Two narratives commonly emerge in answer to this question. The first focuses on the struggle between democracy and its alternatives, pitting liberalism against fascism, National Socialism, and Marxist-Leninism. The second focuses on competition between capitalism and its alternatives, pitting liberals against socialists and communists. Democratic capitalism is simply the best, indeed the “natural” form of societal organization, these stories assert, and once Western Europe fully embraced it, all was well. This account obviously contains some truth: the century did witness a struggle between democracy and its enemies and the market and its alternatives. But it is only a partial truth, because it overlooks a crucial point: democracy and capitalism were historically at odds. An indispensable element of their joint victory, therefore, was the discovery of some way for them to coexist. In practice, that turned out to mean a willingness to use political power to protect citizens from the ravages of untrammeled markets. The ideology that triumphed was not liberalism, as the “End of History” folks would have it, it was social democracy.
Correctly understood social democracy should be seen as a distinctive ideology and movement all its own, built on a belief in the primacy of politics and communitarianism and representing a non-Marxist vision of socialism. The term social democracy has thus been incorrectly applied to a wide range of groups, with unfortunate consequences for an understanding of the movement’s true history and rationale. In addition, social democracy should also be seen as the most successful ideology and movement of the twentieth century: its principles and policies undergirded the most prosperous and harmonious period in European history by reconciling things that had hitherto seemed incompatible—a well functioning capitalist system, democracy, and social stability.
That’s from a paper by Sheri Berman, a political scientist at Barnard. Here’s one of her books on the topic, and a series of responses to it by the Crooked Timber folks.