Although Europe between 1870 and 1939 enjoyed a period of long-run economic growth and unprecedented improvements in living standards, it also suffered from major social conflicts, rising nationalism, and witnessed experiments at new forms of political organization. This chapter looks at the connections between changes in political representation, economic development, and state capacity. It begins by discussing the difficulties of switching from a society run by the landed elites to one under universal suffrage and competitive party politics. This is followed by looking at the impact of the First World War on the development of state capacity. Then we consider the rapid economic growth that took place, and how a combination of rising industrial demand for unskilled labour, emigration, and international trade threatened a major switch in income distribution away from the landed elites to urban workers. The chapter concludes by examining how the economic and social problems caused by the First World War and the collapse of the international economy in the 1930s led to the strengthening of liberal democracy in some countries, but the appearance of social democracy and fascism in others.