Social democracy is a political, social and economic philosophy that supports economic and social interventions to promote social justice within the framework of a liberal democratic polity and a capitalist mixed economy. The protocols and norms used to accomplish this involve a commitment to representative and participatory democracy, measures for income redistribution, regulation of the economy in the general interest and social welfare provisions.^[1][2][3] In this way, social democracy aims to create the conditions for capitalism to lead to greater democratic, egalitarian and solidaristic outcomes.^[4] Due to longstanding governance by social democratic parties during the post-war consensus and their influence on socioeconomic policy in the Nordic countries, social democracy has become associated with the Nordic model and Keynesianism within political circles in the late 20th century.^[5]

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.^[6] 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.^[7] 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 labour)^[4] with a qualitatively different socialist economic system.^[8][9][10] With the rise of popularity for neoliberalism and the New Right by the 1980s,^[11] many social democratic parties incorporated the Third Way ideology,^[12] aiming to fuse liberal economics with social democratic welfare policies.^[13][14] By the 2010s, the Third Way had generally fallen out of favour in a phenomenon known as PASOKification.^[15]

Modern social democracy is characterised by a commitment to policies aimed at curbing inequality, oppression of underprivileged groups and poverty,^[16] including support for universally accessible public services like care for the elderly, child care, education, health care and workers' compensation.^[17] The social democratic movement often has strong connections with the labour movement and trade unions which are supportive of collective bargaining rights for workers as well as measures to extend decision-making beyond politics into the economic sphere in the form of co-determination for employees and other economic stakeholders.^[18]

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).^[19]

In the early 20th century, the German social democratic politician Eduard Bernstein rejected the ideas in classical and orthodox Marxism that proposed a specific historical progression and revolution as a means to achieve social equality and advanced the position that socialism should be grounded in ethical and moral arguments for social justice and egalitarianism that are 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 socialisation.^[20] 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,^[21] appealing to morality instead of any consistent systematic, scientific or materialist worldview.^[22][23] Social democracy made appeals to communitarian, corporatist and sometimes nationalist sentiments while rejecting the economic and technological determinism generally characteristic of both orthodox Marxism and economic liberalism.^[24] By the post-World War II period and its economic consensus and expansion, 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.^[25]

The section of social democracy that remained committed to the gradual abolition of capitalism and anti-Third Way social democrats merged into democratic socialism.^[26][27]

As a term, social democracy has some significant overlap on practical policy positions with democratic socialism, although they are often distinguished from each other.^[28][29][30] While democratic socialism is largely defined as an anti-Leninist and anti-Stalinist left, socialist big tent that opposes authoritarian and statist forms of socialism, rejects self-described socialist states as well as Marxism–Leninism and its derivatives such as Stalinism and Maoism^[31][32] and includes classical Marxist,^[33] libertarian socialist (anti-authoritarian, socialism from below),^[34][35][36] market socialist,^[32] neo-communist,^[37] orthodox Marxist^[6] (Bernsteinism,^[38] Kautskyism^[39][40][41] and Luxemburgism)^[34] and social democratic tendencies,^{[42][43][44][45]} it is also defined as social democracy prior to the 1970s, when the displacement of Keynesianism caused many social democratic parties to adopt the Third Way ideology, accepting capitalism as the current powers that be and redefining socialism in a way that it maintains the capitalist structure intact.^{[46][47][48][49][50]} As an example, the new version of Clause IV of the New Labour Constitution conflates democratic socialism with modern social democracy. While affirming a commitment to democratic socialism,^[51][52] it no longer definitely commits the party to public ownership of industry and in its place advocates "the enterprise of the market and the rigour of competition" along with "high quality public services [...] either owned by the public or accountable to them".^[51]

Like traditional social democracy, certain tendencies of democratic socialism follow a gradual, reformist or evolutionary path to socialism rather than a revolutionary one.^[53][54] Policies commonly supported are Keynesian in nature and include some degree of regulation over the economy, social insurance schemes, public pension programs and a gradual expansion of public ownership over major industries.^[55] According to both right-wing critics and certain social democratic supporters alike, policies supported by social democrats and democratic socialists such as free healthcare and education, among others, are "pure Socialism" as they are opposed to "the hedonism of capitalist society".^[56] Partly because of this overlap, some political commentators use the terms interchangeably, especially in the United States.^[37][57] The difference between the two is that social democrats support practical reforms to capitalism as an end in itself whereas democratic socialists ultimately want to go beyond social democratic reforms and advocate systemic transformation of the economy from capitalism to socialism.^[28][29][30] During the late 20th century, these labels were embraced, contested and rejected due to the emergence of developments within the European left such as Eurocommunism, the rise of neoliberalism, the fall of the Soviet Union and its allied Marxist–Leninist governments, the Third Way and the rise of anti-austerity and Occupy movements in the late 2000s and early 2010s due to the global financial crisis of 2007–2008 and the Great Recession. This latest development contributed to the rise of politicians that represent the more traditional social democracy such as Jeremy Corbyn in the United Kingdom and Bernie Sanders in the United States,^[58] who assumed the label democratic socialist to describe their rejection of centrist, Third Way politicians that supported triangulation within the Labour and Democratic parties.^[59][60]

