulation of a capitalist economy should be the end goal for socialists, as past efforts at top-down nationalization and planning yielded the repressive societies and stagnant economies of the Soviet bloc. In contrast, Judis argues, the Scandinavian states are dynamic capitalist economies that are still far more equitable and humane than the United States.

For him, socialism — democratic control over workplaces and the economy — consists of “old nostrums” whose days have past.

Of course, we urgently need the reforms that Judis and the movement around Bernie Sanders advocate for. No democratic socialist could oppose efforts to guarantee public provision of basic needs and take key aspects of economic and social life like education, health care, and housing out of the market. It would, as Judis writes, “bring immeasurable benefit to ordinary Americans.”

But we have moral reasons to demand something more. After all, we can’t have real political democracy without economic democracy. Corporations are “private governments” that exercise tyrannical power over workers and society writ large. The corporate hierarchy decides how we produce, what we produce, and what we do with the profits that workers collectively make.

To embrace radical democracy is to believe that any decision that has a binding effect on its members — say, the power to hire or fire or control over one’s work hours — should be made by all those affected by it. What touches all, should be determined by all.

At minimum, we should demand an economy in which various forms of ownership (worker-owned firms, as well as state-owned natural monopolies and financial institutions) are coordinated by a regulated market — an economy that enables society to be governed democratically. In an undemocratic capitalist economy, managers hire and fire workers; in a democratic socialist economy, workers would hire those managers deemed necessary to build a content and productive firm.

They Won’t Let Us Keep Nice Things

This, however, isn’t a debate about the contours of the world we would like to see. While Judis rejects the desire of socialists (and the historic goal of social democracy itself) to create a radical democracy after capitalism, he does so largely on pragmatic grounds. The old vision, for him, is “not remotely viable.”

Yet history shows us that achieving a stable welfare state while leaving capital’s power over the economy largely intact is itself far from viable. Even if we wanted to stop at socialism within capitalism, it’s not clear that we could.

Since the early 1970s, the height of Western social democracy, corporate elites have abandoned the postwar “class compromise” and sought to radically restrict the scope of economic regulation. What capitalists grudgingly accepted during an exceptional period of postwar growth and rising profits, they would no longer.

The past forty years have witnessed an ideological and political war against once-powerful labor movements and the welfare states they helped build. This bipartisan class war advocated for the four “d”s of neoliberalism: deregulating the economy, decreasing progressive taxation; decreasing the scope of public goods; and decreasing the power of organized labor.

Corporations also moved their investment in production to newly industrializing nations or lower-wage regions and automated much of the higher-skilled manufacturing that remained. The focus of corporate profitability shifted to the FIRE economy (finance, insurance, and real estate), an economy based heavily on speculation and a low-wage service economy that mostly serves the richest earners.

So did it have to end this way? Could the old welfare state not only have survived but been expanded? Yes, but that would have required pushing back against capital’s power to withhold investment. Simply put, that would have required a more radical socialism.

Many of the last generation’s social democrats knew that capital would disinvest from societies that enjoyed strong social rights. Back in the 1970s and ‘80s there were important attempts to gain greater control over capital to prevent just that.

Left social democrats in the Swedish labor federation advanced the Meidner Plan, which would have taxed corporate profits over a twenty-five-year period to achieve social ownership of major Swedish corporations. The Socialist-led and Communist-supported government in France under François Mitterrand from 1981 to 1983 nationalized 25 percent of French industry overnight and radically expanded labor rights (mandating collective bargaining in firms of fifty workers or more).

Of course, these attempts and others were defeated. France faced a real capital strike, whereas the Swedish Social Democrats pulled back from adopting the Meidner Plan out of fears of such a strike. The lag in corporate investment created a recession in France that led to a major conservative victory in the 1985 parliamentary elections. Mitterrand had to denationalize firms and adopt budgetary austerity.

