In economics, a free market is an idealizedsystem in which the prices for goods and services are determined by the open market and by consumers. In a free market the laws and forces of supply and demand are free from any intervention by a government, by a price-setting monopoly, or by other authority. Proponents of the concept of free market contrast it with a regulated market, in which a government intervenes in supply and demand through various methods - such as tariffs - used to restrict trade and to protect the local economy. In an idealized free-market economy,
prices for goods and services are set freely by the forces of supply
and demand and are allowed to reach their point of equilibrium without
intervention by government policy.
Scholars contrast the concept of a free market with the concept of a coordinated market in fields of study such as political economy, new institutional economics, economic sociology, and political science.
All of these fields emphasize the importance in actually existing
market systems of rule-making institutions external to the simple forces
of supply and demand which create space for those forces to operate to
control productive output and distribution.
One famous statement of the scholarly approach to the concept of free markets within political science is Freer Markets, More Rules by Steven K. Vogel.
As the title suggests, the scholarly study of free markets is more
accurately understood as the act of increasing or decreasing how strict
rules are (more free or less free; liberalizing
or deliberalizing) rather than the idealized concept of free markets as
a state of the world. "Free markets" as a verb phrase, rather than
"free markets" as a noun phrase.
The laissez-faire principle expresses a preference for an absence of
non-market pressures on prices and wages, such as those from
discriminatory government taxes, subsidies, tariffs, regulations of purely private behavior, or government-granted or coercive monopolies. Friedrich Hayek argued in The Pure Theory of Capital that the goal is the preservation of the unique information contained in the price itself.
These proposals ranged from various forms of worker cooperatives operating in a free market economy, such as the mutualist
system proposed by Proudhon, to state-owned enterprises operating in
unregulated and open markets. These models of socialism are not to be
confused with other forms of market socialism (e.g. the Lange model) where publicly owned enterprises are coordinated by various degrees of economic planning, or where capital good prices are determined through marginal cost pricing.
Advocates of free-market socialism such as Jaroslav Vanek
argue that genuinely free markets are not possible under conditions of
private ownership of productive property. Instead, he contends that the
class differences and inequalities in income and power that result from
private ownership enable the interests of the dominant class to skew the
market to their favor, either in the form of monopoly and market power,
or by utilizing their wealth and resources to legislate government
policies that benefit their specific business interests.
Additionally, Vanek states that workers in a socialist economy based on
cooperative and self-managed enterprises have stronger incentives to
maximize productivity because they would receive a share of the profits
(based on the overall performance of their enterprise) in addition to
receiving their fixed wage or salary.
Socialists also assert that free market capitalism leads to an
excessively skewed distribution of income, which in turn leads to social
instability. As a result, corrective measures in the form of social welfare,
re-distributive taxation, and administrative costs are required, which
end up being paid into workers hands who spend and help the economy to
run. They claim corporate monopolies run rampant in free markets, with
endless agency over the consumer. Thus, free market socialism desires
government regulation of markets to prevent social instability, although
at the cost of taxpayer dollars.
Geoist economics
As explained above, for classical economists such as Adam Smith
the term "free market" does not necessarily refer to a market free from
government interference, but rather free from all forms of economic
privilege, monopolies, and artificial scarcities. This implies that economic rents,
i.e. profits generated from a lack of perfect competition, must be
reduced or eliminated as much as possible through free competition.
Economic theory suggests the returns to land and other natural resources are economic rents that cannot be reduced in such a way because of their perfect inelastic supply.
Some economic thinkers emphasize the need to share those rents as an
essential requirement for a well functioning market. It is suggested
this would both eliminate the need for regular taxes that have a
negative effect on trade (see deadweight loss)
as well as release land and resources that are speculated upon or
monopolised. Two features that improve the competition and free market
mechanisms. Winston Churchill supported this view by his statement "Land is the mother of all monopoly".
The American economist and social philosopher Henry George, the most famous proponent of this thesis, wanted to accomplish this through a high land value tax that replaces all other taxes. Followers of his ideas are often called Georgists or Geoists and Geolibertarians.
Léon Walras, one of the founders of the neoclassical economics who helped formulate the general equilibrium theory,
had a very similar view. He argued that free competition could only be
realized under conditions of state ownership of natural resources and
land. Additionally, income taxes could be eliminated because the state
would receive income to finance public services through owning such
resources and enterprises.
Non-laissez-faire capitalist systems
The
stronger incentives to maximize productivity that Vanek conceives as
possible in a socialist economy based on cooperative and self-managed
enterprises might be accomplished in a capitalistic free market if employee-owned companies were the norm, as envisioned by various thinkers including Louis O. Kelso and James S. Albus.
Concepts
Supply and demand
Demand for an item (such as goods or services) refers to the market
pressure from people trying to buy it. Buyers have a maximum price they
are willing to pay and sellers have a minimum price they are willing to
offer their product. The point at which the supply and demand curves
meet is the equilibrium price of the good and quantity demanded. Sellers
willing to offer their goods at a lower price than the equilibrium
price receive the difference as producer surplus. Buyers willing to pay for goods at a higher price than the equilibrium price receive the difference as consumer surplus.
The model is commonly applied to wages in the market for labor.
The typical roles of supplier and consumer are reversed. The suppliers
are individuals, who try to sell (supply) their labor for the highest
price. The consumers are businesses, which try to buy (demand) the type
of labor they need at the lowest price. As more people offer their labor
in that market, the equilibrium wage decreases and the equilibrium
level of employment increases as the supply curve shifts to the right.
The opposite happens if fewer people offer their wages in the market as
the supply curve shifts to the left.
In a free market, individuals and firms taking part in these
transactions have the liberty to enter, leave and participate in the
market as they so choose. Prices and quantities are allowed to adjust
according to economic conditions in order to reach equilibrium and
properly allocate resources. However, in many countries around the
world, governments seek to intervene in the free market in order to
achieve certain social or political agendas. Governments may attempt to create social equality or equality of outcome by intervening in the market through actions such as imposing a minimum wage (price floor) or erecting price controls
(price ceiling). Other lesser-known goals are also pursued, such as in
the United States, where the federal government subsidizes owners of
fertile land to not grow crops in order to prevent the supply curve from
further shifting to the right and decreasing the equilibrium price.
This is done under the justification of maintaining farmers' profits;
due to the relative inelasticity
of demand for crops, increased supply would lower the price but not
significantly increase quantity demanded, thus placing pressure on
farmers to exit the market.
Such interventions are often done in the name of maintaining basic
assumptions of free markets, such as the idea that the costs of
production must be included in the price of goods. Pollution and
depletion costs are sometimes NOT included in the cost of production (a
manufacturer that withdraws water at one location then discharges it
polluted downstream, avoiding the cost of treating the water), so
governments may opt to impose regulations in an attempt to try to
internalize all of the cost of production (and ultimately include them
in the price of the goods).
Advocates of the free market contend that government intervention
hampers economic growth by disrupting the natural allocation of
resources according to supply and demand, while critics of the free
market contend that government intervention is sometimes necessary to
protect a country's economy from better-developed and more influential
economies, while providing the stability necessary for wise long-term
investment.
Milton Friedman pointed to failures of central planning, price controls and state-owned corporations, particularly in the Soviet Union and Communist China, while Ha-Joon Chang cites the examples of post-war Japan and the growth of South Korea's steel industry.
Economic equilibrium
General equilibrium theory has demonstrated, with varying degrees of mathematical rigor over time, that under certain conditions of competition, the law of supply and demand predominates in this ideal free and competitive market, influencing prices toward an equilibrium that balances the demands for the products against the supplies.
At these equilibrium prices, the market distributes the products to the
purchasers according to each purchaser's preference (or utility) for
each product and within the relative limits of each buyer's purchasing power. This result is described as market efficiency, or more specifically a Pareto optimum.
This equilibrating behavior of free markets requires certain assumptions about their agents, collectively known as perfect competition,
which therefore cannot be results of the market that they create. Among
these assumptions are several which are impossible to fully achieve in a
real market, such as complete information, interchangeable goods and
services, and lack of market power. The question then is what
approximations of these conditions guarantee approximations of market
efficiency, and which failures in competition generate overall market
failures. Several Nobel Prizes in Economics have been awarded for analyses of market failures due to asymmetric information.
Low barriers to entry
A free market does not require the existence of competition, however
it does require a framework that allows new market entrants. Hence, in
the lack of coercive barriers, and in markets with low entry cost it is
generally understood that competition flourishes in a free-market
environment. It often suggests the presence of the profit motive, although neither a profit motive or profit itself are necessary for a free market. All modern free markets are understood to include entrepreneurs, both individuals and businesses. Typically, a modern free market economy would include other features, such as a stock exchange and a financial services sector, but they do not define it.
Spontaneous order
Friedrich Hayek popularized the view that market economies promote spontaneous order which results in a better "allocation of societal resources than any design could achieve."
According to this view, in market economies are characterized by the
formation of complex transactional networks which produce and distribute
goods and services throughout the economy. These networks are not
designed, but nevertheless emerge as a result of decentralized
individual economic decisions. The idea of spontaneous order is an
elaboration on the invisible hand proposed by Adam Smith in The Wealth of Nations. Smith wrote that the individual who:
By preferring the support of
domestic to that of foreign industry, he intends only his own security;
and by directing that industry in such a manner as its produce may be of
the greatest value, he intends only his own gain, and he is in this, as
in many other cases, led by an invisible hand to promote an end which
was no part of his intention. Nor is it always the worse for society
that it was no part of it. By pursuing his own interest [an individual]
frequently promotes that of the society more effectually than when he
really intends to promote it. I have never known much good done by those
who affected to trade for the [common] good.
Smith pointed out that one does not get one's dinner by appealing to
the brother-love of the butcher, the farmer or the baker. Rather one
appeals to their self-interest, and pays them for their labor.
It is not from the benevolence of
the butcher, the brewer or the baker, that we expect our dinner, but
from their regard to their own self-interest. We address ourselves, not
to their humanity but to their self-love, and never talk to them of our
own necessities but of their advantages.
Supporters of this view claim that spontaneous order is superior to
any order that does not allow individuals to make their own choices of
what to produce, what to buy, what to sell, and at what prices, due to
the number and complexity of the factors involved. They further believe
that any attempt to implement central planning will result in more
disorder, or a less efficient production and distribution of goods and
services.