During the post-war consensus when nationalisation of large industries was relatively widespread, it was not uncommon for commentators to describe some European countries as democratic socialist states seeking to move their countries toward a socialist economy. In 1956, leading British Labour Party politician and author Anthony Crosland claimed that capitalism had been abolished in Britain, although others such as Welshman Aneurin Bevan, Minister of Health in the first post-war Labour government, disputed the claim that Britain was a socialist state.^[61][62] For Crosland and others who supported his views, Britain was a socialist state. According to Bevan, Britain had a socialist National Health Service which stood in opposition to the hedonism of Britain's capitalist society, arguing:

When the Socialist Party was in power in France in the post-war period, some commentators claimed that France was a socialist country, although as in the rest of Europe the laws of capitalism still operated fully and private enterprises dominated the economy. In the 1980s, the François Mitterrand government aimed to expand dirigism and scheduled to nationalise all banks, but this attempt faced opposition of the European Economic Community. The same is now applied to Nordic countries with the Nordic model. Nevertheless, public ownership in France and the United Kingdom during the height of nationalisation in the 1960s and 1970s never accounted for more than 15–20% of capital formation.^[63]

The socialism practised by parties such as the Singaporean People's Action Party (PPA) during its first few decades in power was of a pragmatic kind as characterised by its rejection of nationalisation. Despite this, the PPA still claimed to be a socialist party, pointing out its regulation of the private sector, activist intervention in the economy and social policies as evidence of this.^[64] Furthermore, the Singaporean Prime Minister Lee Kuan Yew also stated that he has been influenced by the democratic socialist British Labour Party.^[65] These confusions are caused not only by the socialist definition, but by the capitalist definition as well. While Christian democrats, social liberals and certain national and social conservatives, among others, tend to support social democratic policies and generally see capitalism compatible with a mixed economy, classical liberals, conservative liberals, neoliberals, liberal conservatives and right-libertarians define capitalism as the free market, supporting a small government, laissez-faire capitalism and a market economy while opposing social democratic policies as well as government regulation and economic interventionism, seeing actually existing capitalism as corporatism, corporatocracy, or crony capitalism. As a result, social democratic policies have often been conflated with an administrative command economy, authoritarian socialism, big government, Marxist–Leninist states, Soviet-type economic planning, state interventionism and state socialism. Austrian School economists such as Friedrich Hayek and Ludwig von Mises also continually used the word socialism as a synonym for central planning and state socialism, conflating it with fascism and opposing social democratic policies and the welfare state.^[66][67][68] This is especially true in the United States, where socialism has become a pejorative used by conservatives and libertarians to taint liberal and progressive policies, proposals and public figures.^[69]

With the rise of neoliberalism in the late 1970s and early 1980s and the Third Way between the 1990s and 2000s, social democracy became synonymous with it.^[11][70] As a result, many anti-Third Way social democrats overlap with democratic socialists in their commitment to an alternative to capitalism and a post-capitalist economy and have not only criticised the Third Way as anti-socialist^[71] and neoliberal,^{[72][73][74][75][76]} but also as anti-social democratic in practice.^[71]

The United States represents an unusual case in the Western world as it did not have a social democratic movement like in Western Europe and was never governed by a self-described socialist or social democratic party. This was especially due to the Red Scare, with the first starting after the October Revolution in 1917 and lasting until 1920 and the second starting with the beginning of the Cold War in 1947 and lasting through the McCarthyist era until 1960. However, similar left-wing parties and movements which advocated or supported social democratic policies have been popular and exerted influence. These include the progressive movement and its namesakes parties of 1912, 1924 and 1948, with the 1912 Theodore Roosevelt's incarnation winning 27.4% of the popular vote compared to Republican William Howard Taft's 23.2% in the 1912 presidential election—making Roosevelt the only third party presidential nominee to finish with a higher share of the popular vote than a major party's presidential nominee—as well as Robert M. La Follette Sr. and Robert M. La Follette Jr.'s 1924–1934 incarnation briefly dominating Wisconsin politics and Eugene V. Debs' Socialist Party of America obtaining 5.99% of the popular vote in the aforementioned 1912 presidential election which was won by the progressive Democratic Woodrow Wilson. As such, although some Americans may reject that the United States has characteristics of a European-style social democracy, others argue that it has a comfortable social safety net, albeit underfunded in comparison to other Western countries.^[77]