Judis mentions in passing social democracy’s rightward lurch over the past thirty years. But he fails to mention the extent of its neoliberalization or the historical lesson we must draw: when capital goes on the offensive, either labor must do the same or it will be forced to retreat.

In short, Judis writes out of history the conscious corporate offensive against constraints on its power.  To sustain even the modest reforms he sees as the horizon of socialism, we need to legitimate a greater role for democratic and state regulation of capital.

Private capital simply refuses to invest in those goods needed to overcome radical inequality: affordable housing, mass transit, alternative energy, and job retraining. Capital is often reluctant to risk heavy investment in natural monopolies that almost inevitably come under state regulation or ownership (no company would invest in a competing alternative energy grid). Judis does not speak of the climate crisis, yet there is no road to solving it short of massive public investment and control over utilities.

Of course, the United States is the place where “social democracy in one country” would be the most economically viable. Our domestic market is as large as the European Union’s, and we control our own global currency. We are a wealthy society that could easily afford universal health, elder, and child care, as well as high quality education for all. But on the road to achieving those nice things, corporations would resist and deploy their most powerful tactic: the capital strike.

Social democrats like Judis refuse to grapple with this, causing them at key moments to sound the retreat and accommodate capitalist forces, eroding the very reforms they hope to preserve.

To chart a different course, we would need a militant labor movement and a mass socialist presence strengthened by accumulated victories, looking to not merely tame but overcome capitalism. A socialism that refuses to deal with the “old nostrums about ownership and control of the means of production” will not only fall short of our democratic expectations of what a just society would look like — it will doom us to failure.

Social democracy as a political movement is intimately connected to the rise of modern industrial capitalism and the emergence of the industrial proletariat. This new social class of wage earners stood free from earlier forms of feudal allegiances and responsibilities, and social democracy can be seen as a response to the social needs and the political ambitions of this new industrial working class. In comparison to the earlier feudal and guild-based economic system, industrial capitalism implied that most workers faced a number of risks for which there were no organized remedies.

One of the first major organizational forms of social democracy was the First International, which was formed by British and French workers in London in 1864. One prominent reason behind the establishment of the First International was to hinder British employers in importing French labor to break strikes and thereby lower wages. Already here we see one of the major themes of social democratic ideology and politics, namely to protect the rights of trade unions by promoting solidarity among workers. The First International, in which Karl Marx and Friedrich Engels played important roles, organized several conferences, but it was formally dissolved in 1876 due to internal divisions between factions such as anarchists and revolutionary Marxists. It was followed by the Second International, which was created by European socialist parties in 1899 and dissolved in 1916 due to its failure to prevent national member parties, especially the Austrian and German social democratic parties, from taking a stand in the First World War (1914–1918). The outbreak of World War I was generally seen as a major defeat for the social democratic movement. By arguing that class solidarity was more important than nationalism, leading social democrats in Europe had tried to cool down nationalist fevers, and they made promises at various conferences to do whatever they could to stop the war. This came to an end in 1914 when the Austrian Social Democratic Party, then the strongest party in the Austrian Parliament, and a majority of the Social Democratic members of parliament (MPs) in the German parliament decided to support their governments’ war efforts.

The Revisionist Debate

The date and place of the birth of modern social democracy as a political ideology can be set to the years between 1896 and 1898 and took place within the German Social Democratic Party. The initiator was Eduard Bernstein, a leading member of the party and one of its foremost theorists. Bernstein had been collaborating with both Karl Marx and especially Friedrich Engels in London and was the editor of one of the German Social Democratic Party’s main publications. In a series of articles published in 1896 (later published as a book titled The Preconditions for Socialism), Bernstein came to question a number of the central canonical ideas of Marx and Engels and this created an intense debate (i.e., the revisionist debate) within the German Social Democratic Party. Bernstein denied the absolute (zero-sum) character of the conflict between the industrial proletariat and the capitalist class. He criticized Marx’s theory about the increasing concentration of capital and the prediction of a rapid collapse of capitalism. He also argued against the scientific nature of the Marxist theory and instead introduced a more idealistic notion of politics based on Immanuel Kant’s theories. As a result, Bernstein argued that the party should abandon its revolutionary “all-or-nothing” strategy and pursue a more pragmatic, piecemeal reformist type of politics to improve the situation for the working class. Most importantly, Bernstein was opposed to all forms of violent insurgency, and he argued that the party should work through parliamentary democracy, the rule of law, and union-led bargaining with the various employers’ federations.

