Three years ago, trade union votes made Ed Miliband's leadership. Today trade union votes confront Miliband with a defining moment of his tenure. Voter recruitment by Unite challenges Labour's democratic credentials and Miliband's authority. If he mishandles the issue, Miliband may even find that the union power that made him is now the union power that also breaks him.

On the face of it, the fraught selection of a Labour candidate in Falkirk may seem a pretty minor issue on which to hang such portentous words. Labour simply needs a candidate to replace Eric Joyce MP in 2015. As often happens in such contests, there is a battle about who gets the nod. Egos are at stake. Noses are out of joint. But the Labour party has acted swiftly to deal with alleged abuses. End of story, so Labour would have you believe.

Many will also say: so what? In some respects, many will have a point. A disreputable selection battle in a safe Labour seat in central Scotland is not exactly a unique event. Unions have always cracked the whip at such times, often pretty blatantly. Scottish Labour politics were never exactly a byword for Athenian democracy. And if Scotland votes for independence next year, Falkirk's new MP in 2015 will probably have to withdraw a year later anyway.

Don't forget too that all political parties have their little local difficulties from time to time. All occasionally choose candidates by processes that would not win the approval of John Stuart Mill. All have MPs whose behaviour embarrasses the leader at Westminster for some reason or another. The Conservatives have Nadine Dorries. The Lib Dems have Mike Hancock. Labour has Eric Joyce. And after 2015 Labour may have Joyce's successor.

But it used to be much worse not so many years ago. In the 1980s Labour had a famous handful of Marxist entryist MPs from the Militant Tendency. But they were some of the most boring men in British politics, and Labour survived even that. In the 1970s, there were far more Labour rotten boroughs than there are today – not just in some union seats of left and right but in Irish Catholic seats. Even a few Soviet agents got in on the act too.

The Times made great play today of a story that 13 other Labour constituencies are in "special measures" – Labourspeak for control from party HQ – along with Falkirk. That's true, but none of them is there for the same reason as Falkirk. Almost all the others are seats with large Asian populations in which various forms of political skulduggery have been alleged. Many of them have been in special measures for at least eight years. The striking thing is that it hasn't made any discernible difference to Labour's wider standing.

The difference with Falkirk is that the alleged skulduggery is not in the local grassroots but appears to be nationally orchestrated by the leadership of Unite, which is by far Labour's largest affiliated union and biggest paymaster, and one of Miliband's key backers in 2010. As many as 150 Unite members are said in some accounts – Labour has not released the figures – to have been signed up to Labour in Falkirk and paid for by a single cheque from the union. So far, Falkirk is the only confirmed case. Yet if Falkirk, why not elsewhere?

Unite officials are not exactly discreet about their broad strategy. Dave Quayle, chair of Unite's political committee, said a year ago that Unite had two options in its relationship with Labour: "Disaffiliate, or campaign to change the way the relationship between the union and the party worked." For 2015, Quayle said, "we want a firmly class-based and leftwing general election campaign". The aim was "to shift the balance in the party away from middle-class academics and professionals towards people who've actually represented workers and fought the boss". Meanwhile Len McCluskey wrote in the Guardian in May that Unite's aim was to recruit members and then encourage them to endorse union-supported candidates in selections.

None of this is illegal. Most of it is not against Labour's rules either, though the buying of memberships undoubtedly should be. And none of it, at a certain rather general level, is unworthy. Labour is an unpleasantly centralist party. It is dominated by young middle-class career politicians. It ought to be a more open, more democratic and a more broadly based participative party than it has become.

But there are three massive problems with what Unite is trying to do. The first is that it annoys the hell out of almost everyone else in the Labour party. It's not just the other unions who resent Unite's excessive influence – garnered from a series of union mergers. It is also ordinary members, who feel pushed to one side if they are not part of the McCluskey hegemon. If Labour life seems inert these days, part of the explanation lies in the fact that Unite is too big to stop but too weak to win an open argument.

The second big problem is that it is indisputably a direct challenge to Miliband. The overbearing glee with which David Cameron laid into the Labour leader over McCluskey and Unite at prime minister's questions today shows a Tory party that thinks it has found a winning issue in Miliband's weakness. Miliband's personal ratings as a leader are already poor. His standing as a potential prime minister is fragile. If he is now also widely seen to have bent the knee to Unite, Miliband could be toast in 2015. But this is also why Falkirk may actually be an opportunity, not an embarrassment. If he can turn the tables on McCluskey, Miliband's leadership image could be transformed for the better.

But the third and overwhelming problem with the Unite strategy is simply that it is suicidal. A Labour party campaigning on an old industrial class-based agenda, with extra powers for unions that are in other respects withering across British life, led by quisling politicians manipulated by union officials who in some cases are old Stalinists, in pursuit of a state-owned economy that would not work and would not be popular, may appeal to a few romantics. But it is an utterly bankrupt strategy.

Britain has changed even if Unite has not. The electorate won't vote for it. They will turn their backs on it, and look elsewhere. It will force Labour back into a few post-industrial ghettos, on to the political margins, leaving the party powerless and its former voters angry, twin victims of a process of mutual abandonment. All the clever political fixers in the world won't be able to mend the Labour party if that happens. Which is why Falkirk really matters, in spite of all.