Critics, such as political economist Karl Polanyi,
question whether a spontaneously ordered market can exist, completely
free of "distortions" of political policy; claiming that even the
ostensibly freest markets require a state to exercise coercive power in
some areas – to enforce contracts, to govern the formation of labor unions, to spell out the rights and obligations of corporations, to shape who has standing to bring legal actions, to define what constitutes an unacceptable conflict of interest, etc.
General principles
The Heritage Foundation, a right-wingthink tank,
tried to identify the key factors necessary to measure the degree of
freedom of economy of a particular country. In 1986 they introduced the Index of Economic Freedom, which is based on some fifty variables. This and other similar indices do not define a free market, but measure the degree
to which a modern economy is free, meaning in most cases, free of state
intervention. The variables are divided into the following major
groups:
These free market principles are what helped America transition to a
free market economy. International free trade improved the country and
in order for Americans to prosper from a strong economy they had no
choice but to embrace it.
Each group is assigned a numerical value between 1 and 5; IEF is the
arithmetical mean of the values, rounded to the nearest hundredth.
Initially, countries which were traditionally considered capitalistic
received high ratings, but the method improved over time. Some
economists, like Milton Friedman and other laissez-faire economists
have argued that there is a direct relationship between economic growth
and economic freedom, and some studies suggest this is true.
Ongoing debates exist among scholars regarding methodological issues in
empirical studies of the connection between economic freedom and
economic growth. These debates and studies continue to explore just
what that relationship entails.
The principles of a free market are defined as:
Individual Rights: "We are each created with equal individual
rights to control and to defend our life, liberty and property and to
voluntary contractual exchange."
Limited Government: "Governments are instituted only to secure
individual rights, deriving their just powers from the consent of the
governed."
Equal Justice Under Law: "Government must treat everyone equally; neither rewarding failure nor punishing success."
Subsidiarity: "Government authority must reside at the lowest feasible level."
Spontaneous Order: "When individual rights are respected,
unregulated competition will maximize economic benefit for society by
providing the most goods and services possible at the lowest cost."
Property Rights: "Private ownership is the most efficient way to sustainably utilize resources."
The Golden Rule: "Deal with others honestly and require honesty in return."
Criticisms
Critics of the free market have argued that, in real world situations, it has proven to be susceptible to the development of price fixing monopolies. Such reasoning has led to government intervention, e.g. the United States antitrust law.
Two prominent Canadian authors argue that government at times has
to intervene to ensure competition in large and important industries. Naomi Klein illustrates this roughly in her work The Shock Doctrine and John Ralston Saul more humorously illustrates this through various examples in The Collapse of Globalism and the Reinvention of the World.
While its supporters argue that only a free market can create healthy
competition and therefore more business and reasonable prices, opponents
say that a free market in its purest form may result in the opposite.
According to Klein and Ralston, the merging of companies into giant
corporations or the privatization of government-run industry and
national assets often result in monopolies (or oligopolies) requiring
government intervention to force competition and reasonable prices. Another form of market failure is speculation, where transactions are made to profit from short term fluctuation, rather from the intrinsic value of the companies or products.
This criticism has been challenged by historians such as Lawrence Reed, who argued that monopolies have historically failed to form even in the absence of anti-trust law.
This is because monopolies are inherently difficult to maintain: a
company that tries to maintain its monopoly by buying out new
competitors, for instance, is incentivizing newcomers to enter the
market in hope of a buy-out.
American philosopher and author Cornel West has derisively termed what he perceives as dogmatic arguments for laissez-faire economic policies as "free-market fundamentalism".
West has contended that such mentality "trivializes the concern for
public interest" and "makes money-driven, poll-obsessed elected
officials deferential to corporate goals of profit – often at the cost
of the common good." American political philosopher Michael J. Sandel
contends that in the last 30 years the United States has moved beyond
just having a market economy and has become a market society where
literally everything is for sale, including aspects of social and civic
life such as education, access to justice and political influence. The economic historian Karl Polanyi was highly critical of the idea of the market-based society in his book The Great Transformation, noting that any attempt at its creation would undermine human society and the common good.
Critics of free market economics range from those who reject markets entirely in favour of a planned economy as advocated by various Marxists, to those who wish to see market failures regulated to various degrees or supplemented by government interventions. Keynesians
support market roles for government, such as using fiscal policy for
economic stimulus when actions in the private sector lead to sub-optimal
economic outcomes of depressions or recessions. Business cycle theory is used by Keynesians to explain liquidity traps, by which underconsumption occurs, to argue for government intervention with fiscal policy.
Some would argue, only one known example of a true free market exists, which is the black market. The black market is under constant threat by the police,
but under no circumstances do the police regulate the substances that
are being created. The black market produces wholly unregulated goods,
and are purchased and consumed unregulated. That is to say, anyone can
produce anything at any time, and anyone can purchase anything available
at any time. The alternative view is that the black market is not a
free market at all since high prices and monopolies are often enforced
through murder, theft and destruction. Black markets can only exist
peripheral to regulated markets where laws are being regularly enforced.
Social democracy originated as a political ideology that advocated an evolutionary and peaceful transition from capitalism to socialism using established political processes in contrast to the revolutionary approach to transition associated with orthodox Marxism. In the early post-war
era in Western Europe, social democratic parties rejected the Stalinist
political and economic model then current in the Soviet Union,
committing themselves either to an alternative path to socialism or to a
compromise between capitalism and socialism. In this period, social democrats embraced a mixed economy based on the predominance of private property,
with only a minority of essential utilities and public services under
public ownership. As a result, social democracy became associated with Keynesian economics,
state interventionism and the welfare state, while abandoning the prior
goal of replacing the capitalist system (factor markets, private property and wage labor) with a qualitatively different socialist economic system.
The Third Way, which ostensibly aims to fuse liberal economics with social democratic welfare
policies, is an ideology that developed in the 1990s and is associated
with social democratic parties, but some analysts have instead
characterized the Third Way as an effectively neoliberal movement.
Development of social democracy
Development of German Social Democracy before World War II
During late 19th and early 20th centuries, social democracy was a movement that aimed to replace private ownership with social ownership of the means of production, taking influences from both Marxism and the supporters of Ferdinand Lassalle.
By 1868–1869, Marxism had become the official theoretical basis of the
first social democratic party established in Europe, the Social Democratic Workers' Party of Germany (SDAP).
In the early 20th century, the German social democratic politician Eduard Bernstein rejected the revolutionary and materialist foundations of classical and orthodox Marxism and advanced the position that socialism should be grounded in ethical and moral arguments and was to be achieved through gradual legislative reform. Influenced by Bernstein, following the split between reformists and revolutionary socialists in the Second International,
social democratic parties rejected revolutionary politics in favor of
parliamentary reform while remaining committed to socialization. In this period, social democracy became associated with reformist socialism. Under the influence of politicians like Carlo Rosselli in Italy, social democrats began disassociating themselves from Marxism altogether and embraced liberal socialism, appealing to morality instead of any consistent systematic, scientific or materialist worldview. Social democracy made appeals to communitarian, corporatist and sometimes nationalist sentiments while rejecting the economic and technological determinism generally characteristic of both Marxism and economic liberalism. By the post-World War II
period, most social democrats in Europe had abandoned their ideological
connection to Marxism and shifted their emphasis toward social policy
reform in place of transition from capitalism to socialism.
First International era (1863–1889)
The
origins of social democracy have been traced to the 1860s, with the
rise of the first major working-class party in Europe, the General German Workers' Association (ADAV) founded by Ferdinand Lassalle. 1864 saw the founding of the International Workingmen's Association, also known as the First International. It brought together socialists of various stances and initially occasioned a conflict between Karl Marx and the anarchists led by Mikhail Bakunin over the role of the state in socialism, with Bakunin rejecting any role for the state. Another issue in the First International was the role of reformism.
Although Lassalle was not a Marxist, he was influenced by the theories of Marx and Friedrich Engels and he accepted the existence and importance of class struggle. However, unlike Marx's and Engels's The Communist Manifesto, Lassalle promoted class struggle in a more moderate form.
While Marx viewed the state negatively as an instrument of class rule
that should only exist temporarily upon the rise to power of the
proletariat and then dismantled, Lassalle accepted the state. Lassalle
viewed the state as a means through which workers could enhance their
interests and even transform the society to create an economy based on
worker-run cooperatives. Lassalle's strategy was primarily electoral and
reformist, with Lassalleans contending that the working class needed a
political party that fought above all for universal adult male suffrage.
The ADAV's party newspaper was called Der Sozialdemokrat (The Social Democrat). Marx and Engels responded to the title Sozialdemocrat with distaste, Engels once writing: "But what a title: Sozialdemokrat!...Why don't they simply call it The Proletarian". Marx agreed with Engels that Sozialdemokrat was a bad title. Although the origins of the name Sozialdemokrat actually traced back to Marx's German translation in 1848 of the French political party known as the Democratic Socialists (Partie Democrat-Socialist) into Partei der Sozialdemokratie, Marx did not like this French party because he viewed it as dominated by the middle class and associated the word Sozialdemokrat with that party. There was a Marxist faction within the ADAV represented by Wilhelm Liebknecht who became one of the editors of the Der Sozialdemokrat.
Faced with opposition from liberal capitalists to his socialist
policies, Lassalle controversially attempted to forge a tactical
alliance with the conservative aristocratic Junkers due to their anti-bourgeois attitudes as well as with Prussian Chancellor Otto von Bismarck.
Friction in the ADAV arose over Lassalle's policy of a friendly
approach to Bismarck that had assumed incorrectly that Bismarck in turn
would be friendly towards them. This approach was opposed by the party's
Marxists, including Liebknecht.
Opposition in the ADAV to Lassalle's friendly approach to Bismarck's
government resulted in Liebknecht resigning from his position as editor
of Die Sozialdemokrat and leaving the ADAV in 1865. In 1869, Liebknecht, along with Marxist August Bebel, founded the SDAP, which was founded as a merger of three groups: the petit-bourgeoisSaxon People's Party (SVP), a faction of the ADAV; and members of the League of German Workers' Associations (VDA).
