Latest Social Democracy, the “Third Way,” and the Crisis of Europe, Part 2

By Alejandro Reuss, historian, economist and s co-editor of Triple Crisis blog and Dollars & Sense magazine. Originally published at Triple Crisis

This is the second part of a three-part series on the historical trajectory of European social democracy towards the so-called “Third Way”—a turn away from class-struggle politics and a compromise with neoliberal capitalism—and its role in the shaping of the Economic and Monetary Union of the EU. (See Part 1.) It is a continuation of his earlier series “The Eurozone Crisis: Monetary Union and Fiscal Disunion” (Part 1 and Part 2). His related article “An Historical Perspective on Brexit: Capitalist Internationalism, Reactionary Nationalism, and Socialist Internationalism” is available here.

What Went Wrong?

The rise of Third Way-style leaders to dominance in the social democratic parties of the largest European countries does not mean the parties were transformed root-and-branch to these politics, nor even that all the important politicians in these parties went over to Third Way politics. There were important intra-party struggles in all these parties. In the British Labour Party, for example, there is famously a divide between traditionally social democratic “Old Labour” and Blairite “New Labour.” In the German Social Democratic Party, a similar divide ultimately led to the left split off and the founding of Die (“The Left”). In none of these parties were old-style social democratic politics extinguished.

That said, it’s neither a correct nor a satisfying explanation to say that the parties were simply steered toward the right by misleaders. Rather, we have to trace the ebb of class-struggle politics in the social democratic parties of Europe—from radical origins, to the robust reformism of the social democratic heyday, to the quasi-neoliberalism of the present—to a combination of causes, some intrinsic to social democratic politics and some rooted more particularly in European and world events of the late 20th century.

The intrinsic causes include the fact that the social democratic parties are reconciled to the continued capitalist organization of economic life—in which the main means of production (factories, machinery, land, etc.) are privately owned, most people do not own means of production and so make a living by working for pay (for those who do), and goods are produced for sale in markets with the aim of private profit. The social democratic project, as it evolved in the 20th century, foreswore the expropriation of the capitalists and the abolition of the wage system in favor of the redistribution of incomes within the framework of capitalism.

Continued capitalist control of investment—and with it, the determination of output and employment—has constrained the social democratic parties and governments to programs consistent with capitalist accumulation. Policies undermining “business confidence” could result in a “capital strike” (refusal of capitalists to invest) dragging down economic growth and employment, reducing the income available to redistribute, and undermining the government’s popular support. As the great Marxist economist Michal Kalecki put it in his famous essay “Political Aspects of Full Employment” (1943): “Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment …. This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis.”

Social democratic success in winning elections and gaining office has depended not only on building fervent support among workers, but also tempering the opposition of capitalists. (Lest the capitalists resort to extreme measures—not only “capital strikes,” but even support for reactionary paramilitary movements or military coups—to prevent such a party from achieving government office or to overthrow it once in office.) Social democratic leaders have proved their “respectability” to capitalists by toning down their rhetoric, marginalizing more radical currents in their parties, recruiting mainstream academics, policymakers, and business figures into prominent positions, and governing “responsibly” at local and regional levels prior to achieving national office.

A striking recent example, not from Europe but exhibiting similar dynamics, is that of the Brazilian Workers’ Party (Partido dos Trabalhadores, or PT). The party was born, along with newly strong and combative union movement, in the industrial heartland of Brazil during the country’s period of military dictatorship (1964-1984). It played an important role in the transition to civilian rule and electoral government, but its leader Luiz Inácio Lula da Silva (usually referred to simply as “Lula”) lost presidential elections in 1989, 1994, and 1998. Lula’s image transformation by the 2002 election campaign was unmistakable.

“It’s not just that Lula has swapped his jeans for dark suits,” financial journalist Jonathan Weekly wrote at the time. “He has also traded his anticapitalist rhetoric for a pragmatic approach that accepts the need to meet fiscal targets negotiated with the International Monetary Fund. His running mate … is president of one of Brazil’s biggest textile manufacturers, Coteminas. And Lula is backed by senior figures in the powerful São Paulo Federation of Industry.” Wheatley quoted a Brazilian executive and Lula supporter as saying that the PT leader had become “less of a revolutionary man and more of a statesman. I would never have supported him in the past.” The only thing distinctive about this transformation was that it happened so quickly—in a span of little more than two decades. The same thing had happened in the social democratic parties of Europe over a longer period, often with the eclipse of one generation of leaders by a subsequent, more accommodating generation.

