Can the forgotten king of Australian politics show Blair the route to power?

He has dropped from political sight faster than a sinking meteor. Yet Paul Keating - for whom Sunday will mark the anniversary of the day last year when he led the Australian Labor Party to one of its worst electoral defeats - is something of a role model for Tony Blair.

For the past 13 of his 28 years in politics Mr Keating was the most dominant figure in Australia, the man who revolutionised the country's economy then, as prime minister, set it on the path towards republicanism.

But, while Mr Keating still has his fan club, Labor's traditional working- class constituents are not among them. In a sea change which might test the confidence of New Labour, they deserted him by the hundreds of thousands at last year's general election, defecting to the conservative Liberal- National coalition led by John Howard. Mr Howard now rules with one of the biggest mandates in Australian history.

Keating fans are still to be found among the young, educated, middle- class professional set who wax lyrical about his visionary "big picture": a new deal for Aborigines, ditching the Queen as head of state and making Australia an important economic player in the Asia-Pacific region. For thousands of jobless people in the old Labor heartland, though, that vision meant little.

Yet one of Mr Keating's biggest fans is Mr Blair, who, as he prepares to lead New Labour into the British general election, has been studying closely the Australian model of how an old-fashioned social democratic party can adapt to the realities of a modern market economy, with its demands for small government and economic growth, while maintaining the fundamental tenets of a welfare system.

The two leaders met in 1995 at the resort of Hayman Island off the Queensland coast as guests of Rupert Murdoch, who had invited them to the worldwide management conference of his media company, News Corporation. Mr Blair was a keynote speaker. He and Mr Keating spent several hours on the island discussing public policy. "Paul liked Tony Blair," says a former Keating staff member. "He gave Blair some free advice, in a friendly way. I think Blair saw Australian Labor's 13 years in power as an example of what could be achieved by capturing the middle ground."

From the moment it came to power in 1983 under Bob Hawke - Mr Keating's predecessor as party leader - Labor set about holding the middle ground by re-writing the rules of Australia's protected and inefficient economy. It floated the Australian dollar, deregulated financial markets and tore down tariffs. At the same time, it set about reforming the labour market by cutting the number of unions and introducing direct wage bargaining.

All this was designed to encourage Australian business to make more money and export more goods. A key element in the equation was an accord between the Labor government and the unions, in which unions agreed to restrain wage demands in return for lower taxes, lower inflation and, therefore, lower public spending.

To help target such spending at those really in need - the old, poor, sick and unemployed - Labor attacked so-called "middle-class welfare" by introducing means tests across a range of social security benefits. And it introduced universal health care through Medicare, a public insurance system.

In many respects, the reforms were straight out of Margaret Thatcher's copybook. But Ric Simes, Mr Keating's former senior economic adviser, now chief economist with Rothschild Australia, believes they differed from Thatcherism, and from similar hardline changes introduced by the former New Zealand Labour government, in one significant respect.

"Thatcher and New Zealand Labour had a model, and pursued it with a religious zeal to the nth degree," he says. "Australian Labor achieved its changes in a less confrontational way. It kept the labour movement engaged in dialogue about change. And it increased the real value of social security benefits to those in need."

Mr Keating's dialogue, though, sometimes seemed to be more sympathetic towards business leaders, particularly those whom he admired for taking risks by chasing bigger markets beyond Australia. He admired Rupert Murdoch for that reason and, as long as Labor continued to win elections, Mr Murdoch admired Labor. Australians gave Labor an unprecedented five successive election victories between 1983 and 1996.

By then, the magic had begun to fade. Mr Keating did one deal too many with Mr Murdoch when he offered him the Sydney Showgrounds - public land since colonial times - as the site for a 20th Century Fox film studio.

To many, the controversial deal smacked of how Labor, in its pursuit of the "big picture", had lost touch with people in the party's grassroots communities, many of whom felt bewildered and left behind by the pace of economic change and the insecurities of work in the Nineties. Such a perception contributed greatly to last year's electoral rout.

Coming to terms with being an ordinary citizen has not been easy for 53-year-old Mr Keating, and the shock still tells on him. Since leaving politics he has given only three interviews, two to Indonesian newspapers. Yet, when he does speak, he has lost none of his flair and passion for breaking the mould of the old, inward-looking Australia. In a recent speech at the University of New South Wales, where he is a visiting professor in public policy, he called on Australia to stop shilly-shallying about becoming a republic. "Those who still argue that our continuing links with the British monarchy do not handicap our international efforts, and those who think we should go on waiting until every last one of us is in total agreement, simply do not understand the stakes we are playing for," he declared.

"An Australian head of state can embody and represent our values and traditions, our experience and contemporary aspirations, our cultural diversity and social complexity in a way that a British monarch, who is also head of state of 15 other member countries of the United Nations, can no longer adequately hope to do."

Australian Labor seems bewildered about which direction it should take now. Its new leader, Kim Beazley, a contemporary of Mr Blair's at Oxford, knows his British counterpart better than did Mr Keating.

Over the next few weeks, Mr Blair could do well to ask his old Oxford friend where it all went wrong.

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