Next Step : Labor Looks to Moderate Scot : Don’t expect the usual knock-down-drag-out fight for leadership of Britain’s opposition party. Instead, debate will center on future.

The badly battered Labor Party, trying to pick itself up off the floor after four successive national election defeats by the Conservatives, will choose a new leader July 18 with flickering hopes that he will breathe new strength and credibility into the party.

It will be the new leader’s task to keep Labor from fading into insignificance, going the way of the once-powerful Whigs and Liberals toward history’s dustbin.

In the past, observers could expect a knock-down-drag-out fight for the party leadership--a fight over personalities and policies, left vs. right--with plenty of blood on conference room floors.

But this time, the issues are more tactical than ideological. There will be no fractious battles over issues like nationalization and unilateral nuclear disarmament to fire up the rank and file. The question is instead how--after its latest defeat in April--the Labor Party can turn itself into a serious contender in the next national election, not scheduled for another five years.

As a result, the party’s parliamentary economics spokesman, 53-year-old John Smith, is considered a virtual shoo-in for the top spot over his only rival, environment spokesman Bryan Gould, also 53.

Both men are seen as favoring closer ties between Britain and its neighbors on the European mainland; the main difference between them seems to be that Gould would press harder to speed up reform of the party by widening, for example, the vote on major internal issues.

But in Smith, Labor would be pinning its hopes for the future on the shoulders of a moderate, intelligent Scot with widespread support in the party and trade unions, and one of the few senior Labor figures with experience in a government Cabinet.

“Many of us thought that (Smith) would have been a stronger candidate than (outgoing party leader) Neil Kinnock in the April election,” commented a parliamentary associate. “Prime Minister John Major will have a much harder time with John Smith across from him in the Commons.”

During his years at the party helm, Kinnock had tried mightily to overcome the radical leftist image that Labor had earned in earlier years. But his defeat by Major--his second loss to the Tories--brought about his resignation and opened the way for the current contest.

The debate over the leadership has, in fact, been overshadowed by a post-mortem over losing that April 9 election--a ballot most Labor supporters thought was in the bag.

“It is pretty stupid to have an inquest and a leadership contest at the same time,” complained a Labor MP. But an inquest there is.

While some factions of the party blamed the defeat on a bad press and tactical mistakes in presentations, Larry Whitty, the party’s general secretary, said in his analysis: “There is no disguising the fact that the 1992 election result must rank as one of the most disappointing in the history of the party. It is difficult to escape the conclusion that at the very end of the campaign, the electorate just felt unable to risk voting for the Labor Party.”

Kinnock remarked: “We have to recognize we lost by 7.5%. Our defeat cannot be attributed to individuals or individual events, to the campaign, the conduct of the campaign or the last week in the campaign. The plain truth is that too many voters had memories of the problems in the Labor Party of years gone by.”

John Cunningham, Labor’s campaign director, agreed that the three-week campaign itself had “little to do” with the defeat, saying that it lay “in the nature of the party and our history. Labor must make economic, sociological--indeed, cultural--changes necessary to regain the trust of many more voters.”

But, as Cunningham and other senior officials agreed, making such drastic changes is more easily said than done.

For example, in the first substantive issue taken up by the national executive committee since the election, the labor chieftains voted against reforming the rule on union block voting. Under these rules, trade union leaders cast the vote of their entire membership on various issues--like the party leadership contest and policy platforms at its annual conference.

Kinnock and Gould wanted the rules changed so that union members would cast individual ballots, which would release the unions’ iron control over party policies. The party would still be dependent on the unions for funding, but the relationship would be unofficial--like that between business and the Conservative Party.

But Smith was instrumental in persuading an executive meeting in late June to put the matter over for a year’s study.

“John Smith wants to take things easy at first and not offend the trade unions,” said a Labor MP who is a member of the shadow Cabinet. “Remember, too, it was the trade union leaders with their block votes in their pockets who prevented the party’s total takeover by the militant left in the 1970s and 1980s.”

Party leaders are loath to criticize Smith, who is widely seen as the best man to restore the declining fortunes of the party.

“Having a new leader will be a big help,” said one Labor MP, also a member of the party’s policy-making executive committee. “Smith is one of the most popular politicians in the country. He is young enough and progressive enough to adapt to the world of 1996. He is not a flamboyant, flash type. Smith has a mandate for the fundamental reassessment required for the party.”

But even if Smith manages to widen Labor’s appeal, the party is battling redistricting and demographic trends that work against it.

As Robert Worcester, MORI pollster and political analyst, observed: “The Labor Party faces a series of barriers. First, the Boundary Commission will redraw electoral constituencies before the next election--resulting in the net gain of from 16 to 24 Tory seats.

“Second, the public is getting older and more conservative. Women are living longer and leaning towards the Conservative Party.

“Third, many working-class voters are moving up to the middle class, which works against the Labor Party. Trade union strength is falling, and members are getting more conservative.

“The situation for Labor is, in a word, bleak. I don’t think the Labor Party can win the next election. The Conservative Party has to lose it--as they would have if (former Conservative Prime Minister) Margaret Thatcher ran in the last election.”

As for the current prime minister’s view of the loyal opposition, an aide to Major at No. 10 Downing Street observed: “Major won an election at the bottom of a recession. In four or five years’ time, we will have quite a good platform on which to fight an election. Our reforms in health and other areas will have taken hold, the economy will be better, the bad news behind us. We will be in a strong position, but not complacent.”