Post-World War II

Following the split between social democrats and communists, another split developed within social democracy, between those who still believed it was necessary to abolish capitalism (without revolution) and replace it with a socialist system through democratic parliamentarymeans, and those who believed that the capitalist system could be retained but needed dramatic reform, such as the nationalization of large businesses, the implementation of social programs (public education, universal health care, and the like) and the partial redistribution of wealth through the permanent establishment of a welfare state based on progressive taxation.

Eventually, most social democratic parties have come to be dominated by the latter position and, in the post-World War II era, have abandoned any commitment to abolish capitalism. For instance, in 1959, the Social Democratic Party of Germany adopted the Godesberg Program, which rejected class struggle and Marxism. While "social democrat" and "democratic socialist" continued to be used interchangeably, by the 1990s in the English-speaking world at least, the two terms had generally come to signify respectively the latter and former positions.

In Italy, the Italian Democratic Socialist Party was founded in 1947, and from 1948 on supported the idea of a centrist alliance. Since the late 1980s, many other social democratic parties have adopted the "Third Way", either formally or in practice. Modern social democrats are generally in favor of a mixed economy, which is in many ways capitalistic, but explicitly defend governmental provision of certain social services.

Many social democratic parties have shifted emphasis from their traditional goals of social justice to human rights and environmental issues. In this, they are facing an increasing challenge from Greens, who view ecology as fundamental to peace, require reform of money supply, and promote safe trade measures to ensure ecological integrity. In Germany in particular, Greens, Social Democrats, and other left-wing parties have cooperated in so-called red–green alliances. The present government in Norway is a red-green alliance.