Social democracy will only be able to sustain a social Europe through strengthening European democratic institutions.

German Social Democrats are lucky. Although in September they received their lowest vote in a federal election since the war– 23 per cent – things could have been worse. The result was still three percentage points more than they received in July’s European Parliament election. In France, the Socialists won only 16.5 per cent on that occasion, with the Green Party close behind on 16.3 per cent. Gordon Brown’s Labour Party, on 15.7 per cent, came third in the election, behind the Europhobe UKIP, and it is almost certainly only a matter of months until the Labour prime minister has to leave 10 Downing Street. In Poland, the Social Democrats nearly disappeared from the political scene, with 12.3 per cent, and Hungary is set on the same course. In the Netherlands, the formerly proud PVV is vegetating at 17 per cent, and the Austrian Social Democrats have fallen from over 50 per cent in the 1970s down to German levels (23.7 per cent). Even in Sweden the Social Democratic party did not attain 25 per cent, and in Italy the left is hardly making any progress despite Berlusconi (26 per cent). The Portuguese Socialists obtained only 26 per cent of the votes in July, though they kept control of the government in September. The only exceptions to these trends are PSOE in Spain, which received 38 per cent of the votes at the European Parliament elections, and Greece, where PASOK (44 per cent) has profited from the incompetence of Conservatives at national elections. The picture is clear: Social democracy is in crisis everywhere in Europe.

Smart analysts have come up with many explanations for the ‘end of the social democratic century’ (Dahrendorf): incompetent leaders, sociological trends, disappearance of the working class, the decoupling of poverty from social contexts, new structures of communication, the end of ideological plurality. Each of these explanations highlights an important partial aspect. But in the background it is the economic forces of globalisation and Europeanisation that are putting the traditional model of European social democracy increasingly into question.

Social democracy was the answer to the problems of social change that resulted from industrialisation in the nineteenth and twentieth centuries. Poverty, unemployment and social insecurity were the other side of rapid economic growth, productivity increases and new wealth. Tensions between poor and rich, and uncertainty about general standards of living, made radical solutions attractive. Fascism and communism were forms of rebellion against the atomistic individualism of the growing market economy; they sought a return to the hierarchical insertion of the individual into the larger whole of society, either by authoritarian subservience and the physical elimination of differences, or by suppressing pluralism.

After lengthy and tedious discussions in the early twentieth century, European social democracy developed its own alternative model: it has sought to realise individual emancipation and personal liberty – not only in the formal sense of liberalism, but also as material reality, through the welfare state, which seeks to serve individuals, preserve equality of chances, support plurality, and empower citizens from less privileged origins to lead a dignified life. The key to this project was the democratic state; and Keynesianism was the economic theory that made the project possible. As mass parties social democrats fought to win the majority of citizens for their ideas, and as governments they implemented their programmes. The great historic modernisers of social democracy were Bebel, Bernstein and Jaurès; and half a century later a successful vision of a modern and fair society was represented by Brandt, Kreisky and Palme.

Today this project seems to have collapsed. Why? Not because the economy was overburdened with excessive taxes and redistribution: Sweden and Denmark are among the most dynamic economies in Europe, despite a public sector share of over 60 per cent. In France under Mitterrand, productivity grew at exactly the same rate as it did in Thatcher’s Great Britain. The social democratic project has not failed because it was faulty in this respect, but because conditions in the world economy in which it was embedded have changed. And no one recognised this danger more clearly than Helmut Schmidt, who, as German Chancellor, did everything he could to stabilise the German model of a social (and social democratic) market economy in a rapidly changing global world economy.

Globalisation is the new challenge. Technological progress has dramatically reduced the costs of communication and transport. In many sectors it has enabled the creation of global markets and global finance. After the decay of American hegemony, and the collapse of the monetary system of Bretton Woods, a multi-centric world financial system has emerged, which is highly volatile and has undermined the foundations of social democratic economic policies. Supported by Milton Friedman’s anti-Keynesian revolution in economic theory, neoliberalism became the ideological alternative to the social democratic project. Redistribution has been declared taboo, liberty has been reduced to its exclusively economic dimension, and demands for equality have been ignored.