Bernstein’s new ideas sparked an intense debate. He had spent a number of years in exile in London and had come to appreciate the liberal character of the British society. Consequently, he reconceptualized socialist theory as the logical extension of the principles of liberal democracy. His opponents were mostly orthodox Marxists such as Karl Kautsky, Rosa Luxemburg, and Clara Zetkin. It must be emphasized that the German Social Democratic Party at this time was seen as the strongest and theoretically most advanced socialist party. In an election held in 1890, it won a stunning victory and become the largest political party in Germany.

What is of special importance in this debate is the character of the arguments. Bernstein’s line of reasoning was not only grounded in ideological terms but also rested on a number of empirical observations that he backed up with a wealth of statistics and other data. The main thrust of his argument was that because there had been no sign of a breakdown of the capitalist economy, no tendency of the proletariat to become the majority of the population, no pauperization of the working class, and not many indications of an increasing revolutionary class consciousness within the labor movement, the Social Democrats should abandon their revolutionary strategy and instead opt for negotiations and compromises with the power holders in the capitalist society. Moreover, Bernstein argued that in its political practice, the German Social Democratic Party had already commenced on this strategy, not least in local politics and in the strategy used by the labour unions. According to Bernstein, what he asked for was merely that the official Marxist revolutionary party ideology should be adjusted to the party’s political practice. The way forward, according to Bernstein, was not to strive for the establishment of a socialist state through a political revolution, but to strengthen the working-class movements’ organizational resources in order to gradually improve workers’ living and working conditions.

The counter arguments produced primarily by Rosa Luxemburg and Karl Kautsky were very different from Bernstein’s empiricist reasoning. Instead of challenging Bernstein’s description of the political and social situation in Germany by presenting a different set of facts, they chose to rely almost entirely on Marx’s general theory. Luxemburg did recognize that especially the trade unions had to use a piecemeal strategy to get workers to join and economically support the unions and the party. However, the main motive for supporting the gradualist strategy that the unions advocated was, according to Luxemburg, not to improve workers’ living conditions. Instead, Luxemburg argued that the very nature of the capitalist society would prove that such a reformist strategy was doomed to fail and that the result would be that “the proletariat becomes convinced of the impossibility of accomplishing a fundamental social change through such activity and arrives at the understanding that the conquest of power is unavoidable” (Luxemburg 1972). The question Luxemburg could not deal with was, of course, what would happen if the piecemeal strategy pursued by the unions succeeded. The problem she and the other orthodox Marxists could not answer was why workers should continue to support the unions if these could not produce results that would improve workers’ conditions. This is the point at which we find the logic of modern social democracy. The piecemeal strategy implies that it has to produce results and that the leaders who produce such results have to defend them in front of their members. Otherwise workers have no incentive to support the labor unions, which traditionally have been the organizational backbone of social democratic parties. This has created a self-referential political logic in which the constant production of piecemeal results confirms the ongoing success of the reformist strategy.