The capitalist class—comprising those who exercise ownership or control over industrial or financial companies, the stockholders, bankers, executives, and so on—exercises a large gravitational pull on virtually all movements and organizations in capitalist societies. The leaders of working-class organizations—like labor unions and political parties rooted in the workers movement (whether going by the name “socialist,” “social democratic,” “labor,” or whatever)—are not immune to this pull. They may aspire not only to the material perquisites of office, but also inclusion in the highest echelons of power and recognition as equals in status with leading capitalists and corporate executives, high-level state officials, and so on.

The changing social composition of the leaders of social democratic parties, too, likely plays into this phenomenon. Over time, these organizations have become increasingly professionalized, drawing more and more of their leaders from the “middle classes,” with fewer rising from the ranks of ordinary workers. Sociologist W.L. Guttsman observed this strikingly for the British Labour Party over the course of a little more than half a century: In 1918, nearly 90% of Labour’s parliamentarians were of working-class origins (previously doing “skilled or semi-skilled manual work or white collar jobs”). By 1970, the figure was down to less than 30%. Guttsman sums up this trend as a steady “bourgeoisification of Labour’s political elite.” This means that fewer and fewer leaders of “working class” organizations have much direct experience of class struggle at the level of the firm or industry. Also, the social distance between these leaders and ordinary workers grows, while the distance between them and other elites shrinks. Those effects probably contribute to their seeing the achievement of political objectives more as a matter of elite-level deal-making than as a test of class power.

The reformist leaderships of working-class organizations not only rejected revolutionary politics, but also demonstrated a willingness—sometimes even eagerness—to purge the movement of revolutionary currents. (In an extreme case, reformist social democrats, coming to power in Germany in the wake of the First World War, called on right-wing paramilitary units (Freikorps) to suppress a revolutionary challenge from the left. The Freikorps famously assassinated the revolutionary socialist leaders Rosa Luxemburg and Karl Liebknecht in 1919.) In the short run, this surely strengthened the control “moderate” leaders enjoyed over the parties, unions, and other working-class organizations. It also contributed to their “respectability” in elite circles, as they proved themselves bulwarks against revolution, and so to their prospects for winning elections and achieving government office. In the long run, however, it contributed to the weakening of the working class movement—and even the viability of a robust reformist project—in at least two major ways:

First, one of the factors explaining the tolerance of capitalists and state officials of reformist parties, unions, etc., is that they believe they can stave off more threatening change by making a deal with those organizations. Economic historian Gerald Friedman makes this point in regard to unions, though it also applies to other kinds of workers’ organizations: “It should go without saying that employers do not like labor unions; virtually none would promote unionization and few would even accept unionization among their workers without protest. They come to tolerate union organization only as the lesser evil when the alternative, continued, uncontrolled and unregulated labor strife, is worse. … Like employers, politicians support unions only where the alternatives are worse, when they fear continued labor unrest and hesitate to use, or to allow employers to use, repressive force. Instead, like employers, state officials might turn to formal union organization to restrain popular unrest.” If revolutionary politics are too strong, and the leaders of reformist organizations really cannot deliver on their end of the bargain, then capitalists and the state may turn ferociously against the working-class movement in general. On the other hand, if revolutionary politics are too weak, the capitalists and the state may see less reason to compromise with the working-class movement—in that case, the “pragmatic” leaders of the movement may not see another option than more and more concessionary politics.

Second, one of the factors explaining workers’ devotion to the movement was that it embodied a grand cause. The anthem of the socialist movement, “The Internationale” (which was translated into many languages and adopted by working-class parties in many countries), for example, spoke in apocalyptic terms of a “final conflict” in which society would be transformed “to its foundations” and the poor and oppressed who had been “nothing” would be “all.” That is, it spoke not just a fight for higher wages or better conditions, not just for regulation of industry or even the construction of the welfare state, but a struggle for emancipation. There was not always a bright line between reformist and revolutionary politics, and the dream of creating a new society (and not just winning reforms) had strong, positive animating effects on socialist/social democratic politics. This continued long after the social democratic parties of Europe had, in practical terms, converted to reformist politics, though the professed goal of a new, socialist society became more and more ceremonial over time.

