Labour needs to refound itself now

New Zealand has found a better route than the flagging third way.

Just before the phrase slips from public consciousness along with the stakeholder economy and the third way, this is how Tony Blair once described his relationship with the trade unions. "In future," said the prime minister, "it will be based on fairness, not favours." Given Mr Blair's courting of big business and his predilection for public service privatisation, in practice the catchphrase has been turned on its head. "Favours, not fairness" is how one middle-ranking union official, in the aftermath of the Mittal affair, described it to me. And who can blame her - and legions like her - from thinking this way?

Mr Blair's personal envoy and insouciant fundraiser, Lord Levy, may be in a better position to know about the real state of Labour's finances than the elected members of the party's finance committee. Be that as it may, the long courtship with business and the cold-shouldering of the unions has left Labour with the biggest financial hole in its 100-year history. Labour's members have taken flight, too. Officials claim that membership has fallen from around 400,000 in 1997 to 280,000. A more accurate figure would be in the region of 250,000 - the number of ballot papers mailed out for last year's elections to the national executive committee.

Mr Blair told sullen delegates to the Scottish Labour party conference in Perth last Friday that the battle for public sector "reform" would perhaps be "the most important chapter in the New Labour story". It looks like being a final chapter. Extra funding aside, how on earth can the PM honestly expect Labour's ranks to rally behind the partial privatisation of London Underground or the steady march of the private sector into the NHS?

Such political perversion is strangely reminiscent of an attempt by another faction at a different time to steal a march. In the 1980s, Labour was beset by the Militant Tendency. In the immediate aftermath of Labour's Cardiff spring conference, Mr Blair ludicrously compared critics of his public sector "reform" plans to the Trots of yesteryear. Fortunately, there is not the slightest chance of history repeating itself or of Derek Hatton staging a return. But some are beginning to wonder if the New Labour faction now stands accused of calling the kettle black.

I've lost count of the initiatives - and organisations - launched to save Labour for, at the very least, a semblance of social democracy. But it's time for a reconvening of the Labour tribe. Tony Blair's "wreckers" speech finally crystallised in many people's minds the conviction that the warm words of contemporary management-speak hide myriad sins.

Labour needs a refoundation. Those with a longer-term commitment to democracy - and to socialism - need to fashion an agenda that will appeal to the disenfranchised and the disengaged, to a left-leaning constituency that currently feels it has nowhere to go. Labour Refoundation does not need to be an organised grouping, but a constellation of groups and individuals who want their party to continue to be one based on equality and social justice. I suspect that they will soon find that they have a great deal in common.

A Labour Refoundation would look more to Europe than to America. It would pay more attention to the programme of the French Socialist party than that of Silvio Berlusconi. Internationalist in outlook, Labour Refoundation would step back from slavish support for President Bush's heavy-handed global interventionism and align with those who argue for diplomatic and peaceful means of solving conflict.

Learning from the recent experiences of the New Zealand Labour party, which went through a cathartic conversion to neo-liberalism in the 80s but recovered to tell the tale, Labour Refoundation could start to prepare an alternative to the steady march of the corporations into every facet of public life. Ownership and control would become important issues again, as would the further devolution of democratic power. If there is to be any grassroots revival of Labour and local democracy, the best traditions of community socialism and cooperation will need to be reclaimed.

New Labour's apostasy has coincided with the growth of an unhealthy illiberalism. In turn this has bred a suspicion of democracy, most visible in the appointment of "tsars", the reliance on corporate-sponsored thinktanks and a reluctance to push ahead with real reform in parliament. Once, Labour's watchwords were liberty and equality. Somehow, I feel they may outlast meaningless New Labour mantras of "mod- ernisation" and "blue-sky thinking". The New Labour interregnum is drawing to a close. Are there any takers for a Labour Refoundation?

· Mark Seddon is editor of Tribune and a member of Labour's national executive committee.