Tony Blair has warned that Labour will not win the next election if it puts on ideological blinkers or bases policies on delusionary thinking of how it wants the world to be.

In a speech marking 20 years since he was elected Labour leader, Blair said: "Old ideas in new clothing are still old ideas and are visibly so when undressed by reality. We should always be uncomfortable in the 'comfort zone', because the only comfort found there is for the already privileged."

The former prime minister backed the current party leader, Ed Miliband, saying he wanted the party "to be working hard for the next Labour government, in 2015, with Ed as PM".

But he reminded the party that it needed to be progressive and have the good of Britain's people at its heart to win the support of voters. "20 years ago we were, as now, motivated by injustice, poverty, despair and deprivation. We want society to change and actively to lift up those who are down. It begins with an analysis of the world shaped by reality not ideology, not by delusionary thoughts based on how we want the world to be, but by hard-headed examination of the world as it actually is. The same applies to how we interact with people. This has to mean real people. Not the ones you find in the committee room but the ones you find at the bus stop or the bar or the cinema."

Blair insisted: "No political philosophy today will achieve support unless it focuses on individual empowerment, not collective control. The role of society or the state becomes about helping the individual to help themselves, to gain control over their own lives and enrich their opportunity and their choices in life."

The address to the Labour pressure group Progress was part of Blair's efforts to preserve the legacy of his three-term premiership, but also to send out a message to Miliband that elections are won predominantly from the centre ground.

Blair was unrepentant about accepting part of Margaret Thatcher's legacy when he was elected in 1997. He said: "This is why some of the Thatcher changes were inevitable and we kept them. It is why our changes in public services – opening up parent and patient choice, bringing new providers and so on, even Bank of England independence – were also inevitable. These are not policy changes that represent a moment in politics, but a trend in modern time that is beyond politics."

Blair also warned the party not to demonise business, arguing the financial crash did not "mean that people had "fallen back in love with the state".

He added that though the financial sector needed to be made more robust and resilient so as to minimise the systemic risks of future crises, it still needed "innovation, liquidity and enterprise".

He also urged Labour to continue to be radical. "We should be the ones most interested in making government work, most prepared to be iconoclastic in re-shaping public services, because that is the way best to serve the people who depend on them.

"The financial crisis does not render this progressive politics less pertinent, but more so because it places an even greater premium on value for money."

He also said his success was built "by analysing economic and social trends not with ideological blinkers but by reference to real life observation".

"We realised that there was no possibility of the British people accepting a programme which either pivoted on more state control or which didn't open up power for people as individuals," Blair said.

"The same is true today. That centre can and should be radical. But it will cut across traditional right/left lines because over the past 100 years or so people have learned from their experience about the state and the market that neither, untrammelled, is the route to the future. There will inevitably be a partnership between the two. And there will be a host of new ideas around how each might work and in combination with each other and the voluntary sector."

Blair also embraced some of the Conservatives' school reforms – pointing out many were launched by his party. "If a school is not delivering sound education for its pupils, and a different way of running the school would yield a different and better result, it is our duty to institute the change. Even if it means we take on one of our own interest groups or it means changing a previous policy position of the party. Otherwise the goal of social justice is blunted and we are the conservatives."

In a wider call to be open to change he said: "We're not blind to the challenges of globalisation. But we are awake to its opportunities and we relish the way it brings the world closer together. In the battle between the open-minded and closed-minded attitudes to the world, we're for the open mind.

"The point is we should at all times be leading the battle of ideas and where, as with the academy programme, the Tories are forced to follow, that should be a matter for rejoicing, not anguish."

Blair urged the party to stay out of ideological tramlines. "In some cases, this will mean a certain convergence of thinking with the centre-right. Relax. It happens the world over and where it doesn't – see the polarisation of American politics today – a country is the poorer for it."

He added: "In the end, parties can please themselves or please the people. There is a mindset that speaks to government and one that usually leaves you in opposition. For that period, possibly for the first time in our history, we had the character of a governing party and it was the Tories who seemed like the shriekers at the gates outside.

"We should, of course, listen to the interests associated with us, and the assortment of pressure groups banging on our door but never conflate their noise, which with social media can seem deafening, with public opinion or let them decide policy. Those who shout the loudest don't necessarily deserve to be heard the most.

Blair's Philip Gould memorial lecture was the latest in a number of recent major speeches he has made in Britain. He has spoken on the future of Europe, in the wake of the European elections, and gave a sweeping address on the state of Middle East politics – focused on his belief that the region's problems predominantly stem from an extremist, narrow, conservative form of Islam.

Those that have been with Blair in recent months argue his grip on domestic policy has inevitably been less tight, but the latest speech has long been in preparation. As one of the few Labour leaders to win three elections, he believes he has a legitimate right to spell out his views.

Contact between the Blair office and Miliband has been minimal, with Miliband often defining himself by differing with the Blair and Brown regimes on issues ranging from immigration, foreign policy, globalisation and equality.

Some in the Labour camp grow angry that repeated criticism of the previous Labour government's record simply weakens contemporary support for Miliband by undermining trust in the party.

But even one of Blair's closest allies, his former director of communications, Alastair Campbell, thinks Blair has not explained enough why he has felt it necessary to raise so much money to fund his post power politics life, including the need to fund its staffing and the cost of the projects. His allies argue the bulk of his work in the Middle East and Africa and in his faith foundation is not designed to make money, but instead to push causes that were important to him in office.