Does control of state power by the left always help it strengthen working organization? Does social democracy's progress, measured by welfare state development, necessarily help reinforce the unity of its organized constituency?' If not, and if in fact the economics and politics of the growing welfare state were to divide the working class, would the resulting disunity and decentralization of labor organizations always impair allied left-wing political parties?2 Conflicts within Swedish and West German labor about the costs of the welfare state in the 1980s, analyzed here in historical perspective, suggest some answers. Recent Swedish and German politics show that the large and growing welfare state tends to divide organized labor, its core organizational constituency. But events also show this very division can provide the opportunity for a realignment of political forces enabling the left to regain or maintain political power though it loses forward momentum as a transformative force. The evidence and argument presented here about these events suggest that the organizational pillars of the welfare state, social democratic labor unions and parties, are likely to impose limits on the welfare state. They are likely to do so in conflict with themselves, and in alliance with outside interests. In the tradition of Max Weber, capitalism's anxious intellectuals like Joseph Schumpeter repeatedly ask whether in the long run capitalism can maintain its political, institutional, and ideological defenses in the era of the democratic welfare state.3 Even before coming to fruition, reform movements in the Soviet bloc have stirred worries among conservatives that dissipating fear of communism will weaken right-wing solidarity against state encroachments. However, contrasting analyses of the contradictions of the welfare state, like the following, show capitalism to be more robust and likely to outlive those who see only progressive cultural and political decay.4 Labor's intraclass conflict, a source of capitalism's political vitality (and one of the mechanisms confining the welfare state), is curiously missing in studies of the capitalist political economy. This observation holds especially for the study of class between the left and capitalist accommodationists that bring labor into government and policymaking. One school sympathetic to social democracy tends to depict labor, when it is successful, as an undifferentiated and unified bloc. Incentives for compromise with capital are specified as collective or broadly beneficial payoffs (growth, low unemployment, special programs) for the generalized short-run sacrifices of wage restraint.5 Capital, often depicted as comparatively divided and politically disadvantaged, is motivated to release political power in compromises with labor for similarly undifferentiated and therefore weakly