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This chapter turns to the social democratic reforms of the 1940s and 1950s, rooted in cross‐class alliances that were ultimately to distinguish Sweden as the world's paragon social democratic welfare state. Looking first at its People's Pension and universal health insurance reforms, it shows how the Social Democratic government assisted organized employers in their efforts against welfare capitalism by relieving pressure on individual firms to use private social benefits to attract and retain labor under the labor scarcity associated with solidarism and strong expansionary macroeconomic pressures. It then looks at Sweden's renowned “active labor market policy” and its controversial pension legislation of 1959 to show how additional social democratic reforms directly served employers’ solidaristic interests in wage restraint, labor mobility, and the rationing of labor made scarce by collectively administered underpricing – all the while preserving capitalist domination of the investment process.

This chapter returns to the analysis of twentieth century U.S. to explain the dual nature of its system of labor market governance in which cartelism, a centralized system of multiemployer collective bargaining, thrived alongside segmentalism in important sectors like bituminous coal mining, clothing, and building and construction. In these sectors, employers and unions joined in cross‐class alliance to prop up wages to stem destabilizing low‐standard competition. The regulatory alliance, distinct from Sweden's solidarism, which imposed ceilings instead of floors on wages, helped give rise to economic and political phenomena of an equally distinct nature, e.g., early ties between the Republican Party and the powerful miners’ union; corruption in building and construction (which was absent in Sweden); and ultimately, employer interests in the New Deal's labor and social legislation of the 1930s.

This chapter develops an alternative theory about welfare state development, which posits that reformers try to root their legislation in cross‐class alliances intersecting the internally diverse interests of capital and labor. Reformers appeal to interests in progressive reform deriving from capitalists’ desire for regulation of markets. The theory about the politics of the welfare state draws on labor economics, arguing that macroeconomic shocks to systems of labor market governance (various forms of collective bargaining and managerial relations) create an opportunity for politicians to enlist capitalist support for regulatory assistance through social insurance and labor reform.

This chapter picks up where the last left off, in the 1930s, when the Swedish Social Democratic Party took power, and instead of undermining solidarism, actually helped employers achieve their long sought‐after solidaristic goal of compressing wage levels across industries. During the Great Depression, Social Democratic intervention against militant unions in the building and construction trades brought their wages down to levels long sought by employers, and inaugurated a decade‐long period of labor‐management harmony and consensual politics despite Social Democratic domination. This harmony was based on a cross‐class alliance of interest between major export‐oriented sectors of Swedish industry and the social democratic labor movement, reflected in the details of achievements of other political and industrial relations of the decade: the Social Democratic government's crisis program against unemployment and the famous 1938 Basic (Saltsjöbaden) Agreement between the labor and employer confederations.

Constructs an explanation of welfare state development in the U.S. from analysis of segmentalism and cartelism, analyzed in earlier chapters, which characterized key components of its labor market system. Segmentalists (implicitly) and cartelists (explicitly) contracted with workers to hold wages and benefits higher than what market mechanisms alone would have set them; thus, these employers were vulnerable to the deflationary macroeconomic shock and unemployment of the Great Depression, which allowed competitors to threaten their profits by more freely lowering wages and therefore charging lower prices. New Dealers, having learned from the Progressive era as well as more recent reform about the potential for capitalist support ignored vocal opposition from business organizations and proceeded with regulatory social security, unemployment insurance, minimum wage, and labor law reform that would level the competitive playing field upward, stabilizing ruinous competition for cartelists and segmentalists, and thereby securing a cross‐class alliance for the New Deal.

This chapter turns to an explanation of welfare state development in Sweden, where ironically, the major strides had to wait until the 1940s and 1950s, although Sweden's progressive political forces seemed stronger than America's in the 1930s. First it looks at why. Because of their solidaristic system of labor market governance, capitalists in Sweden would benefit from progressive reforms in times of acute labor scarcity (associated with postwar macroeconomic conditions) rather than the reverse as in the U.S. Then it analyzes how the Social Democratic government's very modest unemployment insurance and pension reforms of the 1930s served solidarism's need for low levels of militancy and heightened labor mobility, and thus helped forge the kind of cross‐class alliance that was to secure a long reign of peaceful relations between labor and capital under a leftist government.

This chapter turns to the dramatically different turn of events in early 20^th century. Sweden, where highly centralized collective bargaining took hold, largely at the behest of employers, accomplished with their effective use of sweeping multifirm and multiindustry lockouts. Securing absolute management rights despite union input in collective bargaining, employers achieved a solidaristic system of labor market regulation in which wages were held below market equilibrium for most firms and wages were standardized or compressed within many industries. The employer confederation was not successful, however, in achieving a desired compression of wages across industries, a goal that was to require labor union help and political intervention, discussed in the following chapter.