After losing the general election by an unexpectedly wide margin to the ruling Conservatives, Britain’s Labour Party is deeply divided about where to go: move back to the center to regain its credibility on economic policy or drift further to the left to appease party activists and the trade unions at the risk of surrendering the middle ground.

If the contest to succeed Ed Miliband, who resigned as leader after losing the election in May, is any indication, the party has yet to come to grips with its defeat.

Jeremy Corbyn, a socialist lawmaker from Islington North who has made a career out of defying his own party, is second in the nomination count from local parties. He also has the endorsement of Britain’s biggest trade union.

Seen as a fringe candidate when he entered the race, Corbyn would now get the support of a third of Labour members.

But even that underestimates his strength. Under the instant-runoff system Labour uses to elect its leaders, Corbyn could win if he is the second choice of many voting members.

Andy Burnham, the shadow health secretary and bookmakers’ favorite, is still ahead of Corbyn in nominations. But he hardly represents a more centrist Labour.

A bleeding-heart socialist who has resisted every move toward liberalization of Britain’s bloated state health service, Burnham was singled out for criticism by supporters of former prime minister Tony Blair when he announced his candidacy. At the time, they didn’t consider Corbyn a credible threat.

Burnham has recently sounded more business-friendly, recognizing that Miliband’s denunciations of “predatory” businesses and promises of price controls did little to allay voters’ concern that Labour was returning to its old ways, before Blair placed it in the center of British politics in the 1990s.

But when it comes to the National Health Service, Burnham’s views haven’t changed. He sees a contest been “NHS values” and business values; between “collaboration” and “competition”; between “patient care” and profits. No matter that Labour has done a poorer job at running the health service in Wales than the Conservatives in England and no matter that private contractors typically do a better job than NHS-managed hospitals.

Further behind are Yvette Cooper, the more pragmatic shadow home secretary, and Liz Kendall, an unapologetic Blairite member of Parliament for Leicester West.

Kendall urged Labour last month to let go of its statist tendencies and argued that trusting citizens at a time when they are more assertive and more informed than ever is the way forward for social democracy in the twenty-first century. For leftists, this makes her a Tory in all but name.

Kendall also cautions against dismissing ordinary voters’ concerns over immigration and insists that Labour must represent “Middle England” if it is to win the next election.

Labour isn’t listening. Kendall might be a more credible contender in 2020 — if her party loses again.

The battle for Labour’s future isn’t playing out in the leadership race alone. The New Statesman, a Labour-supporting political magazine, reports that the party’s shadow cabinet is practically in revolt against the centrist policy of interim leader Harriet Harman and her shadow chancellor, Chris Leslie.

Harman refuses to oppose Prime Minister David Cameron on welfare cuts and limiting pay rises in the public sector. According to the New Statesman, she believes that Labour “will only return to power if it explicitly repudiates its Miliband-era positioning on the deficit and welfare.”

Under Miliband, Labour voted against all thirteen of the Conservatives’ welfare reforms. It refused to apologize for its mismanagement of the economy when it was last in power. Only days before the election did it pledge not too widen the deficit. By then, it was too late. The Conservatives could credibly claim that Labour should not be trusted with command of the world’s fifth largest economy again — and the voters agreed.

Labour went down from 349 to 258 seats in the 2010 election. In May, it dropped to 232 while the Conservatives won their first overall majority in more than twenty years. If that won’t convince Labour’s left they’re on the losing side of the argument, what will?

Perhaps the success of David Cameron and his chancellor, George Osborne. Theirs is a far cry from the cold-hearted conservatism leftists see.

While tough on working-age welfare, Cameron and Osborne have spent generously on pensions and consciously left disability and maternity benefits untouched. They exempted the health service and foreign aid from budget cuts. They raised the income tax threshold, taking the working poor out of tax, and promise a £9 per hour minimum wage by 2020 — which would be one pound per hour more than Labour promised in its most recent manifesto.

And Labour is criticizing them for it.

Dan Hodges, a former Labour Party official, argues in The Telegraph that this makes a terrible impression on working voters. Labour may be correct that the rise in the minimum wage is insufficient to offset reductions in tax credits Osborne is making. “But politically none of that matters,” he writes.

Because all people will see is the Conservative Party introducing legislation to force employers to raise their employees wages. And they will see Labour attacking them for it. And they will conclude — correctly — that the Labour Party has lost its marbles. Or perhaps more accurately, that it still hasn’t found its marbles.

It took the Conservatives three election defeats before they realized their right-wing policy had failed. Only then did they elect Cameron. With the likes of Burnham and Corbyn vying to succeed him as prime minister and even the party’s top elected officials resisting austerity in the public sector at a time when Britain is still borrowing £75 billion (or 10 percent of government spending) to make ends meet, it looks like Labour is going to need the same experience.