This week all eyes have turned to the first anniversary of the Conservative-Liberal coalition government, but it's also a year since the Labour party's second worst post-1918 defeat. Labour's ejection from office reflects an even starker European trend as the pendulum has swung aggressively against the left. Local council victories last Thursday cannot disguise the governing crisis that threatens Labour's very survival as a party of power.

There remains little sense of what would be the ideological programme through which the left can govern in a world transformed irrevocably by the global financial crisis. The recurring question has been why, in the midst of a crisis whose origins clearly implicate the neoliberal right, it is social democrats who remain battle weary and defensive. The crisis that began with a wave of sub-prime lending in the United States has been hastily redefined as a crisis of public debt and government deficits. It is the state – its size, role, and efficiency – that is now at the centre of political debate, not the inherent instability of markets and free-market ideology.

Some argue that this represents a failure of nerve on the part of social democrats to define the crisis as the product of unbridled and nascent global capitalism. As voters have rushed to embrace the scapegoats and "no nonsense" banalities of the centre-right, the left's leaders have looked evasive and indecisive, unable to project either competent economic management or a strategy for radical reform of the banks and the global financial system in the same vein as Keynesianism and the New Deal in the 1930s. As a result, history will conclude that the centre-left squandered a moment of unique opportunity.

In truth the guiding assumptions of the social democratic governing model were shattered well before the crisis. New growth theory presupposed that investment in human capital would lift all boats. The opposite has been the case, however, as wage stagnation and declining living standards have afflicted blue and white collar workers.

Centre-left governments assumed a benign marriage of economic efficiency and social justice, investing the proceeds of growth from increased global market competition into the welfare state and public services. What followed, however, was runaway wealth and income inequality that post-hoc redistribution could not possibly restrain.

Social democrats' capacity to seize the crisis and redefine it as the basis for a resurgent progressive politics involves coming to terms with the dilemmas of governing. There is simply no substitute for hard thinking and engagement with uncomfortable realities. This is a precondition of becoming a serious contender for power, borne out by the striking results of polling commissioned by Policy Network across the UK, the US, Sweden and Germany.

Today, voters are palpably frightened by the concentration of power in the market economy. This is mirrored by lack of faith that democratic politics can properly uphold the public interest. The unease is most visible in people's apprehensiveness about the dominance of large, multinational corporations. The overwhelming majority agree that large companies care only about profits and not about the wider community or the environment, but voters have a low estimation of government's ability to stand up to vested interests. Strikingly, most believe that who you know is usually more important for getting on in life than hard work and playing by the rules. Indeed this sentiment is most pronounced in the UK.

Majorities in all four countries believe that centre-left governments tax too much with too little public benefit. This feeling is strongest among the groups the left has to win back. Yet there is support for increased taxation if it is guaranteed to improve benefits and services. Job security remains the absolute priority for voters. There is also a strong attachment to the pillars of the postwar welfare state, including pension provision, healthcare and – to a lesser extent – unemployment benefits.

In most advanced economies social democratic values still find widespread acceptance. What the public want is active government that develops a "cradle to grave" welfare state in the context of rapid changes in our society and the world at large.

It is this belief in the "transformative capacity" of the state that continues to prevail. Europe today has never been more in need of effective social democratic solutions. If the moment of the global financial crisis has passed, the centre-left must capitalise on its aftermath by framing a forward-looking agenda for shared prosperity.

• This research has been commissioned for the annual Progressive Governance Conference on 12-13 May in Oslo