Though the SDAP was not officially Marxist, it was the first
major working-class organization to be led by Marxists and Marx and
Engels had direct association with the party. The party adopted stances
similar to those adopted by Marx at the First International. There was
intense rivalry and antagonism between the SDAP and the ADAV, with the
SDAP being highly hostile to the Prussian government while the ADAV
pursued a reformist and more cooperative approach. This rivalry reached its height involving the two parties' stances on the Franco-Prussian War,
with the SDAP refusing to support Prussia's war effort by claiming it
was an imperialist war pursued by Bismarck, while the ADAV supported the
war.
A barricade in Paris in March 1871, set up by revolutionary forces of the Paris Commune
In the aftermath of the defeat of France in the Franco-Prussian War,
revolution broke out in France, with revolutionary army members along
with working-class revolutionaries founding the Paris Commune.
The Paris Commune appealed both to the citizens of Paris regardless of
class as well as to the working class who were a major base of support
for the government by appealing to them via militant rhetoric. In spite
of such militant rhetoric to appeal to the working class, the Commune
also received substantial support from the middle class bourgeoisie of
Paris, including shopkeepers and merchants. The Commune, in part due to
its sizable number neo-Proudhonians and neo-Jacobins
in the Central Committee, declared that the Commune was not opposed to
private property, but rather hoped to create the widest distribution of
it. The political composition of the Commune included twenty-five neo-Jacobins, fifteen to twenty neo-Proudhonians and protosyndicalists, nine or ten Blanquists, a variety of radical republicans and a few Internationalists influenced by Marx.
In the aftermath of the collapse of the Paris Commune in 1871, Marx praised the Paris Commune in his work The Civil War in France (1871) for its achievements in spite of its pro-bourgeois influences and called it an excellent model of the dictatorship of the proletariat
in practice, as it had dismantled the apparatus of the bourgeois state,
including its huge bureaucracy; military; and its executive, judicial
and legislative institutions; and replaced it with a working-class state
with broad popular support.
However, the collapse of the Commune and the persecution of its
anarchist supporters had the effect of weakening the influence of the
Bakuninist anarchists in the First International, which resulted in Marx
expelling the weakened rival Bakuninists from the International a year
later.
In Britain, the achievement of legalisation of trade unions under the Trade Union Act 1871 drew British trade unionists to believe that working conditions could be improved through parliamentary means. At the Hague Congress of 1872,
Marx made a remark, admitting that while there are countries "where the
workers can attain their goal by peaceful means" in most countries on
the Continent "the lever of our revolution must be force":
You
know that the institutions, mores, and traditions of various countries
must be taken into consideration, and we do not deny that there are
countries—such as America, England, and if I were more familiar with
your institutions, I would perhaps also add Holland—where the workers
can attain their goal by peaceful means. This being the case, we must
also recognize the fact that in most countries on the Continent the
lever of our revolution must be force; it is force to which we must
someday appeal in order to erect the rule of labor.
In 1875, Marx attacked the Gotha Program that became the program of Social Democratic Party of Germany (SDP) in the same year in his Critique of the Gotha Program.
Marx was not optimistic that Germany at the time was open to a peaceful
means to achieve socialism, especially after German Chancellor Otto von
Bismarck had enacted Anti-Socialist Laws in 1878.
At the time of the Anti-Socialist Laws beginning to be drafted but not
yet published in 1878, Marx spoke of the possibilities of legislative
reforms by an elected government composed of working-class legislative
members, but also of the willingness to use force should force be used
against the working class:
If in
England, for instance, or the United States, the working class were to
gain a majority in Parliament or Congress, they could, by lawful means,
rid themselves of such laws and institutions as impeded their
development, though they could only do insofar as society had reached a
sufficiently mature development. However, the "peaceful" movement might
be transformed into a "forcible" one by resistance on the part of those
interested in restoring the former state of affairs; if (as in the
American Civil War and French Revolution) they are put down by force, it
is as rebels against "lawful" force.
In his study England in 1845 and in 1885 (1885), Engels wrote a
study that analysed the changes in the British class system from 1845 to
1885, in which he commended the Chartist movement for being responsible for the achievement of major breakthroughs for the working class.
Engels stated that during this time Britain's industrial bourgeoisie
had learned "that the middle class can never obtain full social and
political power over the nation except by the help of the working
class". In addition, he noticed "a gradual change over the relations between the two classes".
This change he described was manifested in the change of laws in
Britain that granted political changes in favour of the working class
that the Chartist movement had demanded for years:
The
'Abolition of the Property Qualification' and 'Vote by Ballot' are now
the law of the land. The Reform Acts of 1867 and 1884 make a near
approach to 'universal suffrage,' at least such as it now exists in
Germany.
A major non-Marxian influence on social democracy came from the British Fabian Society founded in 1884 by Frank Podmore that emphasised the need for a gradualist evolutionary and reformist approach to the achievement of socialism. The Fabian Society was founded as a splinter group from the Fellowship of the New Life due to opposition within that group to socialism. Unlike Marxism, Fabianism did not promote itself as a working-class-led movement and it largely had middle-class members. The Fabian Society published the Fabian Essays on Socialism (1889) that was substantially written by George Bernard Shaw. Shaw referred to Fabians as "all Social Democrats, with a common confiction [sic]
of the necessity of vesting the organization of industry and the
material of production in a State identified with the whole people by
complete Democracy". Other important early Fabians included Sidney Webb, who from 1887 to 1891 wrote the bulk of the Society's official policies. Fabianism would become a major influence on the British labour movement.
Second International era: reform or revolution dispute (1889–1914)
The
modern social democratic movement came into being through a division
within the socialist movement: this division can be described as a
parting of ways between those who insisted upon political revolution as a
precondition for the achievement of socialist goals and those who
maintained that a gradual or evolutionary path to socialism was both
possible and desirable.
The influence of the Fabian Society in Britain grew in the British socialist movement in the 1890s, especially within the Independent Labour Party (ILP) founded in 1893. Important ILP members were affiliated with the Fabian Society, including Keir Hardie and Ramsay MacDonald—the future British Prime Minister.
Fabian influence in British government affairs also emerged, such as
Fabian member Sidney Webb being chosen to take part in writing what
became the Minority Report of the Royal Commission on Labour.
While Hardie was nominally a member of the Fabian Society, as leader of
the ILP he had close relations with certain Fabians, such as Shaw,
while he was antagonistic to others such as the Webbs.
As ILP leader, Hardie rejected revolutionary politics while declaring
that he believed the party's tactics should be "as constitutional as the
Fabians".
Another important Fabian figure who joined the ILP was Robert Blatchford who wrote the work Merrie England (1894) that endorsed municipal socialism. Merrie England was a major publication that sold 750,000 copies within one year. In Merrie England, Blatchford distinguished two types of socialism: an "ideal socialism" and a "practical socialism". Blatchford's practical socialism was a state socialism that identified existing state enterprise such as the Post Office
run by the municipalities as a demonstration of practical socialism in
action, he claimed that practical socialism should involve the extension
of state enterprise to the means of production as common property of
the people. While endorsing state socialism, Blatchford's Merrie England and his other writings were influenced by anarchist communistWilliam Morris—as Blatchford himself attested to—and Morris' anarchist communist themes are present in Merrie England.
Shaw published the Report on Fabian Policy (1896) that
declared: "The Fabian Society does not suggest that the State should
monopolize industry as against private enterprise or individual
initiative".
Major developments in social democracy as a whole emerged with the ascendance of Eduard Bernstein as a proponent of reformist socialism and an adherent of Marxism.
Bernstein had resided in Britain in the 1880s at the time when
Fabianism was arising and is believed to have been strongly influenced
by Fabianism. However, he publicly denied having strong Fabian influences on his thought. Bernstein did acknowledge that he was influenced by Kantianepistemologicalskepticism while he rejected Hegelianism. He and his supporters urged the Social Democratic Party of Germany to merge Kantian ethics with Marxian political economy. On the role of Kantian criticism within socialism, Bernstein said:
The
method of this great philosopher [Kant] can serve as a pointer to the
satisfying solution to our problem. Of course we don’t have to slavishly
adhere to Kant's form, but we must match his method to the nature of
our own subject [socialism], displaying the same critical spirit. Our
critique must be direct against both a scepticism that undermines all
theoretical thought, and a dogmatism that relies on ready-made formulas.
The term "revisionist" was applied to Bernstein by his critics who referred to themselves as "orthodox" Marxists,
even though Bernstein claimed that his principles were consistent with
Marx's and Engels' stances, especially in their later years when they
advocated that socialism should be achieved through parliamentary
democratic means wherever possible. Bernstein and his faction of revisionists criticized orthodox Marxism and particularly its founder Karl Kautsky
for having disregarded Marx's view of the necessity of evolution of
capitalism to achieve socialism by replacing it with an "either/or"
polarization between capitalism and socialism, claiming that Kautsky
disregarded Marx's emphasis on the role of parliamentary democracy in
achieving socialism, as well as criticizing Kautsky for his idealisation
of state socialism. However, Kautsky did not deny a role for democracy in the achievement of socialism, as he claimed that Marx's dictatorship of the proletariat was not a form of government that rejected democracy as critics had claimed it was, but a state of affairs that Marx expected would arise should the proletariat gain power and be faced with fighting a violent reactionary opposition.
Bernstein had held close association to Marx and Engels, but he
saw flaws in Marxian thinking and began such criticism when he
investigated and challenged the Marxian materialist theory of history. He rejected significant parts of Marxian theory that were based upon Hegelianmetaphysics and he also rejected the Hegelian dialectical perspective. Bernstein distinguished between early Marxism as being its immature form: as exemplified by The Communist Manifesto written by Marx and Engels in their youth, that he opposed for what he regarded as its violent Blanquist tendencies; and later Marxism as being its mature form that he supported.
Bernstein declared that the massive and homogeneous working class claimed in the Communist Manifesto
did not exist and that—contrary to claims of a proletarian majority
emerging—the middle class was growing under capitalism and not
disappearing as Marx had claimed. Bernstein noted that the working class
was not homogeneous but heterogeneous, with divisions and factions
within it, including socialist and non-socialist trade unions. In his
work Theories of Surplus Value, Marx himself later in his life acknowledged that the middle class was not disappearing, but due to the popularity of the Communist Manifesto and the obscurity of Theories of Surplus Value Marx's acknowledgement of this error is not well known.