Milwaukee has been led by a series of democratic socialist mayors from the Socialist Party of America, namely Frank Zeidler, Emil Seidel and Daniel Hoan.^[78] In 2016, Senator from Vermont Bernie Sanders made a bid for the Democratic Party presidential candidate, thereby gaining considerable popular support, particularly among the younger generation, but he ultimately lost the nomination to Hillary Clinton. Sanders has described himself as a democratic socialist.^[79][80] Since his praise of the Nordic model indicated focus on social democracy as opposed to views involving social ownership,^[81][82][83] the Cato Institute's Marian Tupy has argued that the term democratic socialism has become a misnomer for social democracy in American politics.^[84] However, Sanders has explicitly advocated for some form of public ownership^[85] and today nonetheless advocates for workplace democracy,^[86] an expansion of worker cooperatives^[87] and more democratic control of the economy.^[88] In a 2018 poll conducted by Gallup, a majority of people under 30 in the United States said they approve of socialism. 57% of Democratic leaning individuals viewed socialism positively and 47% saw capitalism positively. 71% of Republican leaning individuals who were polled saw capitalism under a positive light and 16% viewed socialism in a positive light.^[89] As such, more progressive, social democratic reforms and policies have been proposed, including the United States National Health Care Act^[90] to attain universal health care and the Green New Deal.^{[91][92][93][94]}

In November 2018, Alexandria Ocasio-Cortez and Rashida Tlaib, members of the Democratic Socialists of America, a democratic socialist organisation which advocates social democratic reforms that "will weaken the power of corporations and increase the power of working people",^[95] were elected to the House of Representatives while eleven were elected to state legislatures.^[96] As a term, democratic socialism became a synonym in American politics more recently for social democracy due to social democratic policies being adopted by progressives and reform liberals like Democratic presidents Woodrow Wilson and Franklin D. Roosevelt, leading to the New Deal coalition to reform capitalism, rather than socialists and social democrats like in Western Europe and has remained despite being a misnomer.^[97] On 30 November 2018, Sanders' The Sanders Institute^[98] and Yanis Varoufakis' Democracy in Europe Movement 2025^[99] founded the Progressive International, an international political organisation which unites social democrats with other democratic socialist, labour, left-wing and progressive activists.^[100]

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.^[101] 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.^[102] Another issue in the First International was the role of reformism.^[103]

Although Lassalle was not a Marxist, he was influenced by the theories of Marx and Friedrich Engels and accepted the existence and importance of class struggle. However, Lassalle promoted class struggle in a more moderate form which was unlike Marx's and Engels's The Communist Manifesto.^[104] 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.^[101]

The ADAV's party newspaper was called Der Sozialdemokrat (The Social Democrat). Marx and Engels responded to the title Sozialdemocrat with distaste and 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.^[104] 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 (French: Partie Democrat-Socialist) into Party of Social Democracy (German: 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.^[105] There was a Marxist faction within the ADAV represented by Wilhelm Liebknecht who became one of the editors of the Der Sozialdemokrat.^[104]

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.^[101] 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.^[105] 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, namely the petty-bourgeois Saxon People's Party (SVP), a faction of the ADAV; and members of the League of German Workers' Associations (VDA).^[105]

Although 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.^[106] 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.^[106]

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.^[107] 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. In part due to its sizeable number neo-Proudhonians and neo-Jacobins in the Central Committee, it declared that the Commune was not opposed to private property, but it rather hoped to create the widest distribution of it.^[108] The political composition of the Commune included twenty-five neo-Jacobins, fifteen to twenty neo-Proudhonians and proto-syndicalists, nine or ten Blanquists, a variety of radical republicans and a few members of the First International influenced by Marx.^[109]

In the aftermath of the Paris Commune collapse in 1871, Marx praised it 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 executive, judicial and legislative institutions, replacing it with a working-class state with broad popular support.^[110] The Paris Commune collapse 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.^[110] 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.^[111] At the Hague Congress of 1872, Marx made a remark in which he admitted that while there are countries "where the workers can attain their goal by peaceful means", in most European countries "the lever of our revolution must be force", arguing:^[112]

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.^[114] 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:

In his study England in 1845 and in 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.^[115] 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".^[114] In addition, he noticed "a gradual change over the relations between the two classes".^[116] 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:

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.^[117] The Fabian Society was founded as a splinter group from the Fellowship of the New Life due to opposition within that group to socialism.^[118] Unlike Marxism, Fabianism did not promote itself as a working-class-led movement and it largely had middle-class members.^[119] The Fabian Society published the Fabian Essays on Socialism (1889) that was substantially written by George Bernard Shaw.^[120] 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".^[120] Other important early Fabians included Sidney Webb, who from 1887 to 1891 wrote the bulk of the Society's official policies.^[121] Fabianism would become a major influence on the British labour movement.^[119]

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.^[122]

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.^[123] Important ILP members were affiliated with the Fabian Society, including Keir Hardie and Ramsay MacDonald—the future British Prime Minister.^[123] 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.^[124] While he was nominally a member of the Fabian Society, Hardie had close relations with certain Fabians such as Shaw while he was antagonistic to others such as the Webbs.^[125] As ILP leader, Hardie rejected revolutionary politics while declaring that he believed the party's tactics should be "as constitutional as the Fabians".^[125]

