There has developed an abundant literature on the social and political determinants of social policies, but few have addressed the question of how state policies, once implemented, affect the system of stratification in civil society. This article examines the political consequences of social policy in Denmark and Sweden, countries in which a social democratic labor movement has predominated for decades. Superficially, these two highly developed welfare states appear very similar. Yet the political and social contexts in which their social policies have evolved differ substantially. I shall demonstrate the argument that the traditional welfare state approach may be conducive to a new and powerful political conflict, which directly questions the legitimacy of the welfare state itself, unless government is successful in subordinating private capitalist growth to effective public regulation. In Denmark, where social democratic governments have failed to match welfare state growth with more control of private capital, social policy has tended to undermine the political unity of the working class. Consequently, the Social Democratic Party has been weakened. Social welfare programs, in effect, have helped create new forms of stratification within the working class. In Sweden, social democratic governments have been quite successful in shifting a decisive degree of power over the private market to the state. This has helped avert a crisis of the welfare state, and has also been an important condition for continued social democratic hegemony and working-class unity. I conclude that social reform politics tend to be problematic from the point of view of the future power of social democratic movements.