Bernstein criticized Marxism's concept of "irreconciliable class conflicts" and Marxism's hostility to liberalism. He challenged Marx's position on liberalism by claiming that liberal democrats and social democrats held common grounds that he claimed could be utilized to create a "socialist republic". He believed that economic class disparities between the bourgeoisie and the proletariat would gradually be eliminated through legal reforms and economic redistribution programs. Bernstein rejected the Marxian principle of dictatorship of the proletariat, claiming that gradualist democratic reforms will improve the rights of the working class.
According to Bernstein—unlike orthodox Marxism—social democracy did not
seek to create a socialism separate from bourgeois society, but instead
sought to create a common development based on Western humanism.
The development of socialism under social democracy does not seek to
rupture existing society and its cultural traditions, but to act as an
enterprise of extension and growth. Furthermore, he believed that class cooperation was a preferable course to achieve socialism, rather than class conflict.
Bernstein responded to critics that he was not destroying
Marxism, but claimed that he was "modernizing Marxism" that was required
"to separate the vital parts of [Marx's] theory from its outdated
accessories". He asserted his support for the Marxian conception of a
"scientifically based" socialist movement and said that such a
movement's goals must be determined in accordance with "knowledge
capable of objective proof, that is, knowledge which refers to, and
conforms with, nothing but empirical knowledge and logic". As such,
Bernstein was strongly opposed to dogmatism within the Marxist movement.
Despite embracing a mixed economy, Bernstein was skeptical and critical
of welfare state policies, believing them to be helpful, but ultimately
secondary to the main social democratic goal of replacing capitalism
with socialism, fearing that state aid to the unemployed might lead to
the sanctioning of a new form of pauperism.
Representing revolutionary socialism, Rosa Luxemburg
staunchly condemned Bernstein's revisionism and reformism for being
based on "opportunism in social democracy". She likened Bernstein's
policies to that of the dispute between Marxists and the opportunistic Praktiker
("pragmatists"). She denounced Bernstein's evolutionary socialism for
being a "petty-bourgeois vulgarization of Marxism". She claimed that
Bernstein's years of exile in Britain had made him lose familiarity with
the situation in Germany where he was promoting evolutionary socialism. Luxemburg sought to maintain social democracy as a revolutionary Marxist creed, saying:
[T]here
could be no socialism—at least in Germany—outside of Marxist socialism,
and there could be no socialist class struggle outside of social
democracy. From then on [the emergence of Marx's theory], socialism and
Marxism, the proletarian struggle for emancipation, and social democracy
were identical.
Both Kautsky and Luxemburg condemned Bernstein for his "flawed"
philosophy of science for having abandoned Hegelian dialectics for
Kantian philosophical dualism. Russian Marxist George Plekhanov joined Kautsky and Luxemburg in condemning Bernstein for having a neo-Kantian philosophy.
Kautsky and Luxemburg contended that Bernstein's empiricist viewpoints
depersonalized and dehistoricized the social observer and reducing
objects down to "facts". Luxemburg associated Bernstein with "ethical socialists" who she identified as being associated with the bourgeoisie and Kantian liberalism.
In his introduction to the 1895 edition of Marx's The Class Struggles in France,
Engels attempted to resolve the division between gradualist reformists
and revolutionaries in the Marxist movement by declaring that he was in
favour of short-term tactics of electoral politics that included
gradualist and evolutionary socialist measures while maintaining his
belief that revolutionary seizure of power by the proletariat should
remain a goal. In spite of this attempt by Engels to merge gradualism
and revolution, his effort only diluted the distinction of gradualism
and revolution and had the effect of strengthening the position of the
revisionists. Engels' statements in the French newspaper Le Figaro,
in which he stated that "revolution" and the "so-called socialist
society" was not a fixed concept, but was a constantly changing social
phenomenon and said that this made "us [socialists] all evolutionists",
increased the public perception that Engels was gravitating towards
evolutionary socialism.
Engels also said that it would be "suicidal" to talk about a
revolutionary seizure of power at a time when the historical
circumstances favoured a parliamentary road to power that he predicted
could bring "social democracy into power as early as 1898".
Engels' stance of openly accepting gradualist, evolutionary and
parliamentary tactics while claiming that the historical circumstances
did not favour revolution caused confusion.
Bernstein interpreted this as indicating that Engels was moving towards
accepting parliamentary reformist and gradualist stances, but he
ignored that Engels' stances were tactical as a response to the
particular circumstances and that Engels was still committed to
revolutionary socialism.
In 1897, after Bernstein delivered a lecture in Britain to the
Fabian Society titled "On What Marx Really Taught", Bernstein wrote a
letter to the orthodox Marxist Bebel in which he revealed that he felt
conflicted with what he had said at the lecture as well as revealing his
intentions regarding revision of Marxism:
[A]s I was reading the lecture, the
thought shot through my head that I was doing Marx an injustice, that
it was not Marx I was presenting...I told myself secretly that this
could not go on. It is idle to reconcile the irreconcilable. The vital
thing is to be clear as to where Marx is still right and where he is
not.
What Bernstein meant was that he believed that Marx was wrong in
assuming that the capitalist economy would collapse as a result of its
internal contradictions as by the mid-1890s there was little evidence of
such internal contradictions causing this to capitalism.
The dispute over policies in favour of reform or revolution dominated
discussions at the 1899 Hanover Party Conference of the Socialist
Workers' Party of Germany (SAPD). This issue had become especially
prominent with the Millerand Affair in France in which Alexandre Millerand of the Independent Socialists
joined the non-socialist government of France's liberal Prime Minister
Waldeck-Rousseau without seeking support from his party's leadership.
Millerand's actions provoked outrage amongst revolutionary socialists
within the Second International, including the anarchist left and Jules Guesde's revolutionary Marxists.
In response to these disputes over reform or revolution, the 1900 Paris
Congress of the Second International declared a resolution to the
dispute, in which Guesde's demands were partially accepted in a
resolution drafted by Kautsky that declared that overall socialists
should not take part in a non-socialist government, but provided
exceptions to this rule where necessary to provide the "protection of
the achievements of the working class".
Another prominent figure who influenced social democracy was French revisionist Marxist and reformist socialist Jean Jaurès. During the 1904 Congress of the Second International, Jaurès challenged orthodox Marxist August Bebel,
the mentor of Kautsky, over his promotion of monolithic socialist
tactics. Jaurès claimed that no coherent socialist platform could be
equally applicable to different countries and regions due to different
political systems in them; noting that Bebel's homeland of Germany at
the time was very authoritarian and had limited parliamentary democracy.
He compared the limited political influence of socialism in government
in Germany to the substantial influence that socialism had gained in
France due to its stronger parliamentary democracy. He claimed that the
example of the political differences between Germany and France
demonstrated that monolithic socialist tactics were impossible, given
the political differences of various countries.
World Wars, revolutions, counterrevolutions and Great Depression (1914–1945)
As tensions between Europe's Great Powers escalated in the late 19th and early 20th centuries, Bernstein feared that Germany's arms race with other powers was threatening the possibility of a major war. Bernstein's fears were realised with the outbreak of World War I.
Ramsay MacDonald, Prime Minister of the United Kingdom (1929–1935), 1924
Immediately after the outbreak of World War I, Bernstein travelled from Germany to Britain to meet with British Labour Party leader Ramsay MacDonald.
Bernstein regarded the outbreak of the war with great dismay, but even
though the two countries were at war with one another he honoured
Bernstein at the meeting.
In spite of Bernstein's and other social democrats' attempts to secure
the unity of the Second International, with national tensions increasing
between the countries at war, the Second International collapsed in
1914. Anti-war members of the SPD refused to support finances being given to the German government to support the war. However, a nationalist-revisionist faction of SPD members led by Friedrich Ebert, Gustav Noske and Philipp Scheidemann supported the war, arguing that Germany had the "right to its territorial defense" from the "destruction of Tsarist despotism".
The SPD's decision to support the war, including Bernstein's decision
to support it, was heavily influenced by the fact that the German
government lied to the German people, as it claimed that the only reason
Germany had declared war on Russia was because Russia was preparing to
invade East Prussia, when in fact this was not the case. Jaurès opposed France's intervention in the war and took a pacifist stance, but was soon assassinated in 1914.
Bernstein soon resented the war and by October 1914 was convinced
of the German government's war guilt and contacted the orthodox
Marxists of the SPD to unite to push the SPD to take an anti-war stance.[76]
Kautsky attempted to put aside his differences with Bernstein and join
forces in opposing the war and Kautsky praised him for becoming a firm
anti-war proponent, saying that although Bernstein had previously
supported "civic" and "liberal" forms of nationalism, his committed
anti-war position made him the "standard-bearer of the internationalist
idea of social democracy". The nationalist position by the SPD leadership under Ebert refused to rescind.
In Britain, the British Labour Party became divided on the war. Labour Party leader Ramsay MacDonald was one of a handful of British MPs
who had denounced Britain's declaration of war on Germany. MacDonald
was denounced by the pro-war press on accusations that he was
"pro-German" and a pacifist, both charges that he denied.
In response to pro-war sentiments in the Labour Party, MacDonald
resigned from being its leader and associated himself with the Independent Labour Party. Arthur Henderson
became the new leader of the Labour Party and served as a cabinet
minister in Prime Minister Asquith's war government. After the February Revolution of 1917 in Russia (not to be confused with the October Revolution) in which the Tsarist regime in Russia was overthrown, MacDonald visited the Russian Provisional Government
in June 1917, seeking to persuade Russia to oppose the war and seek
peace. His efforts to unite the Russian Provisional Government against
the war failed after Russia fell back into political violence resulting
in the October Revolution in which the Bolsheviks led Vladimir Lenin's rise to power.
Though MacDonald critically responded to the Bolsheviks' political
violence and rise to power by warning of "the danger of anarchy in
Russia", he gave political support to the Bolshevik regime until the end
of the war because he then thought that a democratic internationalism
could be revived. The British Labour Party's trade union affiliated membership soared during World War I. With the assistance of Sidney Webb, Henderson designed a new constitution for the British Labour Party, in which it adopted a strongly left-wing platform in 1918 to ensure that it would not lose support to the new Communist Party, exemplified by Clause IV of the constitution.