Another important Fabian figure who joined the ILP was Robert Blatchford who wrote the work Merrie England (1894) that endorsed municipal socialism.^[126] Merrie England was a major publication that sold 750,000 copies within one year.^[127] In Merrie England, Blatchford distinguished two types of socialism, namely an ideal socialism and a practical socialism.^[128] 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 while he claimed that practical socialism should involve the extension of state enterprise to the means of production as common property of the people.^[128] While endorsing state socialism, Blatchford's Merrie England and his other writings were influenced by anarcho-communist William Morris—as Blatchford himself attested to—and Morris' anarcho-communist themes are present in Merrie England.^[128] 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".^[129]

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.^[130] 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.^[131] However, he publicly denied having strong Fabian influences on his thought.^[132] Bernstein did acknowledge that he was influenced by Kantian epistemological scepticism while he rejected Hegelianism. He and his supporters urged the Social Democratic Party of Germany to merge Kantian ethics with Marxian political economy.^[133]

On the role of Kantian criticism within socialism, Bernstein said:

The term revisionist was applied to Bernstein by his critics who referred to themselves as orthodox Marxists, although 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.^[130] Bernstein and his faction of revisionists criticised 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 polarisation between capitalism and socialism, claiming that Kautsky disregarded Marx's emphasis on the role of parliamentary democracy in achieving socialism as well as criticising Kautsky for his idealisation of state socialism.^[134] However, Kautsky did not deny a role for democracy in the achievement of socialism as he argued that Marx's dictatorship of the proletariat was not a form of government that rejected democracy as critics had claimed it was, but rather it was a state of affairs that Marx expected would arise should the proletariat gain power and be faced with fighting a violent reactionary opposition.^[102]

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.^[135] He rejected significant parts of Marxian theory that were based upon Hegelian metaphysics and also rejected the Hegelian dialectical perspective.^[136] 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.^[137]

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 rather 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 his acknowledgement of this error is not well known due to the popularity of The Communist Manifesto and the obscurity of Theories of Surplus Value.^[138]

Bernstein criticised Marxism's concept of "irreconciliable class conflicts" and Marxism's hostility to liberalism.^[139] He challenged Marx's position on liberalism by claiming that liberal democrats and social democrats held common grounds that he claimed could be utilised to create a socialist republic.^[139] He believed that economic class disparities between the bourgeoisie and the proletariat would gradually be eliminated through legal reforms and economic redistribution programs.^[139] Bernstein rejected the Marxian principle of dictatorship of the proletariat, claiming that gradualist democratic reforms would improve the rights of the working class.^[140] According to Bernstein—unlike orthodox Marxism—social democracy did not seek to create a socialism separate from bourgeois society, but it instead sought to create a common development based on Western humanism.^[141] 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.^[142] Furthermore, he believed that class cooperation was a preferable course to achieve socialism, rather than class conflict.^[143]

Bernstein responded to critics that he was not destroying Marxism and instead claimed he was modernising it as it 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.^[144] 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.^[145]

Representing revolutionary socialism, Rosa Luxemburg staunchly condemned Bernstein's revisionism and reformism for being based on "opportunism in social democracy". Luxemburg 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" and 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.^[146] Luxemburg sought to maintain social democracy as a revolutionary Marxist creed, saying:

Both Kautsky and Luxemburg condemned Bernstein's philosophy of science as flawed 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.^[144] Kautsky and Luxemburg contended that Bernstein's empiricist viewpoints depersonalised and dehistoricised 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.^[148]

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.^[149] Engels' statements in the French newspaper Le Figaro in which he stated that "revolution" and the "so-called socialist society" were not fixed concepts, but rather constantly changing social phenomena and said that this made "us [socialists] all evolutionists", increased the public perception that Engels was gravitating towards evolutionary socialism.^[150] 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".^[150] Engels' stance of openly accepting gradualist, evolutionary and parliamentary tactics while claiming that the historical circumstances did not favour revolution caused confusion.^[150] 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.^[150]

As a result, Engels was deeply distressed when he discovered that his introduction to a new edition of The Class Struggles in France had been edited by Bernstein and Kautsky in a manner which left the impression that he had become a proponent of a peaceful road to socialism. While highlighting *The Communist Manifesto'*s emphasis on winning as a first step the "battle of democracy",^[151] Engels also wrote to Kautsky the following on 1 April 1895, four months before his death:

After delivering a lecture in Britain to the Fabian Society titled "On What Marx Really Taught" in 1897, Bernstein wrote a letter to the orthodox Marxist August 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, stating:

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.^[153]

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.^[146] Millerand's actions provoked outrage amongst revolutionary socialists within the Second International, including the anarchist left and Jules Guesde's revolutionary Marxists.^[146] 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 he provided exceptions to this rule where necessary to provide the "protection of the achievements of the working class".^[146]

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.^[154]

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.^[155] Bernstein's fears were realised with the outbreak of World War I.^[155]