As for the more particular factors, one was the crisis of capitalism in the 1970s. This varied in form and intensity in different countries, but we can illustrate the importance of this factor in the U.K. There, the capitalist class responded with a very effective mobilization and there was a dramatic turn towards neoliberalism (very closely parallel to the course of events in the United States during the same period). Just as the crisis was cast, to great effect, in the United States as a failure of “liberalism” or “big government,” so it was cast as a failure of “socialism” in Europe. In 1976, Margaret Thatcher famously put it this way: “I think [Labour has] made the biggest financial mess that any government’s ever made in this country for a very long time, and Socialist governments traditionally do make a financial mess. They always run out of other people’s money.”

The 1970s economic crisis gave rise to a period of electoral defeat for the social democratic parties in several big European countries. The Labour Party in the U.K. and the Social Democratic Party in Germany, for example, both spent a spell out of power—in the “wilderness”—and Third Way leaders sold the moderation of the parties (as if the politics of Harold Wilson or Helmut Schmidt had been all that “left wing” in the first place) as a way back to electoral success. (While the United States did not have a mass labor or social democratic party, the Democratic Party’s turn toward more “moderate” and “business friendly” politics after the electoral defeats of the 1970s and 1980s—exemplified by Bill Clinton and the Democratic Leadership Council—is a parallel development here.)

A last factor was the growing discredit of Soviet-style “actually existing socialism” as any kind of attractive alternative model to capitalism. While there was no excuse for holding up the Soviet Union as a positive example of socialism after the 1920s, many people around the world certainly did just that—both clinging to naïve illusions about life in the U.S.S.R. and engaging in shame-faced apologetics for its political and economic failings. Even before the collapse of the Communist Party regimes in Eastern Europe, the growing recognition of these failings contributed to the success of Thatcher’s famous maxim that “There Is No Alternative,” parroted by conservatives elsewhere in Western Europe. In this respect, the defeat of three possible sources of inspiration for a worldwide socialist renaissance—the May 1968 revolt in France, the Prague Spring of 1968, and the Popular Unity period in Chile (1970-1973)—together constitute one of the most important moments in twentieth century world history.

Print Friendly, PDF & Email


  1. Sally Snyder

    Here are some interesting comments from a former Federal Reserve Bank president on how a truly free market could be established:


    Mr. Kocherlakota claims that this mechanism would add badly needed stability to the world’s financial markets however, the changes needed would be among the most drastic taken in recent history.

    1. cojo

      Kocherlakota’s points for this to work, and why it will never work…

      1.) rather than targeting a positive inflation rate like they are now, central banks aim to keep prices constant over time.
      What prices? Who decides?
      2.) governments would have to develop alternatives that allow consumers the same anonymity and privacy that cash currently offers.
      This will never happen or no one will trust this can happen considering the fine mess we are in now with the Snowden revelations.

    2. Alejandro

      Do you have an opinion related to this specific post? How do you define “truly free”?

      According to YOUR site, you are -“most concerned about the mounting level of government debt and the lack of political will to solve the problem”…can you elaborate? From your concerned pov, who or what is the “creditor” of this “debt”, as you understand it?

      A far more viable alternative to Kocherlakotas opinion for a “stable” way forward would seem to be to restrain usurious and sociopathic rent extraction, via sane fiscal policies, e.g., guaranteed job program, unpayable PRIVATE(individual, family, small business) debt write-downs, Medicare for all, etc… what moneta rists view as “government intervention” can be re-purposed as a collective “action axiom”, i.e., sane moneta ry AND fiscal policies…

  2. BecauseTradition

    “The intrinsic causes include the fact that the social democratic parties are reconciled to the continued capitalist organization of economic life—in which the main means of production (factories, machinery, land, etc.) are privately owned, most people do not own means of production and so make a living by working for pay (for those who do), and goods are produced for sale in markets with the aim of private profit.” Alejandro Reuss [bold added]

    Privately owned but due to extensive privileges for depository institutions financed with the PUBLIC’S credit? Whoever thought that giving the banks and the rich a license to steal would end without tears?

    And the brilliance of the scheme – government subsidized private credit creation – is that we ALL get to loot our neighbors, according to our own so-called creditworthiness with the poor at the bottom of the heap – looted by everyone else, their supposed betters.