The overthrow of the Tsarist regime in Russia in February 1917
impacted politics in Germany, as it ended the legitimation used by Ebert
and other pro-war SPD members that Germany was in the war against a
reactionary Russian government. With the overthrow of the Tsar and
revolutionary socialist agitation increased in Russia, such events
influenced socialists in Germany. With rising bread shortages in Germany
amid war rationing, mass strikes occurred beginning in April 1917 with
300,000 strikers taking part in a strike in Berlin. The strikers
demanded bread, freedom, peace and the formation of workers' councils as was being done in Russia. Amidst the German public's uproar, the SPD alongside the Progressives and the Catholic labour movement in the Reichstag
put forward the "Peace Resolution" on 19 July 1917 that called for a
compromise peace to end the war, which was passed by a majority of
members of the Reichstag. The German High Command opposed the Peace
Resolution, but it did seek to end the war with Russia and presented the
Treaty of Brest-Litovsk
to the Bolshevik regime in 1918 that agreed to the terms and the
Reichstag passed the treaty, which included the support of the SPD, the
Progressives and the Catholic political movement.
By late 1918, the war situation for Germany had become hopeless and Kaiser Wilhelm II
was pressured to make peace. Wilhelm II appointed a new cabinet that
included SPD members. At the same time, the Imperial Naval Command was
determined to make a heroic last stand against the British Royal Navy and on 24 October 1918 it issued orders for the German Navy to depart to confront while the sailors refused, resulting in the Kiel Mutiny. The Kiel Mutiny resulted in the German Revolution of 1918–1919. Faced with military failure and revolution the Chancellor, Prince Maximilian of Baden
resigned, giving SPD leader Ebert the position of Chancellor, Wihelm II
abdicated the German throne immediately afterwards and the German High
Command officials Paul von Hindenburg and Erich Ludendorff
resigned whilst refusing to end the war to save face, leaving the Ebert
government and the SPD-majority Reichstag to be forced to make the
inevitable peace with the Allies and take the blame for having lost the
war. With the abdication of Wilhelm II, Ebert declared Germany to be a
republic and signed the armistice that ended World War I on 11 November
1918.
The new social democratic government in Germany faced political violence in Berlin by a movement of communist revolutionaries known as the Spartacist League who sought to repeat the feat of Lenin and the Bolsheviks in Russia by overthrowing the German government.
Tensions between the governing "Majority" Social Democrats (led by
Ebert) versus the strongly left-wing elements of the Independent Social
Democratic Party (USPD) and communists over Ebert's refusal to
immediately reform the German Army, resulted in the "January rising" by
the newly formed Communist Party of Germany
(KPD) and the USPD, resulting in communists mobilizing a large workers'
demonstration. The SPD responded by holding a counter-demonstration
that was effective in demonstrating support for the government, and the
USPD soon withdrew its support for the rising.
However, the communists continued to revolt and between 12 to 28
January 1919 communist forces had seized control of several government
buildings in Berlin. Ebert responded by requesting that Defense Minister
Gustav Noske take charge of loyal soldiers to fight the communists and secure the government.
Ebert was furious with the communists' intransigence and said that he
wished "to teach the radicals a lesson they would never forget". Noske
was able to rally groups of mostly reactionary ex soldiers, known as the
Freikorps, who were eager to fight the communists. The situation soon went completely out of control when the recruited Freikorps went on a violent rampage against workers and murdered the communist leaders Karl Liebknecht and Rosa Luxemburg. The atrocities by the government-recruited Freikorps
against the communist revolutionaries badly tarnished the reputation of
the SPD and strengthened the confidence of reactionary forces. In spite
of this, the SPD was able to win the largest number of seats in the
parliamentary election held on 19 January 1919 and Ebert was elected President of Germany, but the USPD in response to the atrocities committed by the government-recruited Freikorps, refused to support the SPD government.
Due to the unrest in Berlin, the drafting of the constitution of the new German republic was undertaken in the city of Weimar and the following political era is referred to as the Weimar Republic.
Upon founding the new government, President Ebert cooperated with
liberal members of his coalition government to create the constitution
and sought to begin a program of nationalization
of some parts of the economy. Political unrest and violence continued
and the government's continued reliance on the help of the Freikorps
counterrevolutionaries to fight the communist revolutionaries continued
to alienate potential left-wing support for the SPD. The SPD coalition
government's acceptance of the harsh peace conditions of the Treaty of Versailles in June 1919, infuriated the right, including the Freikorps
that had previously been willing to cooperate with the government to
fight the communists. In the German parliamentary election of June 1919,
the SPD share of the vote declined significantly. In March 1920, a
group of right-wing militarists led by Wolfgang Kapp and former German military chief-of-staff Erich Ludendorff initiated a briefly successful putsch against the German government in what became known as the Kapp Putsch, but the putsch ultimately failed and the government was restored.
Noe Zhordania
(man with white beard and wearing a white hat on the left side of the
car), the President of newly independent Georgia, attending a meeting of
the refounded Second International in Georgia, 1920
At a global level, after World War I several attempts were made to
re-found the Second International that collapsed amidst national
divisions in the war. The Vienna International
formed in 1921 attempted to end the rift between reformist socialists,
including social democrats; and revolutionary socialists, including
communists, particularly the Mensheviks. However, a crisis soon erupted that involved the new country of Georgia led by a social democratic government led by President Noe Zhordania
that had declared itself independent from Russia in 1918 whose
government had been endorsed by multiple social democratic parties. At
founding meeting of the Vienna International, the discussions were
interrupted by the arrival of a telegram from Zhordania who said that
Georgia was being invaded by Bolshevik Russia. Delegates attending the
International's founding meeting were stunned, particularly the
Bolshevik representative from Russia, Mecheslav Bronsky,
who refused to believe this and left the meeting to seek confirmation
of this, but upon confirmation Bronsky did not return to the meeting.
The overall response from the Vienna International was divided, the
Mensheviks demanded that the International immediately condemn Russia's
aggression against Georgia, but the majority as represented by German
delegate Alfred Henke sought to exercise caution and said that the
delegates should wait for confirmation.
Russia's invasion of Georgia completely violated the non-aggression
treaty signed between Lenin and Zhordania, as well as violating
Georgia's sovereignty by annexing Georgia directly into the Russian Soviet Federated Socialist Republic. Tensions between Bolsheviks and social democrats worsened with the Kronstadt rebellion.
This was caused by unrest among leftists against the Bolshevik
government in Russia: Russian social democrats distributed leaflets
calling for a general strike against the Bolshevik regime and the
Bolsheviks responded by forcefully repressing the rebels.
Relations between the social democratic movement and Bolshevik Russia descended into complete antagonism in response to the Russian famine of 1921
and the Bolsheviks' violent repression of opposition to their
government. Multiple social democratic parties were disgusted with
Russia's Bolshevik regime, particularly Germany's SPD and the
Netherlands' Social Democratic Workers' Party
(SDAP) that denounced the Bolsheviks for defiling socialism and
declared that the Bolsheviks had "driven out the best of our comrades,
thrown them into prison and put them to death".
In May 1923, social democrats united to found their own international, the Labour and Socialist International (LSI), founded in Hamburg,
Germany. The LSI declared that all its affiliated political parties
would retain autonomy to make their own decisions regarding internal
affairs of their countries, but that international affairs would be
addressed by the LSI. The LSI addressed the issue of the rise of fascism by declaring the LSI to be anti-fascist. In response to the outbreak of the Spanish Civil War in 1936 between the democratically elected Republican government versus the authoritarian right-wing Nationalists led by Francisco Franco with the support of Fascist Italy and Nazi Germany, the Executive Committee of the LSI declared not only its support for the Spanish Republic
but also that it supported the Spanish government having the right to
purchase arms to fight Franco's Nationalist forces. LSI-affiliated
parties, including the British Labour Party, declared their support for
the Spanish Republic. However, the LSI was criticised on the left for failing to put its anti-fascist rhetoric into action.
Hjalmar Branting, Prime Minister of Sweden (1921–1923, 1924–1925), 1920
The stock market crash of 1929 that began an economic crisis in the United States that globally spread and became the Great Depression profoundly affected economic policy-making.
The collapse of the gold standard and the emergence of mass
unemployment resulted in multiple governments recognising the need for
state macroeconomic intervention to reduce unemployment as well as
economic intervention to stabilise prices, a proto-Keynesianism that John Maynard Keynes himself would soon publicly endorse.
Multiple social democratic parties declared the need for substantial
investment in economic infrastructure projects to respond to
unemployment, and creating social control over money flow. Furthermore,
social democratic parties declared that the Great Depression
demonstrated the need for substantial macroeconomic planning while their
pro-property rights opponents staunchly opposed this.
However, attempts by social democratic governments to achieve this were
unsuccessful due to the ensuing political instability in their
countries from the depression, the British Labour Party became
internally split over the policies while Germany's SPD government did
not have the time to implement such policies as Germany's politics
turned to violent civil unrest in which the Nazis rose to power in 1933
and dismantled parliamentary democracy.
A major development for social democracy was the victories of several social democratic parties in Scandinavia, particularly the Swedish Social Democratic Party (SAP) in the 1920 Swedish election. The SAP was elected to a minority government. It created a Socialisation Committee that declared support for a mixed economy
that combined the best of private initiative with social ownership or
control, supporting a substantial socialisation "of all necessary
natural resources, industrial enterprises, credit institutions,
transportation and communication routes" that would be gradually
transferred to the state. It permitted private ownership outside of these areas.
Mohandas Gandhi, here meeting with women textile workers in Britain, was a leadership figure of India's anti-colonial and social democratic Indian National Congress
In 1922, Ramsay MacDonald returned to the leadership of the Labour
Party from the Independent Labour Party. In the 1924 British election,
the Labour Party won a plurality of seats and was elected as a minority
government, but required assistance from the Liberal Party
to achieve a majority in parliament. Opponents of the Labour Party
accused the party of communist sympathies. Prime Minister MacDonald
responded to these allegations by stressing the party's commitment to
reformist gradualism and openly opposing the radical wing in the party.