Immediately after the outbreak of World War I, Bernstein travelled from Germany to Britain to meet with Labour Party leader Ramsay MacDonald. While Bernstein regarded the outbreak of the war with great dismay and although the two countries were at war with one another, he was honoured at the meeting.^[156] 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.^[155] Anti-war members of the SPD refused to support finances being given to the German government to support the war.^[155] 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".^[157] 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.^[158] Jaurès opposed France's intervention in the war and took a pacifist stance, but he was soon assassinated in 1914.^[157]

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.^[157] 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".^[159] The nationalist position by the SPD leadership under Ebert refused to rescind.^[159]

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.^[160] 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.^[161] Although 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 thought that a democratic internationalism could be revived.^[162] 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 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 of Great Britain, exemplified by Clause IV of the constitution.^[163]

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 government 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.^[164]

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, 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.^[165] Tensions between the governing majority of 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 which saw communists mobilising 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.^[166] 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.^[165] 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 former 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 refused to support the government in response to the atrocities committed by the SPD government-recruited Freikorps.^[166]

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 nationalisation of some parts of the economy. Political unrest and violence continued and the government's continued reliance on the help of the Freikorps counter-revolutionaries 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.^[167]

After World War I, several attempts were made at a global level 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.^[168] 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.^[169] 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.^[168] 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.^[169] 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.^[170]

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".^[171]

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.^[168] The LSI addressed the issue of the rise of fascism by declaring the LSI to be anti-fascist.^[172] 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.^[173] However, the LSI was criticised on the left for failing to put its anti-fascist rhetoric into action.^[172]

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.^[174] 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.^[175] 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.^[176] However, attempts by social democratic governments to achieve this were unsuccessful due to the ensuing political instability in their countries from the depression. For instance, 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.^[174]

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.^[177] 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.^[178] It permitted private ownership outside of these areas.^[178]

In 1922, Ramsay MacDonald returned to the leadership of the Labour Party from the Independent Labour Party. In the 1924 general 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.^[179] 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 as 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 recognise 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.^[180]

The Labour Party lost the 1924 general election and a Conservative government was elected. Although MacDonald faced multiple challenges to his leadership of the party, the Labour Party stabilised as a capable opposition to the Conservative government by 1927. MacDonald released a new political programme for the party titled Labour and the Nation (1928). The Labour Party returned to government in 1929, but it soon faced the economic catastrophe of the stock market crash of 1929.^[180]

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, with his pamphlet titled Imperialism influencing 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 organised capitalism. Organised capitalism was based upon trusts and cartels controlled by financial institutions that could no longer make money within their countries' national boundaries and therefore needed to export to survive, resulting in support for imperialism.^[181] Hilferding described that while early capitalism promoted itself as peaceful and based on free trade, the era of organised 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.^[182]

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 organised capitalism for being a step towards socialism, saying at the SPD congress in 1927 that organised 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".^[182]

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.^[183] 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.^[184]

The only social democratic governments in Europe that remained by the early 1930s were in Scandinavia.^[174] In the 1930s, several Swedish social democratic leadership figures, including former Swedish Prime Minister and secretary and chairman of the Socialization Committee Rickard Sandler and Nils Karleby, rejected earlier SAP socialisation policies pursued in the 1920s for being too extreme.^[178] Karleby and Sandler developed a new conception of social democracy known as 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.^[185] 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, the new SAP government reduced Sweden's budget deficit after a strong increase in state expenditure in 1933. 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 criticised because—although the budget deficit had been eliminated—major unemployment still remained a problem in Sweden.^[186]

In the Americas, 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 he was criticised 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 Álvaro 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 secularisation 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, nationalised 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.^[187]

After World War II, a new international organization formed to represent social democracy and democratic socialism, the Socialist International in 1951. In the founding Frankfurt Declaration, the Socialist International denounced both capitalism and Bolshevism, better known as Marxism–Leninism and referred to as Communism—criticising the latter in articles 7, 8, 9 and 10—stating:

The rise of Keynesianism in the Western world during the Cold War influenced the development of social democracy.^[189] The attitude of social democrats towards capitalism changed as a result of the rise of Keynesianism.^[190] Capitalism was acceptable to social democrats only if capitalism's typical crises could be prevented and if mass unemployment could be averted, therefore Keynesianism was believed to be able to provide this.^[190] Social democrats came to accept the market for reasons of efficiency and endorsed Keynesianism as that was expected to reconcile democracy and capitalism.^[190]

After the 1945 general election, a Labour government was formed by Clement Attlee. Attlee immediately began a program of major nationalisations of the economy.^[191] From 1945 to 1951, the Labour government nationalised the Bank of England, civil aviation, cable and wireless, coal, transport, electricity, gas and iron and steel.^[191] This policy of major nationalisations gained support from the left faction within the Labour Party that saw the nationalisations as achieving the transformation of Britain from a capitalist to socialist economy.^[191] However, the Labour government's nationalisations were staunchly condemned by the opposition Conservative Party.^[191] The Conservatives defended private enterprise and accused the Labour government of intending to create a Soviet-style centrally planned socialist state.^[191] Despite these accusations, the Labour government's three Chancellors of the Exchequer, namely Hugh Dalton, Stafford Cripps and Hugh Gaitskell, all opposed Soviet-style central planning.^[191] 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.^[191] In spite of opposition by the Conservatives to the nationalisations, all of the nationalisations except for that of coal and iron soon became accepted in a national consensus on the economy that lasted until the Thatcher era in the late 1970s, when the national consensus turned towards support of privatisation.^[191] The Labour Party lost the 1951 general election and a Conservative government was formed.