Social Democracy Versus Orthodox Marxism

The departure from orthodox Marxism was based on four ideas that later became the defining principles for modern social democracy. The first is the support for parliamentary democracy, civil liberties, and the rule of law not only as (in Marxism) a means to reach the socialist goal, but also as political ideals in their own right. The second is the gradualist approach to political change that implies a focus on negotiations, coalitions, and social compromises. The third is the willingness to adjust the political means to new realities instead of relying on a “grand theory.” The fourth is the abandonment of seeing the socialist society as a fixed goal in favor of strengthening the labor movements’ organizational capacity. “The final goal is nothing, the movement is everything” is a statement often attributed to Bernstein. In some European countries (e.g., Austria, Denmark, Germany, Norway, and Sweden), the focus on such organizational measures in the years following World War II (1939–1945) eventually resulted in a huge set of social democratic organizations that covered most needs in life, including activities for young children, sport, leisure, culture, and funeral societies.

While formally staying within the Marxist orthodoxy, the German Social Democratic Party accepted Bernstein’s “revisionism” as a legitimate minority view and in practice came to act much according to Bernstein’s ideas. The outbreak of the 1917 revolution in Russia and the Bolsheviks’ seizure of power by nondemocratic means created an unbridgeable gulf in the socialist movement between social democracy and communism. From the late 1920s, the communist parties in Europe (on Stalin’s order) chose the class-against-class strategy and accused the social democratic parties in western Europe of collaborating with the class enemy and labelled them social fascists. This split in the socialist movement was one of the reasons for the successes of fascism in Italy and Nazism in Germany, because it made it impossible to form a broad democratic alliance by center-left forces. In addition, as Sheri Berman has argued (1998, 2006), the relative strength of Marxist orthodoxy in the German Social Democratic Party hindered it from developing a politically viable strategy against the economic depression in the 1930s. The situation was the opposite for the Scandinavian Social Democratic parties, and they were able to develop Keynesian types of strategies that became the source for electoral success during the 1930s and led them to become dominant political parties in their respective countries.

Contemporary Social Democracy

On a global scale, social democracy of today is a major international political force. The Socialist International has about 150 member (or associated) parties in 110 countries, of which many are electorally successful and quite a few control the government. Currently social democrats rule in, for example, Australia, Brazil, Greece, Norway, Spain, and the United Kingdom. Longer periods of social democratic government power have taken place in Sweden between 1932 and 1976, in West Germany from 1969 to 1982, in Norway between 1945 and 1965, in Australia from 1983 to 1996, and in the United Kingdom from 1997 to the present. In addition, several social democratic parties have produced a number of political leaders with an international standing; for instance, Tony Blair, Willy Brandt, Gro Harlem Brundtland, Francois Mitterand, and Olof Palme. The ideology of such a broad movement is by nature diffuse. At a very general level, contemporary social democratic ideology can be understood as a combination of “negative” and “positive” rights. On the one hand, social democracy is liberal in the sense that the respect for individual freedom, parliamentary democracy, and the rule of law is central. On the other hand, social democracy strongly favors governments’ obligation to provide citizens with a number of “positive rights” in the form of social services and social insurance systems that either have a very broad coverage or are mandatory. In this focus on social rights, social democracy differs not only from free-market liberal ideology, but also from various forms of conservatism in this emphasis on equality. Individuals should be entitled to resources that make it possible for them to, if they so wish, break away from traditionally established forms of life, regardless if they are based on social class, gender roles, religion, ethnicity, or culture.

The main thrust of social democracy today is that market-based economic prosperity and international economic competitiveness are fully compatible with an encompassing, publicly provided system of social insurances and social services, the latter often including huge investments in education and health care. Social democracy has therefore during the last decades been in conflict with the neoliberal economic agenda that argues that public spending hampers economic growth and individual responsibility. In addition, many social democratic parties, especially those in the Nordic countries, have been pushing for increased gender equality through policies such as subsidized day care, equal pay, and generous publicly funded support for parental leave. Lately, issues concerning environmental protection and minority or immigrant rights have been added to the social democratic agenda.

