Throughout much of the twentieth century, struggles for social democratic reforms, such as those establishing generous welfare states and centralized collective bargaining systems, took place against the backdrop of the great power conflict of the Cold War. This fact has often colored interpretations of the gains made during these years. Looking back on the wave of reforms introduced during this era, it is hard to shake the impression that what divides that period — in which governments erected redistributive welfare states across much of the Global North — from our own is the absence of the existential threat of revolution, led by a powerful Soviet Union and communist parties governing a third if the world’s population.
That the threat of communism made social democratic reforms possible is a view widely shared across the political spectrum. In his important recent book on the postwar era, The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era, the historian Gary Gerstle makes the case that fear of Communism underpinned the postwar welfare state. These anxieties, Gerstle argues, “made possible the class compromise between capital and labor that underwrote the New Deal order.”
This was, Gerstle claims, not only true in the United States but across Europe in the decades following the conclusion of World War II. There, American financing for economic reconstruction, through measures like the Marshall Plan, gave life to economies ravaged by war. What motivated these measures was not good will but fears of an impending communist takeover, justified by events like the Greek Civil War, the growth of Italian Communism, and the November 1946 French parliamentary elections, in which France’s enormous Communist Party (PCF) finished with the largest number of seats in the National Assembly, winning over 28 percent of the vote and joining the resulting coalition government.
Though this narrative is compelling, it ignores the role of national class struggle in creating welfare states and the ways in which the Cold War climate of anti-communism hamstrung left-wing politics.
Left Out of Power
For the Left, the idea that postwar governments introduced or continued to support a whole gamut of egalitarian reforms, from generous social insurance benefits like unemployment and universal health care, in response to the communist threat is appealing for three main reasons. The first is that it extends internationally the popular American narrative that the Cold War had positive consequences, especially around civil rights. These, defenders of the thesis argue, were spurred on by fear of looking less democratic or progressive than countries in the communist bloc.
Second, it undermines the claim that capitalist societies were chiefly responsible for the social rights and living standards they offered their citizens by insisting that geopolitical pressures forced their hand.
And finally, it buttresses the standing of the Left even in countries where it did not hold power by suggesting that the mere presence of a communist alternative — whether in the form of domestic communist parties, or internationally from the Soviet Union — was enough to shape politics in the postwar years. The upshot of this argument is that, even without seizing the levers of state power, the Left was still able to steer politics in the direction it desired.
On closer inspection, these arguments suffer from major flaws. They reflect a narrow and superficial understanding of class struggle and its influence on the politics of capitalist democracies, overstate the progressive role of the USSR and Eastern Bloc in Western politics, and provide no plausible explanation for the specific timing and dynamics of rising social spending or declining inequality in the West. Looked at with a clear eye, the case for the Cold War as a key driving force behind postwar reformism is weak.
It was in countries where noncommunist reformist socialists were strongest, as in Scandinavia, that the welfare state grew most expansively and labor secured the strongest institutional powers and protections. Conversely, where Cold War pressures were felt most keenly — not just in countries that suffered right-wing dictatorships after WWII like Greece, Spain, and Portugal, but also in capitalist democracies like Italy and France — elites excluded labor and the Left from power, pro-worker reforms were slower in coming, and the growth of the welfare state required far more sustained conflict with business. In these countries, governments forged close links with powerful capitalists, while relations with the unions and the Left were often hostile and antagonistic.
Fear of communist revolution, far from making Western elites more amenable to compromise, hardened them against it. In American-backed West Germany, tensions with the East led to the prohibition of the Communist Party (KPD) in 1953, even as West Germany undermined its own denazification efforts by employing former fascists in its judiciary and civil service.
As a general rule, in places where communism posed the most direct threat to the geopolitical interests of capitalist democracies, hostility to cooperation with the Left became the norm. Gains made in this context occurred despite, not because of, great power conflicts. The key to understanding how and why social democratic gains were made lies in the intranational struggle between classes, on the shop floor and at the ballot box.
There, leftists used the postwar era’s incredibly high levels of economic growth and productivity to create a class compromise which proved relatively resilient, precisely because it accepted capitalist property relations. These parties succeeded in building institutions that eroded capitalist’s power and strengthened labor’s ability to wage class struggle.
The Left and the Welfare State
The story of the postwar heyday of social democracy does not match that of its early years or prehistory. Then, socialist movements existing within fragile and often nondemocratic regimes posed an existential threat to premodern institutions. Famously, the rise of the German socialist movement — manifested in the growth of the powerful German Social Democratic Party (SPD) — beginning in the 1870s, led the ultraconservative imperial chancellor Otto von Bismarck to introduce a host of social insurance programs, such as old-age pensions, in order to head off the threat of revolution.
