The party must tap in to the energy and liberating excitement of the anti-cuts movement.

"Often, it takes some calamity to make us live in the present," wrote the American cartoonist Bill Watterson. "Then suddenly we wake up and see all the mistakes we have made." The early months of 2011 have been punctuated by big by-election wins for Labour and even bigger demonstrations, suggesting that the electorate is already regretting the choices it made at last year's general election. But don't be fooled. The second decade of the 21st century has echoes of the 1980s, when the left was seduced into thinking that it was right and proceeded to lose one election after the other. Despite the Barnsley Central election victory on 3 March and the Trades Union Congress demonstration planned for 26 March, something is wrong. We need to understand what that is, and fast.

Let's start with some counterfactual history. Imagine that Labour, against the odds, had won the general election in May 2010. There would have been much celebration. Then what? Then this: a Labour government implementing the harshest cuts to the public services since the Thatcher era; rubber-stamping huge tuition-fee increases, introduced through John Browne's review - which was initiated by Labour; sanctioning yet more academy schools; introducing destabilising welfare reforms. Throw in what Labour promised but never delivered during its first three terms, such as Trident renewal and the full introduction of identity cards, and the thought becomes decidedly uncomfortable.

Then remember what Labour did in office. It said that ownership didn't matter and there was nothing wrong with people becoming filthy rich. It indulged Rupert Murdoch and the bankers - and we cheered as taxes went down and house prices went up. It was Labour that allowed alcohol to get cheaper and made access to gambling easier. It was Labour that tried to sell off Royal Mail and opened the way for the privatisation of the NHS and education.

Successive Labour chancellors boosted the economy by inflating an unsustainable debt bubble and proclaimed that they had ended "boom and bust". On Labour's watch, the far right grew in strength, because immigration was used to undercut wages. Worst of all, the poor got poorer and the planet burned.

But what about the good stuff? Not enough has lasted, because Labour failed to put down any moral roots or build up a wider progressive alliance to protect it. Why? Because too little was about labour and too much was about capital. In the ten months since the last election, Labour has turned from exhaustion to confusion. It may be able to summon up plenty of righteous anger against the cuts - 80 per cent of which Alistair Darling would have been making, too - but seems happy to forget that its share of the vote was just 1 percentage point higher than what Michael Foot gained in 1983. Renewal cannot be based on hoping that people forget. Nor can it be built on denial, or happen in the absence of reconciliation.

I fear two things: losing the next election and winning it. Any Labour government is better than any Conservative government but, if we win next time round, what guarantee is there that it will be any different from last time? Little will change unless we outline plans for a "good society" that we are proud to share with the electorate, a vastly different political economy to underpin it and a credible progressive alliance to direct, elect and sustain it. There are still four years to go to the next general election, four years in which the coalition plans to cut services now, and taxes just in time - while blaming us for everything that's gone wrong. Labour, too, has a plan: it is that this plan won't work.

Siren songs

Ed Miliband's speeches are sound. He is saying broadly the right things about the limits of the state as well as the market. He has refused to tack back to the right, but it's tough being your own policy "outrider". Ed Balls is now pushing the bank tax, John Healey made a welcome appearance at the Liberal Democrats' spring conference and Sadiq Khan got the line right on prison numbers. But the renewal has to be more systematic and coherent.

MPs such as Chuka Umunna and Lisa Nandy show great promise. Jon Cruddas continues to push the boundaries of left-wing thinking. Maurice Glasman, new to the Lords, offers fresh ideas on the commodification of labour and land. Yet why is Labour so unable - or unwilling - to tap in to the energy and liberating excitement of grass-roots movements such as UK Uncut? Why didn't any of the Labour MPs join the 1,500 young activists at the Six Billion Ways event in east London in early March to talk about poverty, climate change and the remaking of democracy?

History teaches us that, in opposition, Labour wins by-elections, goes on big marches and feels good about itself. Meanwhile, the Conservatives win when it matters and Labour, out of desperation, eventually ends up occupying too much of the same old policy ground. Labour is lost. The unpopularity of the cuts and the demonisation of Nick Clegg are like sirens, luring us on to the rocks of permanent opposition. Both seduce us into thinking that all we have to do is oppose, all we have to do is wait.

The pillow is being placed on our face. Wake up, Labour - before it is too late.

Neal Lawson is chair of Compass. The TUC's March for the Alternative: Jobs, Growth, Justice gathers at the Victoria Embankment, London SW1, at 11am on 26 March