There is no doubt that deregulation, free trade and new markets in emerging economies have offered new opportunities for economic growth, increased welfare and new wealth. Between 1981 and 2001 the number of people living in poverty fell from 1.5 to 1.1 billion, which represents a fall from 40 per cent to 21 per cent of the world’s population. But the unequal distribution of this new wealth has also distorted the proportions of relative income in the world, and the destruction of the environment has increased. The poor have not become much poorer, but the rich have become much richer.

After initial hesitation, continental Europe joined in with the neoliberal vision of Margaret Thatcher’s England and Reagan’s America. The Single European Act of 1986 created a single European market, with far-reaching liberalisation of goods, services, capital and labour. European policy-makers considered this deregulation programme to be a fitness programme for globalisation. In a large market, firms could reduce costs and improve their competitiveness with respect to the rest of the world. Social democrats, from Jacques Delors to Tony Blair and Gerhard Schröder, have adopted these arguments, and rightly so, for the alternative would have been stagnation and mass poverty, not prosperity for all.

But what has been missing in the neoliberal age is a recognition that a globalised economy and a fully integrated European market create not only winners but also losers. While large companies have fired workers to cut costs, and have thereby been able to increase market share and raise profit margins, the pressure on small and medium-sized companies has increased. Many small firms are worried about their survival. Their profit margins have melted away, wage increases have become impossible, and small-scale entrepreneurs have sought tax-cuts in order to keep their share of aggregate income.

As a consequence, the social democratic project has lost its foundation. The nation state is only suitable as an instrument for redistribution when it can control the causes of inequality. But the European single market has its own dynamic. When social distortions and inequalities arise in trans-national economic sectors, the nation state is no longer able to correct them – although it often reinforces the problems by creating regulatory distortions. The answer to unequal development in the European single market must be European market regulation. Economists have known for a long time that the welfare of all individuals will be increased by new technologies and market arrangements as long as the potential losers are compensated by the winners. This was the purpose of the welfare state. But when Europe’s single market creates tensions, the nation state is not able to compensate the losers of European integration. Europe would need its own government in order to be able to correct the dynamics of inequality and to ensure welfare for all.

This solution is not obvious to everyone. The extreme left demands an end to globalisation in Europe, and has voted against the European Constitution and the Lisbon Treaty, because it believes it is possible to return to the national welfare state model. Conservatives on the political right wish to maintain the free market, but seek to limit its social explosiveness by subordinating the freedom of individuals through hierarchy and paternalism. Both these political models are condemned to fail. They lead back to closed societies where innovation and creativity disappear, and economic stagnation lingers as a permanent problem. Next to the American Yes, we can, Europe will proclaim No, we can’t.

Modern social democratic policy must be European if it seeks to correct the inequality created by the single market, and if it wishes to ensure that the losers of Europeanisation can live an emancipated and dignified life in the European Union. Modern social democratic policy must find the means to make sure that fairness and justice can be re-established in the European single market, and find ways of redistributing the gains generated by European integration across the borders of the nation state through a new model of solidarity. But it is not enough for European social democracy merely to demand the creation of a social Europe. It must also conquer the instruments by which a social Europe can be created.

Even with the ratified Treaty of Lisbon, today’s European Union is not capable of achieving such policies; and recognition of this is contributing to the growing weariness with Europe – and even hostility – that is noticeable in all Member States. And this is also the reason for social democrats’ loss of support. The reason for this incapacity is simple: European policies are made by national Member States’ governments. Their political decisions are the results of compromises between ideologically contradictory partners, who try to find common solutions but end up satisfying no one. There is no European government that expresses the general will of European citizens, and there is no general will because Europeans are not asked what they want. And because there is no government capable of transposing the will of the majorities of European citizens into law, there is no European debate about how the losers from European integration can be integrated into its success. Europe is in a trap, and the anger of ordinary citizens is growing. If European social democracy wants to survive, and make the dream of a fairer world come true, it must dare more democracy in Europe. It must not stand side by side with the conservatives, on the left and the right, who continue to seek solutions in the dysfunctional nation state. It must fight for a true democracy in Europe.

Fortunately, the German Social Democratic Party has already shown the way. In its Grundsatzprogramm voted in Hamburg in 2007, the SPD stated: ‘Our political orientation is a political union that gives democratic rights of participation to all European citizens. Democratic Europe needs a government, responsible to Parliament on the basis of a European constitution.’

It is time for actions to follow from these words.