The leader of the TUC has urged the Labour Party to break with "new Labour managerialism" and show a different approach ahead of the next general election.
General secretary Frances O'Grady also urged unions not to retreat into a "comfort zone" of opposition, but to try to help shape a new economy.
She warned Labour and unions they will need to change to help deliver a radical economy to lift the country out of a "lost decade" of stagnation.
Her comments come after Labour leader Ed Miliband had a furious clash with Unite leader Len McCluskey, who criticised members of his 'New Labourite' front bench.
In her Attlee memorial lecture at University College Oxford, she said: "Both Labour and unions must learn from the lessons of the past, in order to forge a new ideological settlement for post-crash Britain.
"If we are to build a future that works for all, then both sides of the labour movement need to change.
"For the Party, there must be a decisive break with New Labour managerialism, the notion that deregulated markets can somehow be given a human face.
"And for us in the trade unions, there can be no retreat into a comfort zone of narrow sectionalism or oppositionism.
Our long-term viability ultimately rests on our capacity to shape a new economy, not from the sidelines but from within."
Ms O'Grady said unions had to realise that the next Labour government would be dealing with a "difficult starting point", with less money to spend.
She added: "The Labour Party also needs to recognise that limited resources means we need more, not less, structural change.
"Labour needs to start where the people are - and the problems of stagnation, declining living standards and poor prospects now afflict a huge majority of the electorate, whether they tick the traditional supporter box or not."