Concerning the market economy (or capitalism), European social democracy came to abandon its ant capitalist rhetoric during the 1940s and 1950s. Keynesianism had provided social democracy with policy measures to intervene in the capitalist economic system so as to avoid the type of dramatic crisis that hit the world economy in the early 1930s. However, following the idea of positive rights, social democratic ideology does not embrace an unregulated market economy. On the contrary, the view of markets is pragmatic, which often has resulted in an extensive set of policies for regulating markets and for ameliorating class-based economic and social inequalities. In political economy research, such systems have been labelled social market economies, and they have been contrasted to liberal market economies. The impact of social democratic parties during the post–World War II period has been particularly strong in Austria, the Nordic countries, and the United Kingdom and to some extent also in Australia, Germany (i.e., the former West Germany), the Netherlands, and New Zealand.

The Socialist International and many national social democratic parties have been important in promoting democratization; for example, in southern Europe (Greece, Portugal, and Spain) in the 1970s, as well as in many third world countries. The Party of European Socialists is today the second strongest party group in the European Parliament, with 217 MPs (out of a total of 785). From a global perspective, it seems as if the center of social democracy during the past fifteen years has shifted from northern Europe to Latin America, where a number of countries (Bolivia, Brazil, Chile, and Costa Rica) are led by social democratic governments.


Social democracy is closely connected to the establishment of encompassing systems of social insurance and social services also known as the welfare state. The general idea is that such systems should not be limited to the poor, but that they should be either universal or cover broad segments of the population, including the middle class. The idea is an outcome of the principle of social solidarity and based on an ideology that governments should provide citizens with a number of “basic resources.” Such policies have become widely popular and often are supported by other political parties as well. In many ways, modern social democracy can be understood as an ideology that is tuned to the notion of finding a middle way between neoliberal capitalism and heavy-handed statism. While its neoliberal opponents often have warned that such a system may require taxes at such high levels that the economy would suffer, this has generally not been-born out by the facts. Empirical research about the relation between high levels of taxation and public spending on social services and social insurance systems, on the one hand, and international economic competitiveness, on the other hand, tend to speak in favor of the social democratic project. There are various reasons for this counterintuitive outcome. One is probably the investment in human capital. Another reason is that, because of problems with asymmetric information, markets are usually less efficient than governments in terms of handling the demand for social insurances. Recent research tends to indicate that this holds not only for developed Organization for Economic Cooperation and Development countries but also for developing countries.

Unsolved Problems And The Future Of Social Democracy

The main unresolved problem for the social democratic project is that Bernstein’s idea that socialism could be reached by a gradualist parliamentary approach is nowhere to be seen. The Socialist International recognizes this in its current program and states that it has no blueprint or clear vision of what socialism (or economic democracy) may look like. Nationalization of major industries, which was high on the agenda in many European countries during the 1950s and 1960s, did not produce the results many had hoped for. Even though social democratic parties have been supporting increased union rights such as systems of codetermination within companies, few would say that this can be seen as economic democracy. Moreover, labor unions have not been supportive of systems wherein workers would be the owners of companies because this would minimize the need for unions. One of the most ambitious plans for economic democracy was launched by the Swedish Social Democrats during the 1980s. The system, known as wage-earner funds, forced companies to pay a certain amount of their profits into union-controlled funds that would then be invested in companies and thus, through such a system of ownership, wield economic power. After an unusually intense political debate that lasted for more than a decade, the system was, in a scaled down version, introduced by the Swedish Social Democrats in 1983, but it was abolished by a center-right government in 1992. This ideological defeat led the Swedish Social Democrats to abandon this version of economic democracy during their twelve years of rule from 1994 to 2006. Interestingly enough, one reason behind this ideological defeat was that the unions could not muster political support among its own members for this variant of economic democracy.

Another problem for the future is the development of main political cleavages. Social democracy has been closely connected to the traditional left-right class-based political division that follows the logic of industrial capitalism. It is not clear how the social democratic ideology will handle new types of cleavage structures based on, for example, problems related to immigration, globalization, environmental protection, and various forms of identity politics.


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