MacDonald emphasized that the Labour minority government's first and
foremost commitment was to uphold democratic responsible government over
all other policies. MacDonald emphasized this because he knew that any
attempt to pass major socialist legislation in a minority government
status would endanger the new government, because it would be opposed
and blocked by the Conservatives
and the Liberals who together held a majority of seats. The Labour
Party had risen to power in the aftermath of Britain's severe recession
of 1921–1922: with the economy beginning to recover, British trade
unions demanded that their wages be restored from the cuts they took in
the recession. The trade unions soon became deeply dissatisfied with the
MacDonald government and labour unrest and threat of strikes arose in
transportation sector, including docks and railways. MacDonald viewed
the situation as a crisis, consulting the unions in advance to warn them
that his government would have to use strikebreakers if the situation
continued. The anticipated clash between the government and the unions
was averted, but the situation alienated the unions from the MacDonald
government. MacDonald's most controversial action was having Britain
recognize the government of the Soviet Union in February 1924. The
British Conservative press, including the Daily Mail, used this to promote a red scare by claiming that the Labour government's recognition of the Soviet Union proved that Labour held pro-Bolshevik sympathies.
The Labour Party lost the 1924 election and a Conservative
government was elected. Though MacDonald faced multiple challenges to
his leadership of the party, the party stabilized by 1927 as a capable
opposition to the Conservative government. MacDonald released a new
political programme for the party titled Labour and the Nation
(1928). The Labour Party returned to government in 1929, but soon faced
the economic catastrophe of the stock market crash of 1929.
In the 1920s, SPD policymaker and Marxist Rudolf Hilferding
proposed substantial policy changes in the SPD as well as influencing
social democratic and socialist theory. Hilferding was an influential
Marxian socialist both inside the social democratic movement and outside
it, such as his pamphlet titled Imperialism which influenced
Lenin's own conception of imperialism in the 1910s. Prior to the 1920s
Hilferding declared that capitalism had evolved beyond what had been laissez-faire capitalism into what he called "organized capitalism". Organized capitalism was based upon trusts and cartels
controlled by financial institutions that could no longer make money
within their countries' national boundaries and thus needed to export to
survive, resulting in support for imperialism.
Hilferding described that while early capitalism promoted itself as
peaceful and based on free trade, the era of organized capitalism was
aggressive and said that "in the place of humanity there came the idea
of the strength and power of the state". He said that this had the
consequence of creating effective collectivization within capitalism and
had prepared the way for socialism.
Originally, Hilferding's vision of a socialism replacing
organized capitalism was highly Kautskyan in assuming an either/or
perspective and expecting a catastrophic clash between organized
capitalism versus socialism. However, by the 1920s Hilferding became an
adherent to promoting a gradualist evolution of capitalism into
socialism. He then praised organized capitalism for being a step towards
socialism, saying at the SPD congress in 1927 that "organized
capitalism" is nothing less than "the replacement of the capitalist
principle of free competition by the socialist principle of planned
production". He went on to say that "the problem is posed to our
generation: with the help of the state, with the help of conscious
social direction, to transform the economy organized and led by
capitalists into an economy directed by the democratic state".
In the 1930s, the SPD began to transition away from revisionist
Marxism towards liberal socialism beginning in the 1930s. After the
party was banned by the Nazis in 1933, the SPD acted in exile through Sopade.[102]
In 1934, the Sopade began to publish material that indicated that the
SPD was turning towards liberal socialism. Curt Geyer, who was a
prominent proponent of liberal socialism within the Sopade, declared
that Sopade represented the tradition of Weimar Republic social
democracy, liberal democratic socialism and stated that the Sopade had
held true to its mandate of traditional liberal principles combined with
the political realism of socialism.
The only social democratic governments in Europe that remained by the early 1930s were in Scandinavia. In the 1930s, several Swedish social democratic leadership figures, including former Swedish Prime Minister Rickard Sandler—the
secretary and chairman of the Socialization Committee—and Nils Karleby,
rejected earlier SAP socialization policies pursued in the 1920s for
being too extreme. Karleby and Sandler developed a new conception of social democracy, the Nordic model,
which called for gradual socialization and redistribution of purchasing
power, provision of educational opportunity and support of property
rights. The Nordic model would permit private enterprise on the
condition that it adheres to the principle that the resources it
disposes are in reality public means and would create of a broad
category of social welfare rights. The new SAP government of 1932 replaced the previous government's universal commitment to a balanced budget with a Keynesian-like commitment, which in turn was replaced with a balanced budget within a business cycle.
Whereas the 1921–1923 SAP governments had run large deficits, after a
strong increase in state expenditure in 1933 the new SAP government
reduced Sweden's budget deficit. The government had planned to eliminate
Sweden's budget deficit in seven years, but it took only three years to
eliminate the deficit and Sweden had a budget surplus from 1936 to
1938. However, this policy was criticized because—although the budget
deficit had been eliminated—major unemployment still remained a problem
in Sweden.
In the Americas from the 1920s to 1930s, social democracy was rising as a major political force. In Mexico,
several social democratic governments and presidents were elected from
the 1920s to the 1930s. The most important Mexican social democratic
government of this time was that led by President Lázaro Cárdenas and the Party of the Mexican Revolution
whose government initiated agrarian reform that broke up vast
aristocratic estates and redistributed property to peasants. Cárdenas
was deeply committed to social democracy, but was criticized by his
left-wing opponents for being pro-capitalist due to his personal
association with a wealthy family and for being corrupt due to his
government's exemption from agrarian reform of the estate held by former
Mexican President Alvaro Obregón. Political violence in Mexico had become serious in the 1920s with the Cristero War
in which right-wing reactionary clericals fought against the left-wing
government that was attempting to institute secularization of Mexico.
Furthermore, Cardenas' government openly supported Spain's Republican
government while opposing Francisco Franco's Nationalists during the Spanish Civil War.
During the Spanish Civil War, Cárdenas staunchly asserted that Mexico
was progressive and socialist, working with socialists of various
types—including communists—and accepting refugees from Spain, as well as
accepting communist dissident Leon Trotsky as a refugee after Joseph Stalin expelled Trotsky and sought to have him killed. Cárdenas strengthened the rights of Mexico's labour movement, nationalized
foreign oil companies and controversially supported peasants in their
struggle against landlords by allowing them to form militias to fight
the private armies of landlords in the country. Cárdenas' actions deeply
aggravated right-wing reactionaries and there was fear that Mexico
would succumb to civil war. Cardenas stepped down as Mexican President
and supported a compromise presidential candidate who held support from
business interests in order to avoid further antagonizing the
right-wing.
After World War II, a new international organization to represent social democracy and democratic socialism, the Socialist International in 1951. In the founding Frankfurt Declaration, the Socialist International denounced both capitalism and Bolshevik communism—criticizing the latter in articles 7, 8, 9 and 10—saying:
Meanwhile,
as Socialism advances throughout the world, new forces have arisen to
threaten the movement towards freedom and social justice. Since the
Bolshevik Revolution in Russia, Communism has split the International
Labour Movement and has set back the realisation of Socialism in many
countries for decades.
Communism falsely claims a share in the
Socialist tradition. In fact it has distorted that tradition beyond
recognition. It has built up a rigid theology which is incompatible with
the critical spirit of Marxism.
Where Socialists aim to achieve
freedom and justice by removing the exploitation which divides men
under capitalism, Communists seek to sharpen those class divisions only
in order to establish the dictatorship of a single party.
International
Communism is the instrument of a new imperialism. Wherever it has
achieved power it has destroyed freedom or the chance of gaining
freedom. It is based on a militarist bureaucracy and a terrorist police.
By producing glaring contrasts of wealth and privilege it has created a
new class society. Forced labour plays an important part in its
economic organisation.
The rise of Keynesianism in the Western world during the Cold War influenced the development of social democracy. The attitude of social democrats towards capitalism changed as a result of the rise of Keynesianism.
Capitalism was acceptable to social democrats only if capitalism's
typical crises could be prevented and if mass unemployment could be
averted: Keynesianism was believed to be able to provide this.
Social democrats came to accept the market for reasons of efficiency
and endorsed Keynesianism as that was expected to reconcile democracy
and capitalism.
Lord Attlee, Prime Minister of the United Kingdom (1945–1951)
After the 1945 British election, a Labour government was formed by Clement Attlee (later known as Earl Attlee). Attlee immediately began a program of major nationalizations of the economy. From 1945 to 1951, the Labour government nationalized the Bank of England, civil aviation, cable and wireless, coal, transport, electricity, gas and iron and steel. This policy of major nationalizations gained support from the left faction
within the Labour Party that saw the nationalizations as achieving the
transformation of Britain from a capitalist to socialist economy. However, the Labour government's nationalizations were staunchly condemned by the opposition Conservative Party. The Conservatives defended private enterprise and accused the Labour government of intending to create a Soviet-style centrally planned socialist state.
However, accusation by the Conservatives of the nationalizations being
inspired by Soviet-style central planning was not the case, as the
Labour government's three Chancellors of the Exchequer, Hugh Dalton, Stafford Cripps and Hugh Gaitskell, all opposed Soviet-style central planning.[110]
Initially there were strong direct controls by the state in the economy
that had already been implemented by the British government during
World War II, but after the war these controls gradually loosened under
the Labour government and were eventually phased out and replaced by
Keynesian demand management.
In spite of opposition by the Conservatives to the nationalizations,
all of the nationalizations except for the nationalization of coal and
iron soon became accepted in a national consensus on the economy that lasted until the Thatcher era when the national consensus turned towards support of privatization. The Labour Party lost the 1951 election and a Conservative government was formed.
There were early major critics of the nationalization policy within the Labour Party in the 1950s. In The Future of Socialism (1956), British social democratic theorist Anthony Crosland argued that socialism should be about the reforming of capitalism from within.
Crosland claimed that the traditional socialist programme of abolishing
capitalism on the basis of capitalism inherently causing immiseration
had been rendered obsolete by the fact that the post-war Keynesian
capitalism had led to the expansion of affluence for all, including full
employment and a welfare state.
Crosland claimed that the rise of such an affluent society had resulted
in class identity fading and as a consequence socialism in its
traditional conception as then supported by the British Labour Party was
no longer attracting support.
He claimed that the Labour Party was associated in the public's mind as
having "a sectional, traditional, class appeal" that was reinforced by
bickering over nationalization.
Crosland argued that in order for the Labour Party to become electable
again it had to drop its commitment to nationalization and to stop
equating nationalization with socialism.
Instead of this, he claimed that a socialist programme should be about
support of social welfare, redistribution of wealth and "the proper
dividing line between the public and private spheres of responsibility".