Similarly, in Britain, the growing strength of the labor movement and the rise of the Labour Party drove the Liberals to introduce the People’s Budget in 1909, which included new taxes to finance social welfare programs. In France, the power of the fractured but still-powerful socialist left forced center-left coalition governments to pass important labor reforms, such as new limits on employee working hours in 1900 and 1919.
Across Europe, the rise of elected socialist governments or left-led coalitions in the interwar years resulted in more far-reaching measures. Although the Depression was largely an era of reaction in Europe, France’s Popular Front government led by Léon Blum and Sweden’s Social Democrats, who first won power in 1932 and stayed continuously for forty-four years, established major reforms. The Social Democrat’s 1938 Saltsjöbaden Agreement, for instance, forced the Scandinavian country’s employers to recognize the unions and engage in regular collective bargaining. This would become a model for the postwar “settlement” between capitalist and labor in Northern Europe.
Effectively, defenders of the view that great power competition made possible the expansion of social democratic governments extend this analysis into the postwar years. Within that period they see the impact of the Left as being reinforced by Cold War pressures. This, however, relies on a bad analogy.
While social expenditures (measured as a percentage of GDP or total economic output) rose sharply in most of the developed world during the postwar era, in those parts of Western Europe where communist parties were strongest after WWII, such as France and Italy, inequality remained relatively high, welfare states were less egalitarian, and labor enjoyed far fewer protections, when compared to their counterparts in Northern Europe.
When gains were made in these countries, they were generally the result of intense class struggles to win improvements in wages and social protections. As a result, income inequality actually rose in France and Italy during the 1950s, and remained at comparable levels with the United States (or, in the Italian case, even higher) until the end of the 1960s.
The Golden Age of Social Democracy
While the roots of Europe’s generous welfare states date back to the nineteenth century, the major era of welfare expansion after World War II can only be understood in light of the combination of rapid economic growth and democratization that marked the postwar period. In the midst of the decades-long economic boom that began during the 1950s, strong trade unions and rising labor productivity facilitated a massive expansion of welfare protection. As the slowdown of the postwar boom in the early 1970s led to rising unemployment, social democratic governments responded by increasing social spending. As a result, the developed capitalist countries of the Organisation for Economic Co-operation and Development (OECD) saw average public welfare expenditures, measured as a percentage of GDP, increase from roughly 8 percent in 1960 to 15.6 percent in 1980 and 19.2 percent in 2007, on the eve of the 2008 financial crisis.
The backdrop to these achievements was the historically unprecedented situation created by the end of the war. After a brief period of near collapse, most West European economies grew with unprecedented rapidity in the years following World War II. At a regional level, West European GDP growth averaged 4.6 percent each year between 1950 and 1973. West Germany, Italy, and France were the benefactors of some of the strongest growth rates on the continent. In Italy and Germany, this period of rapid expansion was given the moniker the “Economic Miracle.”
In those nations, high growth rates were built on steady rates of investment and high levels of economic competitiveness. For these countries, year-on-year increases for all key economic indicators were substantial during the 1950s and ’60s: in West Germany, for example, output expanded by 4.5 percent a year, on average, labor productivity by 4.6 percent, and real wages by 5.7 percent.
Politically, the defeat of fascism and the return of democratic governments in Western Europe allowed left-wing activists to emerge from the years spent underground or in exile to reform their parties and contend for power. The discrediting of traditional elites, compromised by their association with Nazism or its local allies, as well with the incredible destruction brought on by the war, created an enormous impulse for reform. After the long decades of Depression and wartime deprivation, newly reconstituted democratic governments found themselves confronted with a populace unwilling to accept a return to the prewar status quo. Following a period of economic dislocation and turmoil, they were able to take advantage of the start of a decades-long global economic boom to establish the full-employment welfare state.
Whether they founded trade unions or were founded by them, West Europe’s social democratic and labor parties were usually closely connected to centralized union organizations. In some cases, the social democratic parties afforded unions a privileged status within their structures, for example by allowing the unions to cast unified bloc votes on behalf of all of their members in party elections.
In office, social democrats repeatedly sought to construct or extend institutional backing for labor organizations. Even in countries like West Germany where conservative Christian Democratic parties (the Christian Democratic Union [CDU] or, in Bavaria, the Christian Social Union [CSU]) dominated national government for the bulk of the post-WWII era, centralized trade union organizations were able to leverage their position to forge important institutional roles and robust protections for themselves.
These could take the form of legally guaranteed rights for unions and their members. They were also manifested in strong workplace organizations for employees, like works councils and codetermination rules; broad, centralized collective bargaining systems; welfare states that protected unionized workers from the dangers of the market; and recognition of the unions as essential social partners sharing responsibility for the effective functioning of national socioeconomic institutions.
