Introduction

The historical achievement of twentieth-century social democracy was to represent the interests of the working classes of democratic industrial societies within a capitalist economy through a particular combination of social policy, redistributive taxation and business regulation. Social democrats remained suspicious of the inequalities of power and wealth represented by capitalism, but tried to achieve compromises within a capitalist system through these policy instruments. By the end of the century it was becoming increasingly difficult to maintain this stance, as the globalisation of the economy, the decline of the organised industrial working class, and the growing dominance of neo-liberal ideas were shifting the balance of power against those forces on which social democracy depended. Among the various responses made by social democrats to this situation, the most prominent was that associated with the ‘Third Way’ (in the UK) or, to a lesser extent, the ‘neue Mitte’ (in Germany). This advocated no longer regarding capitalism and corporate power as problematic and reshaping social democracy's traditional policy approaches to be more accepting of them. Such a stance involved overlooking several major problems. This chapter will explore certain weaknesses in this approach and will argue that a revised position is possible: the concept of the ‘social investment welfare state’ promoted by various social policy specialists and practised in some European nation-states, particularly in the Nordic countries that have long represented the core of social democracy.