If there was a seminal moment in the decline of the American labor movement, it was in the summer of 1981, when Ronald Reagan broke a strike by firing 12,000 unionized air traffic controllers who were demanding that they be paid as much as $100,000 a year. Union membership back then was near its all-time high. But in a single stroke, the new Republican president, elected in part with the votes of union households, conferred legitimacy to strike-breaking and exposed the myth of worker solidarity.

Today, the union movement is in a death spiral in which declining membership and waning political power feed off each other. The only hope for pulling out of it is for unions to regain the moral high ground and reconstitute themselves as a broad social movement dedicated to economic fairness.

Labor desperately needs to shed its image as a bunch of white guys in dying industries and government bureaucracies who are determined to protect their privileged status. Unions need to more effectively tap into the pool of sympathy middle-class Americans still have for the working poor and the growing anxiety they have about their own pensions, health care and job security.

That challenge provides the backdrop for this weekend's showdown in Chicago between AFL-CIO President John J. Sweeney and his onetime lieutenant Andrew Stern, who now heads the service employees union. A threat of a schism hangs over the meeting.

At the top of any new labor agenda should be a recognition that there are other ways to help workers than negotiating contracts at individual plants or companies.

One idea is for unions to return to their historic roots, when they acted as voluntary craft guilds for workers with similar skills, no matter where they worked, or "benefit societies" offering services that, in today's world, might include health insurance, day care, credit unions or workplace legal advice. "An AARP for working people" is how Georgetown University historian Michael Kazin puts it. Over time, of course, such relationships could develop into something more.

In an era when federal enforcement of occupational safety laws has lapsed, labor unions could also render a valuable service to all workers by setting up teams of lawyers and investigators to expose and sue companies that operate dangerous workplaces, whether unionized or not.

In their organizing efforts, many unions have been stymied by the fact that the National Labor Relations Board has become a wholly owned subsidiary of the National Right to Work Committee. One way around that is to focus on workers at the bottom rung of the economic ladder and leverage public sympathy for them to force employers to accept a union. That's what Stern has done with great success with janitors and hospital orderlies and what the grocery workers have been trying to do with Wal-Mart.

At the other end of the income spectrum, unions need to develop new models for organizing white-collar professionals. These workers may prefer joining an independent professional association to a "local" of a big national union peddling a standard master contract. And they may prefer arrangements that blur the lines between workers and management. As one engineers union official puts it, "Our guys don't want to beat the boss. They want to be the boss."

Even traditional unions have to learn to use competitive realities as their reference point for thinking about pay and benefits and work rules rather than the terms of the last contract. Thinking in terms of "concessions" or "givebacks" misses the point entirely. Unionized workers at Southwest Airlines have shown that it is possible to have good-paying jobs while accommodating market realities. So have the steelworkers, although only after most of their companies had gone bankrupt.

Unions also need to adopt a global perspective to match the companies they are negotiating with. That doesn't mean insisting on similar wage rates in Singapore and Silicon Valley. But it does suggest the need for striking creative alliances with foreign unions to make it harder for multinationals to play foreign workers against American ones.

Politically, unions have to put aside fantasies of "taking back" Congress and the White House and concentrate instead on rebuilding political capacity from the ground up. A model can be found in Los Angeles, where the local labor council has used the momentum generated by recent organizing victories, and alliances with Latino community groups, to elect a labor leader as mayor and another as speaker of the state assembly.

Here in Washington, a rebuilding strategy would surely involve focusing on a small number of core legislative priorities, like the minimum wage and labor law reform. It would mean taking a page from the Teamster playbook and learning to dance on a more bipartisan basis with the party in power. And it would surely require cleaning out the patronage-ridden old guard at AFL-CIO headquarters and bringing in top-notch marketing talent to craft and sell a new message.

Faltering unions are much like faltering companies. Invariably they have become prisoners of past success, unwilling to sacrifice a dwindling base of existing customers (members) to go after a larger group of new ones by offering different products and services.

It's rare that a company is able to overcome these obstacles and reinvent itself -- usually new firms come along to take its place. And unless a miracle takes place this weekend in Chicago, the same fate may befall the AFL-CIO.

Steven Pearlstein can be reached at pearlsteins@washpost.com.

AFL-CIO President John Sweeney faces the threat of a schism at this weekend's meeting in Chicago.