    I plan to join the looting too eventually, having no other choice but to buy a home on credit, if I want to escape being rented into homelessness.

  3. BecauseTradition

    Free markets must include free banking – which we’ve never had in the US since it’s obvious, at least in retrospect, that the monetary sovereign (e.g. US Treasury) should provide inherently risk-free accounts and transactions in its fiat for all citizens rather than leave them at the mercy of private banks.

    Maybe the next country to be founded will get this crucial detail right.

  4. rwv

    “one of the factors explaining the tolerance of capitalists and state officials of reformist parties, unions, etc., is that they believe they can stave off more threatening change by making a deal with those organizations.”

    If this is true, it would imply some nasty things about social safety nets of the welfare states of old; there might just exist a trade off hinging on a simple calculation. That is, if welfare states have been put in place to stave off revolutions, when costs of an absolute police state become manageable below the level of costs of keeping social safety nets intact (which I believe they might be already), the latter will be dismantled while the former will be enforced.

  5. Roland

    A superb piece. Reuss nails it when he writes, “the social democratic parties are reconciled to the continued capitalist organization of economic life.”

    A few things I might add:

    1. We shouldn’t disregard the success of welfare statism as a factor in its decline. By the 1970’s, from the point of view of most people in the developed Western world, the threat of acute poverty had receded. Having been there at the time, I can say that for many of us, it really did seem that it was possible to have capitalism and consumerism, without widespread suffering. Many proletarians adopted a petty bourgeois point of view, because their personal consumption standard had risen to a level traditionally associated with the petty bourgeoisie. In retrospect, how vain it seems! But can we blame people for being naïvely happy with social peace? But for the bourgeoisie, nothing is ever enough.

    That’s the problem with trying to make social peace with a class of people who can find no other way to define themselves, except through perpetual accumulation.

    2. The social reformists tended to adopt a rhetoric of “social mobility” being the solution to social injustice. Instead of advocating a society in which it would be a good thing to be part of the working class, too many supposed social democrats pushed the notion that you could somehow deserve your way out of the working class. Too many social democrats therefore accepted the notion that being in the proletariat should be something that sucks. The lesson to be learned, from the experience of our generation, is that “social mobility” cannot be the proper response to the challenge of social injustice.

    3. When the proletariat fights and wins the class war against the bourgeoisie, it will not be an affair of red banners flying and choral singing. The proletariat is not a warrior class, and their warlike triumphs will not resound like those of other classes in history. The proletariat will become the politically dominant class, not because they are well-fitted to rule, but because no other class will be able to do all the thankless work of cleaning up the mess the bourgeoisie will have made of everything.

  6. swendr

    On the “bourgeoisification of Labour’s political elite,” it makes sense that working people, through nothing more than a desire to provide their children access to privileges they did not enjoy in their youth, inadvertently planted the seed that grew into the undoing of their share of power with the capitalists. I’ve found myself on occasion lamenting that the baby boomers, who had the table set for them by the previous generation, let the whole thing go to pot on their watch. Maybe I shouldn’t be so hard on them. It was their parents that pushed their sorry asses into Harvard and other institutions of capitalist indoctrination. As Lebowski said, “How ya gonna keep ’em down on the farm once they’ve seen Karl Hungus?”

  7. Hilary Barnes

    There were social democratic parties, see particularly Sweden in the early 1980s, that developed interesting schemes for building investment funds controlled by labour organisations. These funds, backed by legislation, would eventually have come own all the capitalist system’s capital. But finally the Swedish Social Democratic Party itself, not to mention all the others, backed away from this project, helped along by a rhyme rubbishing this system that the social democratic finance minister of the day was seen scribbling while attending a debate on the subject in the Riksdag. The feeling was that everyone, including the workers, would be better off with the capitalists owning the capital. Keeps things simple: the salaried class pressures the capitalist to treat them with respect. If the salaried class owned the whole shebang, the workers, now working for the workers, would have been screwed. Anyone who ever visited the Soviet Union noticed that in a collectivist system in which everyone one owns everything, no one has responsibility for anything. And anyone who tried to do something about the fact that the toilets at your place of work could be smelt at a distance of 100 yards, or the public spaces in the residential buildings appeared so dirty that they had never been washed since 1917, would be denounced for implying that there was something wrong with the Soviet system.

    Thank goodness for rational European social democracy!

Comments are closed.