Momentous shifts like these only happen in opposition – hunger to regain power is the only thing capable of persuading a party to surrender its ideological comfort blanket. Which is why the Scottish Labour leadership campaign is an enormous opportunity to change the face of Scottish politics – and why it's an opportunity that's likely to be squandered.

The party's contortions over how much power should be wielded by its Scottish leader show, at least, an awareness of where the problem lies. Scottish Labour has no hope of toppling Alex Salmond if it is beholden to a UK Labour leader at Westminster. Yet none of the leadership contenders – Iain Gray, Andy Kerr or Cathy Jamieson – is advocating the most logical solution, the creation of a genuinely autonomous Scottish Labour party. A wee bit of autonomy or a "beefed-up" role for the new leader won't be enough. What's needed is a self-contained and self-reliant party, with no veto from London over what the Scottish leadership sees fit to do.

Predictably, the very idea strikes horror into the hearts of Labour unionist diehards. It couldn't possible work, they cry. Actually, it could work very well – and it already does in countries that have two tiers of government not dissimilar to ours. In Germany, for example, the main centre-right party at national level is the Christian Democrats; but within Bavaria the centre-right cause is fought by the Christian Social Union, a distinct political entity. The two parties operate as one bloc within the federal German parliament, the Bundestag, on an agreed policy platform.

There's a similar set-up in Canada, for reasons that are more relevant to Scottish Labour's current predicament. The Liberal party is a national political force, but each Canadian province has its own Liberal party, some with co-operation deals with the federal party and some without. The Liberals find this is the only way they can compete with – and occasionally defeat – the nationalist parties in Quebec. Quebec politics is fascinating from a Scottish point of view – I've reported from there twice down the years, both times when the nationalist tide was at a high-water mark. I was told by Quebec Liberals, who have been independent of the Canadian Liberals since 1955, that rule number one in Quebec politics is never to be in the pocket of Ottawa.

Here in Britain, lulled by centuries of precedent, these German and Canadian arrangements seem unfamiliar and untidy. But they reflect the reality of politics in those countries, and now in ours too. Crucially, they allow each election to be fought according to the priorities and instincts of the electorate in question. Such international parallels have not been lost on everyone. The Scottish Tories have been pondering the Bavarian model for years; and when David McLetchie was leader at Holyrood he visited Canada to examine how their system operated. Lessons were learned. As a result, the Scottish Tories have had some success in presenting themselves as being distinct from the UK Conservatives in policy and outlook.

As a first step, Labour needs to take a long hard look at what it means to be a unionist and what it means to be a nationalist. Of course there are Labour folk who are Unionist with a capital 'U', because it's part of their particular cultural heritage. But I've always believed that the unionism of most Labour voters and, indeed, most Labour activists, is only skin-deep. It's not what defines their political outlook and beliefs. Labour's kneejerk antipathy to nationalism with a small 'n' is simply the consequence of decades of fighting the SNP. Labour has allowed itself to be defined by its enemy.

So we have the ridiculous spectacle of Labour's George Foulkes complaining that Scotland's trains are to be given a smart new Saltire livery. His party should be laying claim to the Scottish flag, not surrendering it to the SNP. If Scottish Labour wants a future, it must accept a truth that might at first seem like an oxymoron – that you can be a nationalist and a unionist at the same time. You can believe in the United Kingdom and still put Scotland first. You can owe your allegiance to a Scottish leader first, and a UK leader second. Not for any wild woad-wearing reason. But simply because Scotland is where you live, and where you bring up your family.

I'm not holding my breath. I suspect that Labour will squander this opportunity to renew itself, mainly because it has arrived too soon after the party's defeat in last year's Holyrood elections. Labour is still hurting. But the hurt it feels is the hurt of rejection, not the ache of wanting to regain power. The party is not yet hungry enough to make the radical changes required for a comeback.

A few years ago Sir Malcolm Rifkind described the culture shock of going from Government to opposition. It hits home, he said, "when you climb into the back of your car and it doesn't go anywhere". More than a year after getting into the car, Labour is still sitting there, going nowhere.