Social democratic governments instituted a variety of pro-labor reforms. Where they were in power for long periods, they created welfare states and other economic institutions that not only improved employees’ working lives, but also reinforced the organizational strength of labor.
The Swedish Model
It was in the Northern European bastions of social democratic rule that labor won the sharpest gains during these years. The social democratic strategy after World War II involved institutionalizing labor’s power through centralized collective bargaining systems and universal public welfare programs. By the early 1960s, the Swedish Model was viewed as the ultimate example of social democratic achievement. The Swedish welfare state would become famous not just for its generous social insurance programs — old-age pensions, unemployment insurance, accident and sickness benefits — but its “universal,” social service–heavy character.
Sweden is a particularly interesting case, because it consistently produced the most egalitarian income distribution in Western Europe — not only because of its large, generous welfare state, but because of the macroeconomic strategies the Swedish Social Democratic Party (SAP) employed to shape investment patterns in the Swedish economy during the postwar “Golden Age.” These didn’t involve much in the way of state ownership. In fact, France under the conservative Charles de Gaulle and his followers nationalized a far bigger chunk of its economy than the Swedes did, at least until the onset of economic difficulties in the 1970s, when growing pressures on the economy forced the conservative government that took office in 1976 to undertake more nationalizations in their first three years than the Social Democrats had in the previous 44.
Rather than state ownership, the “Rehn-Meidner model,” named after the two economists (Gösta Rehn and Rudolf Meidner) who designed it, adopted by Sweden’s governing Social Democrats during the 1950s, used collective bargaining institutions to achieve desired outcomes through negotiations between unions and employers. Most importantly, Swedish social democrats pursued a strategy of “solidaristic” wage bargaining carried out through a system of centralized “peak” negotiations in which the main union federation, the LO, and the key employers federation, the SAF, sat down to make wages level for workers across most of the Swedish economy.
These agreements were very effective in compressing the wages of higher- and lower-paid workers toward the middle, which had the effect of facilitating working-class organization and solidarity in the postwar era. But just as significantly, it favored highly productive and more capital-intensive firms, which could pay higher wages and therefore benefited from the downward pressure on pay rates for the highest-wage workers, at the expense of less efficient, labor-intensive firms that suffered from elevated wage costs.
The goal of this program was to keep the economy productive and efficient, and thus capable of supporting high wages and an advanced welfare state while driving inefficient companies out of the market. Meanwhile, “active labor market policies” like job training and placement schemes were used to help the workers who lost out when their firms went belly up to find new employment.
In return for wage restraint at the top of the earnings distribution and guarantees for private property, Sweden’s working class got full employment. As late as July of 1989, the unemployment rate was 1.3 percent, though it increased rapidly the next year in the context of a massive financial crisis that hit Sweden in the early 1990s. Workers also enjoyed the most generous universal welfare state in Europe. This helped reinforce the organizational power of labor by compensating for workers’ inherent disadvantage versus business on the labor market. By providing essential goods and services to all as a matter of social right, regardless of individual’s ability to pay, the Swedish welfare state reduced the threat of unemployment and thereby facilitated labor organizing in the workplace.
Communists, Unions, and the State
The presence of mass parties on the Left was clearly a prerequisite for the growth of the welfare state after World War II. But where the most prominent of these organizations were communist parties, inequality was higher, welfare development was more belated, and ideological disputes amongst the representatives of the working class fragmented organized labor. The general effect of the presence of communist organizations was to marginalize the Left and isolate the working class from the institutions of economic and political power. This was of course the result of the climate of the Cold War, which made many of the convictions of communist parties — such as opposition to NATO — criteria for disbarment from polite society.
In France and Italy, which had by far the strongest communist parties of all the Western democracies in the postwar years, the political gains of the Left were less significant than those in countries in which communist parties were less prominent. In Italy, where the Communists and Socialists were in alliance after WWII, with the Italian Communist Party (PCI) the dominant force, PCI hit its peak strength in 1953, when it claimed over two million members and won 22.3 percent of the vote in parliamentary elections.
The French Communist Party, meanwhile, routinely won between 20-25 percent of the vote in national elections, and dominated the labor movement through its links with the Communist-affiliated Confederation Generale du Travail (CGT) union confederation. Though excluded from power at the national level after 1947, at the local level, the party ran many of France’s largest cities. Even in the late 1970s, it still controlled a third of all municipalities with over thirty thousand residents.
The enormous influence of the PCF-dominated French left did compel the country’s mostly right-wing governments to implement reforms during the postwar era. For much of that period, however, inequality was high compared to elsewhere in Europe, and labor rights were heavily restricted.