There were early major critics of the nationalisation 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.^[192] 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.^[193] 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.^[193] 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 nationalisation.^[193] Crosland argued that in order for the Labour Party to become electable again it had to drop its commitment to nationalisation and to stop equating nationalisation with socialism.^[193] 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".^[193]

In 1945, the SPD in West Germany endorsed a similar policy on nationalisations to that of the British Labour government. SPD leader Kurt Schumacher declared that the SPD was in favour of nationalisations 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 cartelised.^[194]

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".^[195] In power, Nehru's government emphasised state-guided national development of India and took inspiration from social democracy, although India's newly formed Planning Commission also took inspiration from post-1949 China's agricultural policies.^[196]

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 nationalisation of the means of production.^[197] The kibbutz are producer cooperatives that with government assistance have flourished in Israel.^[198]

In 1959, the SPD instituted a major policy review with the Godesberg Program.^[199] The Godesberg Program eliminated the party's remaining Marxist-aligned policies and the SPD became based upon freiheitlicher Sozialismus (liberal socialism).^[199] 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 emphasised that the party was democratic, pragmatic and reformist.^[200] The most controversial decision of the Godesberg Program was its declaration stating the following: "Private ownership of the means of production can claim protection by society as long as it does not hinder the establishment of social justice".^[201] 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.^[201] 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".^[202] This decision to abandon this traditional policy angered many in the SPD who had supported it.^[200]

With these changes, the SPD enacted the two major pillars of what would become the modern social democratic program, namely 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.^[202] 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".^[202] The Godesberg Program has been seen as involving the final prevailing of the reformist agenda of Bernstein over the orthodox Marxist agenda of Kautsky.^[202]

The Godesberg Program was a major revision of the SPD's policies and gained attention from beyond Germany.^[200] At the time of its adoption, in neighbouring France the stance of the French Section of the Workers' International was divided on the Godesberg Program while the Unified Socialist Party denounced the Godesberg Program as a renunciation of socialism and opportunistic reaction to the SPD's electoral defeats.^[200]

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 United States president Ronald Reagan.^[203] The rise in support for neoliberalism raised questions over the political viability of social democracy, with sociologist Ralf Dahrendorf predicting the "end of the social democratic century".^[204]

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.^[205]

In 1989, the Socialist International adopted its present Declaration of Principles. The Declaration of Principles addressed issues concerning the internationalisation 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, arguing: "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".^[206]

The 1989 Socialist International congress was politically significant in that members of the 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 socialism. After the congress, the Soviet state newspaper Pravda noted that thanks to dialogue between the Soviet Communist Party and the Socialist International since 1979 that the positions of the two organisations on nuclear disarmament issues "today virtually coincide".^[205]

The collapse of the Marxist–Leninist states in Eastern Europe after the end of the Cold War and the creation of multi-party democracy in many of those countries resulted in the creation of multiple social democratic parties. Alhough 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.^[207]

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 Marxian socialism and state socialism—which Third Way social democrats reject. It officially advocates ethical socialism, reformism and gradualism which includes advocating a humanised version of capitalism, a mixed economy, political pluralism and liberal democracy.^[208] Left-wing opponents of Third Way social democracy claim that it is not a form of socialism and that it represents social democrats who responded to the New Right by accepting capitalism.^[209] The Third Way has been strongly criticised within the social democratic movement.^[71] 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, with one based on a Marxist–Leninist economic determinist and collectivist tradition that he rejected and the other being an ethical socialism that he supported which was based on values of "social justice, the equal worth of each citizen, equality of opportunity, community".^[210] The New Democrats are a Third Way social democratic faction of the Democratic Party (United States).