The SPD in West Germany in 1945 endorsed a similar policy on nationalizations to that of the British Labour government. SPD leader Kurt Schumacher
declared that the SPD was in favour of nationalizations of key
industrial sectors of the economy, such as banking and credit,
insurance, mining, coal, iron, steel, metal-working and all other
sectors that were identified as monopolistic or cartelized.
Upon becoming a sovereign state in 1947, India elected the social democratic Indian National Congress to government with its leader Jawaharlal Nehru
becoming Indian Prime Minister. Nehru declared: "In Europe, we see many
countries have advanced very far on the road to socialism. I am not
referring to the communist countries but to those which may be called
parliamentary, social democratic countries".
In power, Nehru's government emphasized state-guided national
development of India and took inspiration from social democracy, though
India's newly formed Planning Commission also took inspiration from post-1949 China's agricultural policies.
The new sovereign state of Israel elected the socialist Mapai party that sought the creation of a socialist economy based on cooperative ownership of the means of production via the kibbutz system while it rejected nationalization of the means of production. The kibbutz are producer cooperatives that with government assistance have flourished in Israel.
In 1959, the SPD instituted a major policy review with the Godesberg Program. The Godesberg Program eliminated the party's remaining Marxist-aligned policies and the SPD became based upon freiheitlicher Sozialismus (liberal socialism).
With the adoption of the Godsberg Program, the SPD renounced Marxist
determinism and classism and replaced it with an ethical socialism based
on humanism and emphasized that the party was democratic, pragmatic and
reformist.
The most controversial decision of the Godesberg Program was its
declaration saying: "Private ownership of the means of production can
claim protection by society as long as it does not hinder the
establishment of social justice".
This policy meant the endorsement of Keynesian economic management,
social welfare and a degree of economic planning, as well as an
abandonment of the classical conception of socialism as involving the
replacement of capitalist economic system.
It declared that the SPD "no longer considered nationalization the
major principle of a socialist economy but only one of several (and then
only the last) means of controlling economic concentration of power of
key industries", while also committing the SPD to an economic stance to
promote "as much competition as possible, as much planning as
necessary". This decision to abandon this traditional policy angered many in the SPD who had supported it.
Willy Brandt, Chancellor of West Germany (1969–1974)
With these changes, the SPD enacted the two major pillars of what
would become the modern social democratic program: making the party a
people's party rather than a party solely representing the working class
and abandoning remaining Marxist policies aimed at destroying
capitalism and replacing them with policies aimed at reforming
capitalism.
The Godesberg Program divorced its conception of socialism from
Marxism, declaring that democratic socialism in Europe was "rooted in
Christian ethics, humanism, and classical philosophy".
The Godesberg Program has been seen as involving the final prevailing
of the reformist agenda of Bernstein over the orthodox Marxist agenda of
Kautsky.
The Godesberg Program was a major revision of the SPD's policies and gained attention from beyond Germany. At the time of its adoption, in neighbouring France the stance of the French Section of the Workers' International (SFIO) was divided on the Godesberg Program while the Autonomous Socialist Party
(PSA) denounced the Godesberg Program as "a renunciation of Socialism"
and opportunistic reaction to the SPD's electoral defeats.
Response to neoliberalism (1979–1990s)
The economic crisis in the Western world during the mid to late 1970s resulted in the rise of neoliberalism and politicians elected on neoliberal platforms such as British Prime Minister Margaret Thatcher and U.S. President Ronald Reagan. The rise in support for neoliberalism raised questions over the political viability of social democracy, such as sociologist Ralf Dahrendorf predicting the "end of the social democratic century".
Indira Gandhi, Prime Minister of India (1966–1977, 1980–1984)
In 1985, an agreement was made between several social democratic
parties in the Western bloc countries of Belgium, Denmark and the
Netherlands; and with the communist parties of the Eastern Bloc
countries of Bulgaria, East Germany and Hungary; to have multilateral
discussions on trade, nuclear disarmament and other issues.
In 1989, the Socialist International
adopted its present Declaration of Principles. The Declaration of
Principles addressed issues concerning the "internationalization of the
economy". The Declaration of Principles defined its interpretation of
the nature of socialism. It stated that socialist values and vision
include "a peaceful and democratic world society combining freedom,
justice and solidarity". It defined the rights and freedoms it
supported, stating: "Socialists protect the inalienable right to life
and to physical safety, to freedom of belief and free expression of
opinion, to freedom of association and to protection from torture and
degradation. Socialists are committed to achieve freedom from hunger and
want, genuine social security, and the right to work". However, it also
clarified that it did not promote any fixed and permanent definition
for socialism, stating: "Socialists do not claim to possess the
blueprint for some final and fixed society which cannot be changed,
reformed or further developed. In a movement committed to democratic
self-determination there will always be room for creativity since each
people and every generation must set its own goals".
The 1989 Socialist International congress was politically significant in that members of Communist Party of the Soviet Union during the reformist leadership of Mikhail Gorbachev
attended the congress. The Socialist International's new Declaration of
Principles abandoned previous statements made in the Frankfurt
Declaration of 1951 against Soviet-style communism. After the congress,
the Soviet state newspaper Pravda
noted that thanks to dialogue between the Soviet Communist Party and
the SI since 1979 that "the positions of the CPSU and the Socialist
International on nuclear disarmament issues today virtually coincide".
The collapse of the Marxist–Leninist regimes
in Eastern Europe after the end of the Cold War and the creation of
multiparty democracy in many many of those countries resulted in the
creation of multiple social democratic parties. Though many of these
parties did not achieve initial electoral success, they became a
significant part of the political landscape of Eastern Europe. In
Western Europe, the prominent Italian Communist Party transformed itself into the post-communist Democratic Party of the Left in 1991.
Third Way (1990s–2010s)
In the 1990s, Third Way
politics developed and many social democrats became adherents of it.
The social democratic variant of the Third Way has been advocated by its
proponents as an alternative to both capitalism and what it regards as
the traditional forms of socialism—including Marxist socialism and state socialism—which Third Way social democrats reject. It officially advocates ethical socialism, reformism and gradualism, which includes advocating a humanized version of capitalism, a mixed economy, political pluralism and liberal democracy.
Left-wing opponents of Third Way social democracy claim that it is not a
form of socialism and claim that it represents social democrats who
responded to the New Right by accepting capitalism. The Third Way has been strongly criticized within the social democratic movement.
Supporters of Third Way ideals argue that they merely represent a
necessary or pragmatic adaptation of social democracy to the realities
of the modern world, noting that traditional social democracy thrived
during the prevailing international climate of the post-war Bretton Woods consensus, which collapsed in the 1970s.
When he was a British Labour Party MP, Third Way supporter and former British Prime Minister Tony Blair
wrote in a Fabian pamphlet in 1994 about the existence of two prominent
variants of socialism: one is based on a Marxist economic determinist
and collectivist tradition that he rejected and the other is an "ethical
socialism" that he supported which was based on values of "social
justice, the equal worth of each citizen, equality of opportunity,
community".
Lord Giddens, a prominent proponent of Third Way politics
Prominent Third Way proponent Anthony Giddens, Baron Giddens
views conventional socialism as essentially having become obsolete.
However, Giddens claims that a viable form of socialism was advocated by
Anthony Crosland in his major work The Future of Socialism (1956). He has complimented Crosland as well as Thomas Humphrey Marshall for promoting a viable socialism. Giddens views what he considers the conventional form of socialism that
defines socialism as a theory of economic management—state socialism—as
no longer viable. He rejects what he considers top-down socialism as well as rejecting neoliberalism and criticizes conventional socialism for its common advocacy that socialization of production as achieved by central planning
can overcome the irrationalities of capitalism. Giddens claims that
this claim "can no longer be defended". He says that with the collapse
of legitimacy of centrally planned socialization of production, "[w]ith
its dissolution, the radical hopes for by socialism are as dead as the
Old Conservatism that opposed them". Giddens says that although there
have been proponents of market socialism
who have rejected such central planned socialism as well as being
resistant to capitalism, "[t]here are good reasons, in my view, to argue
that market socialism isn't a realistic possibility". Giddens makes
clear that the Third Way, as he envisions it, is not market socialist,
arguing that "[t]here is no Third Way of this sort, and with this
realization the history of socialism as the avant-garde of political
theory comes to a close".
Giddens contends that Third Way is connected to the legacy of reformist
revisionist socialism, saying: "Third way politics stands in the
traditions of social democratic revisionism that stretch back to Eduard
Bernstein and Karl Kautsky".
Giddens commends Crosland's A Future of Socialism for recognizing
that socialism cannot be defined merely in terms of a rejection of
capitalism because if capitalism did end and was replaced with
socialism, then socialism would have no purpose with the absence of
capitalism. From Crosland's analysis, Giddens proposes a description of socialism:
The
only common characteristic of socialist doctrines is their ethical
content. Socialism is the pursuit of ideas of social cooperation,
universal welfare, and equality—ideas brought together by a condemnation
of the evils and injustices of capitalism. It is based on the critique
of individualism and depends on a 'belief in group action and
"participation", and collective responsibility for social welfare'.
Paul Cammack has condemned the Third Way as conceived by Lord Giddens
as being a complete attack upon the foundations of social democracy and
socialism, in which Giddens has sought to replace them with capitalism.
Cammack claims that Giddens devotes a lot of energy into criticizing
conventional social democracy and conventional socialism—such as
Giddens' claim that conventional socialism has "died" because Marx's
vision of a new economy with wealth spread in an equitable way is not
possible—while at the same time making no criticism of capitalism. As
such, Cammack condemns Giddens and his Third Way for being
anti-social-democratic, anti-socialist and pro-capitalist that Giddens
disguises in rhetoric to make appealing within social democracy.
British political theorist Robert Corfe
who was in the past a social democratic proponent of a new socialism
free of class-based prejudices, criticized both Marxist classists and
Third Way proponents within the Labour Party. Corfe has denounced the Third Way as developed by Giddens for "intellectual emptiness and ideological poverty". Corfe has despondently noted and agreed with former long-term British Labour Party MP Alice Mahon's
statement in which she said "Labour is the party of bankers, not
workers. The party has lost its soul, and what has replace it is harsh,
American style politics". Corfe claims that the failure to develop a new
socialism has resulted in what he considers the "death of socialism"
that left social capitalism as only feasible alternative.
