The argument is being fought out in a special committee set up by Tony Blair to determine how to deal with the quango phenomenon - 73,000 ministerial appointees on 5,000 unelected bodies which control one- third of public expenditure.
The committee is headed by Derek Foster, Labour's former chief whip, and includes Margaret Hodge, the MP for Barking, Tony Wright, the MP for Cannock and Burntwood, and a representative from Mr Blair's office. There have already been arguments about whether Labour should prepare a list of 3,000 supporters who could be dropped into quango jobs if the party wins election.
After years in the wilderness, many older MPs cannot see why their supporters should not be given a taste of power; but opponents of dumping Conservative placemen for Labour ones want new systems which allow openness and devolution.
"There are tensions between old Labour and new Labour," said one moderniser. "We want to deliver a radical system which will show people we can govern in a new way."
Neither side knows which line the Labour leadership will support and the party has yet to develop a consistent policy. But one senior Labour frontbencher said yesterday that Labour could not "spend years complaining about Tories packing quangos and then pack them ourselves. It would be preposterous and wrong".
The party is working on plans to introduce some democracy to the NHS, further-education colleges and training and enterprise councils. In the long term these changes will inevitably mean that thousands of Whitehall appointees will lose their posts to elected representatives and candidates nominated by Labour ministers.
The scale of the slow purge Labour may have to contemplate is glimpsed in a confidential report on quangos commissioned by Lord Nolan's inquiry into standards in public life, which has been seen by this newspaper. It examines 10 of the most powerful quangos in Britain and concludes that most of them have excessive numbers of Tory appointees or have been "captured" by interest groups sympathetic to the Conservatives.
"Labour faces a huge dilemma," said Stuart Weir of Essex University, one of the Nolan report's authors. "The Conservatives have been able to pack the system. The temptation will be for Labour to do the same and ignore looking at new ways of making everything from the Imperial War Museum to the NHS accountable."
The report warned that "serious imbalances" and "confusion in lines of accountability" can be found in most of the quangos its researchers studied.
At the Equal Opportunities Commission, which takes legal action to defend victims of sex discrimination, the chairwoman is Kamlesh Bahl, a former Conservative activist and solicitor, who was chosen for the job by John Major. Her predecessor was Joanna Foster, a former press officer at Conservative Central Office who, despite her political past, became a thorn in the Government's side.
Ms Bahl's deputy is Lady Diana Brittan, wife of Sir Leon Brittan, the Conservative European Commissioner. There are three trade unionists on the EOC. But the first men to have been appointed to what was originally a body which concentrated on discrimination against women, were both members of the strongly free-market Institute of Directors.
Ms Bahl has faced strong oppostion from liberal staff for "being afraid to rock the boat" and arguing that equality at work makes good business sense rather than fighting for it as a human right. Despite the accusations of her critics, however, Ms Bahl has supported a minimum wage and opposed ministers when she backed European moves to protect part-time women workers.
Clearer evidence of political imbalance can be found in the Funding Agency for Schools, which, if the Conservatives win the next election and force all schools to opt out, will control standards in every classroom.
The agency showed, said the report to Lord Nolan, that "a new breed of great and good" had arisen in the Conservative years. The best qualification for membership was to be "a businessman with Conservative leanings".
The agency's chairman is Sir Christopher Benson, who is associated with the Sun Alliance group and other companies which have donated to the Conservative party. On its board are: Sir Stanley Kalms, chairman of Dixons, who was knighted in the New Year's Honours List and whose company donates to the Conservative party; Sir Robert Balchrin, a former regional Conservative party chairman; Edward Lister, a Conservative councillor from Conservative- controlled Wandsworth council in south London; and Pauline Latham, a Conservative activist.
One Shadow Cabinet member said it was "inconceivable" that a Labour government could work with the agency.
Along with several other quangos that the investigation studied, it was impossible to find any member of the agency with a Labour or Liberal Democrat background, the inquiry said.
It highlighted the small pool from which quangocrats are drawn by studying the relationship between Sir Colin Campbell, vice-chancellor of Nottingham University, and Kenneth Clarke, Chancellor of the Exchequer and MP for Rushcliffe, Nottinghamshire.
In 1988, Mr Clarke was Health Secretary, Sir Colin was appointed to the Human Fertilisation and Embryology Authority. When Mr Clarke became Education Secretary in 1990, Sir Colin was put on the Higher Education Funding Council. He moved to the Inquiry into Police Responsibilities and Rewards in 1992 when Mr Clarke became Home Secretary.
"Admiration between the two men seemed to be mutual," said the report, "for Clarke was awarded an honorary degree at the University of Nottingham in 1989." The authors did not suggest that there was anything improper in the links, but the long connection did "illustrate how narrowly the net for public appointments can be cast".
When Lord Nolan reported last year, he recommended that a new commissioner should be appointed to draft rules about appointments to public jobs.
In August he announced that he would extend his sleaze investigation to cover universities and further-education bodies, grant-maintained schools, training and enterprise councils, and housing associations after receiving hundreds of complaints from the public. The new inquiry will decide whether to tackle the central problem of controlling quangos: finding out who is on them. It will decide whether to set up a central register of quangocrats detailing their financial, political and family interests.
Labour is committed to implementing Nolan recommendations and emphasises that this will place some limits on its ability to manipulate the patronage system. It adds that in the NHS it has also promised to break away from the old system of Whitehall patronage by encouraging doctors, patients and local authority representatives to have a say in health policy at local level. Plans are still vague, but it seems likely to recommend that elected representatives should have a say in the purchase of local health services.
Training and enterprise councils (Tecs), which are dominated by a self- perpetuating group of middle-aged businessmen who fill vacancies without any democratic control, seem certain to go. One senior Labour source described the Tecs, which spend pounds 2bn a year, as "absurd bodies which will have to be sorted out".
Further education, which was removed from local-authority control in the 1980s, will also see the return of elected representatives.
But Labour leaders will warn their supporters not to expect the mass sacking of Conservative quangocrats in the early days of a Labour government.
Quango members had legal contracts and "unless they were caught with their hands in the till" it was very hard to clear them out overnight, said one. Labour plans reform, and introducing some element of democracy would be for the medium term and require legislation.
In the interim the party would just have to live with the present system. "It may not be too difficult," the Shadow Cabinet member added. "We're already seeing people we thought were devout Tory officials coming over and brown-nosing. I suspect there will be a lot more of that."