Prominent Third Way proponent Anthony 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).^[211] He has complimented Crosland as well as Thomas Humphrey Marshall for promoting a viable socialism.^[212] 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.^[213] He rejects what he considers top-down socialism as well as rejecting neoliberalism^[208] and criticises conventional socialism for its common advocacy that socialisation of production as achieved by central planning can overcome the irrationalities of capitalism. According to Giddens, this claim "can no longer be defended". He says that with the collapse of legitimacy of centrally planned socialisation 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".^[211] 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".^[214]

Giddens commends Crosland's A Future of Socialism for recognising 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.^[215] From Crosland's analysis, Giddens proposes a description of socialism:

Although Giddens dissociated himself from many of the interpretations of the Third Way made in the sphere of day-to-day politics—including New Labour—as he reiterated that the point was not a succumbing to neoliberalism or the dominance of capitalist markets, but rather to get beyond both market fundamentalism and traditional top-down socialism to make the values of the centre-left count in a globalising world,^{[216][217][218]} Paul Cammack has condemned the Third Way as conceived by 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 criticising 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.^[71] British political theorist Robert Corfe, who was in the past a social democratic proponent of a new socialism free of class-based prejudices, criticised both Marxist classists and Third Way proponents within the Labour Party.^[219] Corfe has denounced the Third Way as developed by Giddens for "intellectual emptiness and ideological poverty".^[220] Corfe has despondently noted and agreed with former long-term British Labour Party MP Alice Mahon's statement in which she said that "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.^[76] Some critics and analysts alike have characterised the Third Way as an effectively neoliberal movement.^[72][73][74]

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".^[72] After resigning from the SPD, Lafontaine co-founded The Left in 2007.^[75] The Left was founded out of a merger of the Party of Democratic Socialism (PDS) and the 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.^[221] Lafontaine said in an interview that he supports the type of social democracy pursued by Willy Brandt, but he claims that the creation of The Left was necessary because "formerly socialist and social democratic parties" had effectively accepted neoliberalism.^[75] The Left grew in strength and in the 2009 federal election gained 11 percent of the vote while the SPD gained 23 percent of the vote.^[221] 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.^[222] Lafontaine claims that a de facto British left movement exists, identifying the Green Party of England and Wales MEP Caroline Lucas as holding similar values.^[223]

Others have claimed that social democracy needs to move past the Third Way, including Olaf Cramme and Patrick Diamond in their book After the Third Way: The Future of Social Democracy in Europe (2012).^[224] Cramme and Diamond recognise 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-20th century, but it declined with the rise of the neoliberal right that attacked economic planning and associated the left with a centralised planned economy, conflating it with the command economy akin to the Soviet Union and other Marxist–Leninist states. They claim that this formed the foundation of the "Right's moral trap" in which the neoliberal right attacks on economic planning policies 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.^[225] 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, namely market conforming, market complimenting, market resisting, market substituting and market transforming.^[226] Cramme and Diamond identify market conforming as being equivalent to British Labour Party politician and former Chancellor of the Exchequer Philip 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.^[227]

Democratic and market socialists have criticised the Third Way for abandoning socialism, arguing that the major reason for the economic shortcomings of Soviet-type economies was their authoritarian nature rather than socialism itself and that it was a failure of a specific model, therefore social democrats should support democratic models of socialism rather than the Third Way. Economists Pranab Bardhan and John Roemer argue that Soviet-type economies failed because they did not create rules and operational criteria for the efficient operation of state enterprises in their administrative, command allocation of resources and commodities and the lack of democracy in the political systems that the Soviet-type economies were combined with. According to them, a form of competitive socialism that rejects dictatorship and authoritarian allocation and support democracy could work and prove superior to the market economy.^[228]

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".^[15] 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 legislative election to 4.68% in the January 2015 legislative 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 described as Pasokification.^{[229][230][231][232][233]} Examples include the following:

In 2017, support for social democratic parties in other countries such as Denmark and Portugal was relatively strong in polls. Moreover, the decline of the social democratic parties in some countries 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.^[235]

A 2017 article in The Political Quarterly explains the decline in Germany with electoral disillusionment with Third Way and neoliberal politics, or more specifically Gerhard Schröder's embrace 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.^[236] 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 the SPD.^[237]

After the Labour Party's loss in the 2017 Norwegian parliamentary 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.^{[238][239][240][241]} Hanne Skartveit of Verdens Gang later claimed that social democrats have been struggling because the sustainability of the welfare state is challenged by immigration. Skarstein emphasised the contrast between social democrats' strong commitment for helping people on the international scene on one side and their strong commitment in favour of welfare policies for the nation's own population on the other.^[242]

Spain is one of the countries in which the PSOE, the main social democratic party, has been in government for a longer period of time than any other party since the transition to democracy in 1977. However, it has also declined like the European social democratic parties, losing half of its electorate between 2010 and 2015 and gaining its worse ever result since the restoration of democracy. Despite this, the PSOE returned to power in June 2018, with Pedro Sánchez leading the party. Some authors consider him and his government the last hope for Europe to retain its social democratic heritage^[243] and some believe they would act as an example to like-minded politicians in other countries.^[244][245]

Several social democratic parties like the Labour Party under Jeremy Corbyn have rejected the Third Way and moved back to the left on economics.^[246] Other parties like the Social Democrats also became increasingly sceptical of liberal mass immigration from a left-wing point of view as it believes it has had negative impacts for much of the population, a more pressing issue since at least 2001 after the 11 September attacks which intensified during the 2015 European migrant crisis. The Social Democrats believes that both perception of it being neoliberal and soft on immigration during the era of neoliberal globalisation likewise contributed to its poor electoral performance in the early 21st century.^[247][248] In a recent biography, the Social Democrats party leader and incumbent Danish Prime Minister Mette Frederiksen argued: "For me, it is becoming increasingly clear that the price of unregulated globalisation, mass immigration and the free movement of labour is paid for by the lower classes".^[249]