In unions in which there was a strong communist presence, labor’s divided character prevented workers from making significant gains. Competing political forces unwilling to accept communist leadership quickly split off to form their own unions. Encouraged by the United States and local elites hostile to the USSR and to communism, noncommunist labor leaders built competing union federations on an explicitly ideological basis.
As a result, the labor movements of Italy and France were fractured along political lines becoming mutually antagonistic groupings, each closely connected to a political party or distinct political current, like the Catholic Church. The result was decades of endless competition between labor organizations, primarily taking the form of conflicts pitting communist, socialist, and Catholic-oriented union federations. Thus, the postwar French labor movement was fractured into three main currents. The largest of which was the Communist-led CGT, followed by the Catholic Confederation Française Des Travailleurs Chretiens (CFTC, which split in 1964, leading to the creation of the reformist socialist Confederation Française Democratique du Travail, or CFDT), and the traditionally “apolitical” Force Ouvrière (FO). In Italy, by 1950, labor was already divided, in parallel fashion, between, a PCI-led federation, the Italian General Confederation of Labour (CGIL), the more social democratic–oriented Italian Labour Union (UIL), and the Catholic Italian Confederation of Trade Unions (CISL).
Those competitive dynamics were undergirded by industrial relations systems in which labor representation was divided not only between, but also within, individual sectors, industries, and workplaces. Employees in Italian and French companies could be covered by a union-negotiated contract without joining a union, and there were no institutional mechanisms for any single union to get sole legal jurisdiction over any group of workers. In other words, neither country had the “closed shop.”
Instead, multiple unions, divided on the basis of political and ideological commitments, were active in each workplace — they fought for shop floor influence and organizational power, manifested, for example, in elections to works councils and factory committees.
France is a good example of what this situation looked like in practice. The postwar state constructed by General de Gaulle and his allies confronted a militant, but fractured, labor movement, led by the Communist-aligned CGT. Strike rates were high, especially in manufacturing industries where the CGT was strongest.
Fear of the Communists motivated de Gaulle to expand a welfare state that closely tied most benefits to employment. But it also led the French government to engage in violent repression of the Left, including the February 1962 Charonne Métro Station massacre, where nine protesters at a Communist-led demonstration against the Algerian War and the far right were murdered by French police.
Suspicion of the Communists’ influence over the trade union movement also led the government to try and restrict the power of organized labor. Historian John Keeler notes that Gaullist “officials hesitated to strengthen a labor movement dominated by a communist union,” the CGT. That had important implications for collective bargaining, since “the lack of a political/policy consensus between unions and the state was the most fundamental factor limiting” labor’s power.
Rather than offering concessions to labor, the Gaullist state attempted to curtail the influence and autonomy of the unions. In 1959, the French government established the promotion collective, which offered subsidies to the unions in return for their cooperation in educational and planning efforts. Lacking any alternative source of funding, the unions soon came to rely on government financing for their survival. Unsurprisingly, the state ended up systematically discriminating against the CGT, then France’s largest union, in the distribution of these funds. Thus, the Confederation was accorded one-fourth to one-eighth as much funding as its rivals received in the years before 1968. One consequence of this exclusion from power was that French unions, were unable to develop the experience of managing capitalism gained by other social democratic unions operating in less antagonistic climates.
Later, the upheavals of May 1968 in France and Italy’s “hot autumn” of 1969 led to another wave of reforms that contributed to a further fall in inequality. In Italy, those reforms included a new agreement on wage indexation to ensure workers’ pay couldn’t fall below inflation. In France, they included the national minimum wage, or SMIC (also indexed to inflation), and major increases in wages and welfare benefits. In both countries, labor militants from the communist parties and communist-led unions played a leading role in these struggles. But trade unions were never able to forge the kinds of institutions associated with “Golden Age” social democracy in Northern Europe.
The lesson is clear: the successes of social democratic governments relied on their ability to institutionalize their demands by incorporating themselves into capitalist states. Where communists dominated the Left and labor movement, business was less, not more, willing to compromise. Within a political climate in which high rates of economic growth provided opportunities for inequality reduction to parties willing to work within the confines of capitalist democracies, the communist left was less successful than its social democratic counterparts.
The wind has now clearly changed and the unique set of circumstances which defined the postwar era are unlikely to return. Forty years of working-class disorganization, political dealignment, and economic decline have undermined the social foundations of the postwar settlement. Ultimately, the Left will have to find other routes to constructing the sort of society we aim to create. Nevertheless, as it attempts to chart this new path, the Left should be clear on what was, and what was not, responsible for the period in which it managed to produce a more just society.