This chapter argues that the Cold War is an important geopolitical factor for understanding and explaining welfare state development in West and East after 1945. System competition between two antagonistic blocs is the key underlying causal mechanism. The chapter examines the impact of system rivalry on social policy in the Western world and on welfare policies in the socialist countries in Central and Eastern Europe. The main finding is that system competition had a much stronger imprint on social policy in the socialist bloc because there was a growing pressure over time to improve the living conditions and social protection of the people in order to bolster the legitimacy and stability of the communist regimes. However, this policy was costly, overburdened the centrally planned economies and eventually contributed to the collapse of socialism and, therefore, the end of the Cold War.