Oskar Lafontaine, co-founder of Germany's political party The Left, had been chairman of the SPD, but resigned and quit the party out of opposition to the SPD's adoption of Third Way positions
Former SPD chairman Oskar Lafontaine condemned then-SPD leader and German Chancellor Gerhard Schröder
for his Third Way policies, saying that the SPD under Schröder had
adopted "a radical change of direction towards a policy of
neoliberalism". After resigning from the SPD, Lafontaine co-founded The Left in 2007. The Left was founded out of a merger of the Party of Democratic Socialism (PDS) and Labour and Social Justice – The Electoral Alternative
(WASG), a breakaway faction from the SPD. The Left has been
controversial because as a direct successor to the PDS it is also a
direct successor of former East Germany's ruling Marxist–Leninist Socialist Unity Party
(SED) that transformed into the PDS after the end of the Cold War.
However, the PDS did not continue the SED's policies as the PDS adopted
policies to appeal to democratic socialists, greens, feminists and
pacifists. Lafontaine said in an interview that he supports the type of social democracy pursued by Willy Brandt,
but claims that the creation of The Left was necessary because
"formerly socialist and social democratic parties" had effectively
accepted neoliberalism.
The Left grew in strength and in the 2009 German parliamentary election
gained 11 percent of the vote while the SPD gained 23 percent of the
vote.
Lafontaine has noted that the founding of The Left in Germany has
resulted in emulation in other countries, with several Left parties
being founded in Greece, Portugal, Netherlands and Syria. Lafontaine claims that a de facto British Left movement exists, identifying the Green Party of England and WalesMEPCaroline Lucas as holding similar values.
Jack Layton, former leader of the New Democratic Party in Canada from 2003–2011, led the party to become the second largest Canadian political party for the first time in its history
Others have claimed that social democracy needs to move past the
Third Way, such as Olaf Cramme and Patrick Diamond in their book After the Third Way: The Future of Social Democracy in Europe (2012).
Cramme and Diamond recognize that the Third Way arose as an attempt to
break down the traditional dichotomy within social democracy between
state intervention and markets in the economy, but they contend that the
global financial crisis of the late 2000s requires that social democracy must rethink its political economy.
Cramme and Diamond note that belief in economic planning amongst
socialists was strong in the early to mid-twentieth century, but
declined with the rise of the neoliberal right that both attacked
economic planning and associated the left with economic planning. They
claim that this formed the foundation of the "Right's moral trap" in
which the neoliberal right attacks on economic planning policies by the
left, that provokes a defense of such planning by the left as being
morally necessary and ends with the right then rebuking such policies as
being inherently economically incompetent while presenting itself as
the champion of economic competence.
Cramme and Diamond state that social democracy has five different
strategies both to address the economic crisis in global markets at
present that it could adopt in response: market conforming, market
complimenting, market resisting, market substituting and market
transforming.
Cramme and Diamond identify market conforming as being equivalent to British Labour Party politician and former Chancellor of the ExchequerPhilip Snowden's
desire for a very moderate socialist agenda based above all upon fiscal
prudence, as Snowden insisted that socialism had to build upon fiscal
prudence or else it would not be achieved.
Decline in Western Europe (2010s–present)
In
the 2010s, the social democratic parties that had dominated some of the
post-World War II political landscape in Western Europe were under
pressure in some countries to the extent that a commentator in Foreign Affairs called it an "implosion of the centre-left". The first country that saw this development was Greece in the aftermath of the Great Recession and the ongoing Greek government-debt crisis. Support for the Greek social democrat party PASOK declined from 43.9% in the 2009 Hellenic parliament
election to 4.68% in the January 2015 election. The decline
subsequently proved to not be isolated to Greece as it spread to a
number of countries in Western Europe, a phenomenon many observers thus described as "Pasokification":
The Netherlands: support for the Dutch labour party PvdA and SP has reduced in the 2017 Dutch general election.
France: in the first round of the 2017 French presidential election, the Socialist Party candidate Benoît Hamon received 6.4% of the votes, placing fifth, down from 28.6% in the 2012 when the party's candidate François Hollande was eventually elected president. In November 2016, Hollande's approval rating was 4%.
Ireland: the Irish Labour Party received 6.6% of the vote in the 2016 Irish general election, their worst result since 1987 and down from 19.5% in the 2011 election.
However, in other countries such as Denmark and Portugal support for
social democratic parties was relatively strong in polls as of 2017.
Moreover, in some countries the decline of the social democratic parties
was accompanied by a surge in the support for other centre-left or
left-wing parties, such as Syriza in Greece, Unidos Podemos in Spain and the Left-Green Movement in Iceland.
Several explanations for the European decline have been proposed.
Some commentators highlight that the social democrat support of
national fragmentation and labour market deregulation had become less popular among potential voters. For instance, French political scientist Pierre Manent emphasised the need for social democrats to rehabilitate and reinvigorate the idea of nationhood. After the Norwegian Labour Party's loss in the 2017 election, commentators such as the editor of Avisenes Nyhetsbyrå highlighted that the party had ignored a strong surge in discontent with immigration among potential voters.
A 2017 article in The Political Quarterly explains the decline in Germany with electoral disillusionment with Third Way politics, or more specifically Gerhard Schröder's embracement of the Hartz plan,
which recommended welfare state retrenchment and labour market
deregulation. The article claims that the SPD subsequently lost half of
its former electoral coalition, namely blue-collar voters and socially
disadvantaged groups, while efforts to gain access to centrist and
middle-class voters failed to produce any compensating gains.
Furthermore, the article concludes that the only possible remedy is for
the SPD to make efforts to regain former voters by offering credible
social welfare and redistributive policies. A research article in Socio-Economic Review found that the longer-term electoral effects of the Hartz plan and Agenda 2010 on relevant voter groups were limited, but that it had helped to entrench The Left as a permanent political force to the left of SPD.
Spain is one of the countries where social democracy has governed a longer time since the transition to democracy
in 1977. However, its decline has followed the european social
democracy way, losing half of its electorate between 2010 and present
day. Despite this, the Spanish Socialist party recovered power in june 2018, with Pedro Sánchez
leading the party. Some authors and polls consider him and its
Government the last hope for Europe to recover the social democracy and maybe other countries can follow their example.
In July 2018 Jeremy Corbyn, who had led the UK Labour Party to significant gains in the 2017 general election, gave a speech at an event organised by the Dutch Labour Party in The Hague
in which he argued that socialists and social democrats needed to
"reject austerity or face rejection by voters", suggesting that
working-class communities had become disgruntled by stagnating living
standards following the financial crisis of 2007–2008,
and that if the left did not offer a "new economic consensus to replace
the broken neoliberal model" which he said had led to increasing
economic inequality and insecurity, they would be perceived as part of the Establishment and eclipsed by right-wing populists.
Criticism
From a purely socialist point of view, social democratic reform is a
failure since it serves to devise new means to strengthen the capitalist
system, which conflicts with the socialist goal of replacing capitalism
with a socialist system.
Socialist critics often criticize social democracy on the grounds
that it fails to address the systemic issues inherent to capitalism,
arguing that ameliorative social programs and interventionism generate
issues and contradictions of their own, thus limiting the efficiency of
the capitalist system. The American democratic socialist philosopher David Schweickart contrasts social democracy with democratic socialism
by defining the former as an attempt to strengthen the welfare state
and the latter as an alternative economic system to capitalism.
According to Schweickart, the democratic socialist critique of social
democracy is that capitalism can never be sufficiently "humanized" and
that any attempt to suppress its economic contradictions will only cause
them to emerge elsewhere. For example, attempts to reduce unemployment
too much would result in inflation and too much job security would erode
labour discipline.
In contrast to social democracy, democratic socialists advocate a
post-capitalist economic system based on either market socialism
combined with workers self-management or on some form of participatory-economic planning.
Marxian
socialists argue that social democratic welfare policies cannot resolve
the fundamental structural issues of capitalism, such as cyclical fluctuations, exploitation and alienation.
Accordingly, social democratic programs intended to ameliorate living
conditions in capitalism—such as unemployment benefits and taxation on
profits—creates further contradictions by further limiting the
efficiency of the capitalist system via reducing incentives for
capitalists to invest in further production.
The welfare state only serves to legitimize and prolong the
exploitative and contradiction-laden system of capitalism to society's
detriment. Critics of contemporary social democracy, such as Jonas
Hinnfors, argue that when social democracy abandoned Marxism it also
abandoned socialism and has become a liberal capitalist movement, effectively making social democrats similar to non-socialist parties like the U.S. Democratic Party.
Market socialism
is also critical of social democratic welfare states. While one common
goal of both concepts is to achieve greater social and economic
equality, market socialism does so by changes in enterprise ownership
and management, whereas social democracy attempts to do so by subsidies
and taxes on privately owned enterprises to finance welfare programs. Franklin Delano Roosevelt III and David Belkin criticize social democracy for maintaining a property-owning capitalist class
which has an active interest in reversing social democratic welfare
policies and a disproportionate amount of power as a class to influence
government policy. The economists John Roemer and Pranab Bardhan
point out that social democracy requires a strong labour movement to
sustain its heavy redistribution through taxes and that it is idealistic
to think such redistribution can be accomplished in other countries
with weaker labour movements. They note that even in Scandinavian
countries social democracy has been in decline as the labour movement
weakened.
Joseph Stalin was a vocal critic of reformist social democracy, later coining the term "social fascism"
to describe social democracy in the 1930s because in this period social
democracy embraced a similar corporatist economic model to the model
supported by fascism. This view was adopted by the Communist International.
There are critics that claim that social democracy abandoned socialism in the 1930s by endorsing Keynesian welfare capitalism. The democratic socialist political theorist Michael Harrington
argues that social democracy historically supported Keynesianism as
part of a "social democratic compromise" between capitalism and
socialism. This compromise created welfare states and thus Harrington
contends that although this compromise did not allow for the immediate
creation of socialism, it "recognized noncapitalist, and even
anticapitalist, principles of human need over and above the imperatives
of profit".
More recently, social democrats in favour of the Third Way have been
accused of having endorsed capitalism, including by anti-Third Way
social democrats who have accused Third Way proponents such as Lord Giddens of being anti-social democratic and anti-socialist in practice.
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