Social democratic policies were first adopted in Imperial Germany in the 1880s and 1890s when the conservative Chancellor Otto von Bismarck put in place many Social Democrats' social welfare proposals to hinder their electoral success after banning them with the Anti-Socialist Laws, laying the ground to the first modern welfare state. Those policies were dubbed as State Socialism by the liberal opposition, but the term was later accepted by Bismarck.^[250] State Socialism refers to a set of social programs implemented in Germany that were initiated by Bismarck in 1883 as remedial measures to appease the working class and detract support for socialism and the Social Democrats following earlier attempts to achieve the same objective through Bismarck's Anti-Socialist Laws.^[251][252]

Similar policies were later adopted in most of Western Europe, including France and the United Kingdom (see the Liberal welfare reforms),^[253][254] both by socialist and liberal parties. In the United States, the progressive movement, a similar social democratic movement more influenced by liberalism than socialism, supported progressive liberals like Democratic presidents Woodrow Wilson and Franklin D. Roosevelt, whose New Freedom and New Deal adopted many social democratic policies. With the Great Depression, economic interventionism and nationalisations became more common worldwide and the post-war consensus which lasted until 1973 saw Keynesian social democratic and mixed economy policies put in place, leading to the post-World War II boom where the United States, Soviet Union, Western European and East Asian countries in particular experienced unusually high and sustained economic growth, together with full employment. Contrary to early predictions, this high growth also included many countries that had been devastated by the war such as Japan (Japanese post-war economic miracle), West Germany and Austria (Wirtschaftswunder), South Korea (Miracle of the Han River), France (Trente Glorieuses), Italy (Italian economic miracle) and Greece (Greek economic miracle).^{[255][256][257]}

With the 1970s energy crisis, the abandonment of both the gold standard and the Bretton Woods system along with Keynesian social democratic, mixed economy policies and the implementention of market-oriented, monetarist and neoliberal policies (privatisation, deregulation, free trade, economic globalisation and anti-inflationary fiscal policy, among others), the social democratic welfare states were put in doubt.^[258] This caused social democratic parties to adopt the Third Way, an ideology combining progressivism and social liberalism with neoliberalism.^[259] However, the Great Recession in the late 2000s and early 2010s casted doubts to the so-called Washington Consensus and protests against austerity measures ensued, causing a resurgence of social democratic parties and policies, especially in the United States and the United Kingdom with Bernie Sanders and Jeremy Corbyn, who rejected Third Way social democracy,^[58][59][60] after the economic recession caused the so-called Pasokification of many social democratic parties.^{[229][230][231][232][233]}

The United Nations' World Happiness Report shows that the happiest nations are concentrated in social democratic nations, especially in Northern Europe, where the social democratic Nordic model is employed. This is at times attributed to the success of the Nordic model in the region, where similar democratic socialist, labour and social democratic parties dominated the political scene and laid the ground to their universalistic welfare states in the 20th century. The Nordic countries, including Denmark, Finland, Iceland, Norway and Sweden as well as Greenland and the Faroe Islands, also ranked highest on the metrics of real GDP per capita, economic equality, healthy life expectancy, having someone to count on, perceived freedom to make life choices, generosity and human development.^[260][261] Similar reports have likewise listed Scandinavian and other social democratic countries as ranking high on indicators such as civil liberties,^[262] democracy,^[263] press,^[264] labour and economic freedoms,^[265] peace^[266] and freedom from corruption.^[267]

Numerous studies and surveys indicate that people tend to live happier lives in social democratic societies rather than neoliberal ones.^{[268][269][270][271]}

From a purely socialist point of view, social democratic reform is criticised because it serves to devise new means to strengthen the capitalist system which conflicts with the socialist goal of replacing capitalism with a socialist system.^[272] As such, social democracy fails to address the systemic issues inherent in capitalism. 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 humanised 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.^[273] In contrast to social democracy, democratic socialists advocate a post-capitalism economic system based on either market socialism combined with workers' self-management or on some form of participatory, decentralised planning of the economy.^[274]

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 by reducing incentives for capitalists to invest in further production.^[275] The welfare state only serves to legitimise 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 Democratic Party in the United States.^[74]

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 criticise 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.^[276] 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, noting that in Scandinavian countries social democracy has been in decline as the labour movement weakened.^[277]

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. It was argued that capitalist society had entered the Third Period in which a working class revolution was imminent, but it could be prevented by social democrats and other fascist forces.^[278]

Some critics claim that social democracy abandoned socialism in the 1930s by endorsing Keynesian welfare capitalism.^[279] 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 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".^[280] 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 Anthony Giddens of being anti-social democratic and anti-socialist in practice.^[71]