Here's a beat down attempt
"The first is multiculturalism. Social democracy was created for ethnically and culturally homogeneous societies. West European societies today are much more diverse than they were sixty years ago. This is the issue on which Assar Lindbeck (incidentally, the most influential person in the creation and early awards of the prize) has picked early on. If cultural norms differ and if there is a “lack of affinity” between the groups (to use Peter Lindert’s term) then willingness by some to fund transfers for the others wanes.
The second challenge is the end of Fordism. With much more heterogeneous labor, in terms of their skills and tasks; smaller size and geographically dispersed units; the self-employed rather than workers, the natural constituency of social democracy (homogeneous labor assembled in one place) disappears.
The third challenge is demographic. Social democracy was very successful through the use of pay-as-you-go (PAYG) system in the countries where population was increasing and the working age population was large. Many people worked and they could transfer income to the retirees in the expectation that the same deal will apply to them when they become old. But when the population is in the decline and there are too many retirees compared to the working age population, maintaining the integrity of the PAYG system is harder. It is not impossible as the pension age can be raised and pensions reduced, but it is certainly not politically easy to do.
The fourth challenge is globalization. Social democracy operated within rather closed economies where migration (and thus the challenge of multiculturalism) was minimal and where capital was generally locked in nationally. None of that is true anymore. Capital is much more mobile, and if heavily taxed to provide funds for social transfers, will flee. Developed welfare states that make sure that nobody is left behind may provide incentives particularly to the low-skilled migrants. Thus “better” social democracy may perversely attract lower quality migrant labor than the much more austere and “mean” systems.
