Prime minister Tony Blair looks back over 100 years of Labour and finds inspiration to face the challenges ahead.

I think Keir Hardie may be ruefully stroking his beard as he looks down on Britain today. Many times richer, our horizons have been transformed in the past 100 years, whether in health, education or travel. Yet could he believe that a minimum wage would have been in operation for less than a year of the 20th century? While astounded at what has changed, I believe he would be profoundly depressed at what has not changed: so many children still born into poverty, 7 million adults who cannot read and write properly, nearly one in five households with no one working.

These realities provided the animating force behind the existence of the Labour Party. The party was founded on practical interests rather than ideology. These interests came to be expressed in simple but enduring values - social justice, responsibility, democracy, tolerance - that have bound the party together throughout the century. And the values have ensured our role in the great progressive movements of the past century, from the crusade for universal suffrage in Britain to the battle against apartheid in South Africa. But it is the realities of daily life that have been the basis of our most successful reforms.

The 1945 Labour government was the greatest peacetime administration this century. Clement Attlee, Herbert Morrison, Ernest Bevin and Aneurin Bevan were giants whose reputations have not been diminished by time. They formed a government that shaped the agenda for a generation. They engineered the transition from war to peace without the mass unemployment that disfigured our country after the first world war. They launched a crusade to tackle poverty from birth to death, setting up a universal system of national insurance. Above all, they created the National Health Service, the greatest achievement so far of Labour in government in Britain.

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Nor should we underplay the achievements, in circumstances that were often difficult, of the Labour governments that followed Attlee. The 1964 Labour administration expanded ÖйúAƬ, created the Open University and carried forward the attack on class barriers and prejudice that had largely lain dormant since Labour lost power in 1951. In the 1970s, the Labour government, tackling the consequences of a world financial crisis without the benefit of North Sea oil, continued this social crusade with pioneering legislation on women's rights and race relations.

But what these governments could not do, except temporarily, was recreate the combination of policy advance and popular mobilisation that made the government of 1945 so remarkable. They were unable to give expression to a national sense of purpose whose support went beyond our party's traditional base and whose principles were adopted by the opposition.

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Any honest assessment of Labour's first 100 years also contains a puzzle.

Why has a popular progressive party, formed out of communities across the country, in a nation where reform is so necessary, spent most of the past century out of power? The century has been punctuated by defining bursts of radicalism, but Hardie would surely be disappointed at the relative lack of success of his party.

This is why, while celebrating our party's achievements, we must also look back and see the past 100 years as a time of missed opportunity and unfulfilled promise. Downing Street is steeped in history, but too little of it is Labour history. As I walk up the staircase from my office, it gives me pride to see the pictures of the Labour prime ministers on the walls, but I cannot help reflecting how few of them there are. And Britain is poorer, in every sense, as a result.

We can point to bad luck, bad timing and bad policies to explain our failure to dominate the past 50 years. But we must also accept that we failed as a party to keep the trust of the people. This was not because of our values, which remain those of most people in this country, but because the ideology built on them became fossilised and out of date.

We failed too, because the party structures designed to ensure we continued to reflect people's real needs and ambitions in a world changing faster than ever before, became instead obstacles to this aim. It meant a party formed by working families out of a desire for self-improvement was seen as an obstacle to their progress.

There are two strands of the British progressive tradition. The dominant socialist commitment to collective action in the pursuit of social justice and the liberal commitment to individual freedom in a market economy. Both have their place - for example, since 1997 we have enacted the New Deal, while at the same time introducing the Human Rights Act. The differences can be exaggerated, but the two strands have never been properly synthesised: this is an important dimension of the debate about the "Third Way".

For those of us born after the war, our perspective is obviously dominated by the search for the partnership of radicalism, credibility and competence that characterised the 1945 government. After the 1970s and early 1980s, first Neil Kinnock and then John Smith, supported by party members across the country, began the process of change. They modernised both the ideology and the organisation to ensure we again spoke for working families, through policies that could deliver their desire for a better life. The result is that our party starts its second century in government.

It is worth remembering that after 1992, commentators argued that there never would be a Labour government again. And it is a government, too, that remains true to the party's enduring values, while adding significant new dimensions of reform.

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Our aim is nothing less than to build a lasting consensus for our vision of a better Britain. For decades, people's hearts have told them to vote Labour. They rightly associated us, the creators of the NHS, with compassion. But it was their heads that told them to vote Conservative. They did not believe we could deliver the economic prosperity they wanted for themselves and their families.

Since 1997, we have shown that a Labour government can run the economy and we have begun to establish a new collective memory of what a Labour government can do. Employment is up, inflation low, finances back on track. But we have also demonstrated that economic dynamism and social decency, head and heart, can be successfully combined.

Twentieth-century politics was in many ways unrecognisable from government of the 19th century. Similarly, the 21st century is going to see enormous change. The positions, the priorities, the labels - all will be different. And the question for the Labour Party is whether it simply has to adapt to change, or whether by anticipating the demands of the future, it can help shape it.

Across Europe, in fact wider, social democratic and socialist governments are making themselves the agents of reform. And what strikes every prime minister is that government must show itself as flexible and innovative as the fast-changing world outside. The challenge is one that our party's founders would recognise. If the rise of the knowledge economy is to hasten wider opportunity not social polarisation, progressive parties must develop the right strategies; if the consciousness of younger people about the importance of the environment is to be matched by politicians, we must take the lead; if the partial revolution in women's life chances is to be completed, and its implications managed, we need to be thinking in radical ways; if democratic governance is to be deepened at international and local level, it is up to us.

This is an edited extract from Tony Blair's preface to The Labour Party: A Centenary History.

* IS NEW LABOUR A COMPLETELY NEW POLITICAL PARTY, DIVORCED FROM THE IDEAS THAT INSPIRED THE GREAT LABOUR HEROES OF THE PAST CENTURY?

New Labour? What is "Labour" about it? If the old tag is intended as a mark to position on the political spectrum, then I thinkits use is a historical "fraud". The redefinition of Labour Party values has in effect changed it into something else, perhaps a new party of government.

A topic of keen interest to some students of political science in the mid to late 1980s was how old Labour could be made more electable, and of course the real answer came after 1994: make it new Labour.

Fred Nash, University of Southampton.

There are a whole raft of people, new Labour through and through, who would say that they didn't stand by the party in the difficult years and rescue it from both the loony left and social democrat deserters only to see it transmogrify into the Social Democrat Party mark II.

Tony Blair has managed to reinvent and revive an old brand: that is much, much better (and easier) than launching a new one - just ask Eddie Shah about his experiences with Today newspaper.

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Tim Bale, Victoria University of Wellington.