The coalition's neoliberal agenda is the most radical social revolution in decades – with the dismantling of the tyrannical state at its heart. Cultural theorist Stuart Hall looks at the rapid advance of the ideology and asks: can it be reversed?

We are living through an extraordinary political situation: the end of the debt-fuelled boom, the banking crisis of 2007-10, the defeat of New Labour and the rise to power of a Conservative-Liberal Democratic coalition. What sort of crisis is this? Is it a serious wobble in the trickle-down, win-win, end-of-boom-and-bust economic model that has dominated global capitalism? Does it presage business as usual, the deepening of present trends, or the mobilisation of social forces for a radical change of direction? Is this the start of a new conjuncture?

My argument is that the present situation is another unresolved rupture of that conjuncture which we can define as "the long march of the Neoliberal Revolution". Each crisis since the 1970s has looked different, arising from specific historical circumstances. However, they also seem to share some consistent underlying features, to be connected in their general thrust and direction of travel. Paradoxically, such opposed political regimes as Thatcherism and New Labour have contributed in different ways to expanding this project. Now the coalition is taking up the same cause.

Neoliberalism is grounded in the "free, possessive individual", with the state cast as tyrannical and oppressive. The welfare state, in particular, is the arch enemy of freedom. The state must never govern society, dictate to free individuals how to dispose of their private property, regulate a free-market economy or interfere with the God-given right to make profits and amass personal wealth. State-led "social engineering" must never prevail over corporate and private interests. It must not intervene in the "natural" mechanisms of the free market, or take as its objective the amelioration of free-market capitalism's propensity to create inequality.

According to the neoliberal narrative, the welfare state mistakenly saw its task as intervening in the economy, redistributing wealth, universalising life-chances, attacking unemployment, protecting the socially vulnerable, ameliorating the condition of oppressed or maginalised groups and addressing social injustice. Its do-gooding, utopian sentimentality enervated the nation's moral fibre, and eroded personal responsibility and the overriding duty of the poor to work. State intervention must never compromise the right of private capital to grow the business, improve share value, pay dividends and reward its agents with enormous salaries, benefits and bonuses.

The formation of a Conservative-Liberal Democratic coalition in May 2010 was fully in line with the dominant political logic of realignment. In the spirit of the times, Cameron, with Blair as his role model, signalled his determination to reposition the Tories as a "compassionate conservative party", though this has turned out to be something of a chimera.

At the same time, many underestimated how deeply being out of office and power had divided the Lib Dem soul. Coalition now set the neoliberal-inclined Orange Book supporters, who favoured an alliance with the Conservatives, against the "progressives", including former social democrats, who leaned towards Labour. A deal – its detail now forgotten – was stitched up, in which the social liberals were trounced, and Cameron and Clegg "kissed hands" in the No 10 rose garden (the former looking like the cat that had swallowed the cream). The Lib Dems thus provided the Cameron leadership with the fig leaf it needed – while the banking crisis gave the alibi. The coalition government seized the opportunity to launch the most radical, far-reaching and irreversible social revolution since the war.

Coalition policy often seems incompetent, with failures to think things through or join things up. But, from another angle, it is arguably the best prepared, most wide-ranging, radical and ambitious of the three regimes that, since the 1970s, have been maturing the neoliberal project. The Conservatives had for some time been devoting themselves to preparing for office – not in policy detail but in terms of how policy could be used in power to legislate into effect a new political settlement. They had convinced themselves that deep, fast cuts would have to be made to satisfy the bond markets and international assessors. But could the crisis be used, as the rightwing economist Milton Friedman had suggested, to "produce real change"?

The legislative avalanche began immediately and has not let up. It begins negatively ("the mess the previous government left us") but ends positively, in embracing radical structural reform as the solution. Ideology is in the driving seat, though vigorously denied. The front-bench ideologues – Osborne, Lansley, Gove, Maude, Duncan Smith, Pickles, Hunt – are saturated in neoliberal ideas and determined to give them legislative effect. As One Flew Over the Cuckoo's Nest put it: "The crazies are in charge of the asylum." They are single-minded about the irreversible transformation of society, ruthless about the means, and in denial about the fallout. Osborne – smirking, clever, cynical, "the smiler with the knife" – wields the chopper with zeal. Cameron – relaxed, plausible, charming, confident, a silver-spooned patrician, "a smooth man" – fronts the coalition TV show. This crew long ago accepted Schumpeter's adage that there is no alternative to "creative destruction". They have given themselves, through legislative manoeuvring, an uninterrupted five years to accomplish this task.

Its wide-ranging character must be judged in terms of the operational breadth of the institutions and practices they aim to "reform", their boldness in siphoning state-funding to the private sector, and the number of constituencies they are prepared to confront. Reform and choice – the words already hijacked by New Labour – are the master narrative. They may be Conservatives but this is not a conserving regime (it is a bemused Labour that is toying with the "blue-Labour" conservative alternative now). Tories and Lib-Dems monotonously repeat the dissembling mantras of their press and public relations people: "We are clearing up the mess inherited from the previous government." But the neoliberal engine is at full throttle.

We cannot deal with the cuts in any detail here. They have only just started and there is much more to come. Instead we limit ourselves to tracking the neoliberal logic behind the strategy.

First, targeted constituencies – ie anyone associated with, relying or dependent on the state and public services. For the rich, the recession never happened. For the public sector, however, there will be massive redundancies, a wage freeze, pay running well behind the rate of inflation, pensions that will not survive in their present form, rising retirement ages. Support for the less well off and the vulnerable will be whittled away, and welfare dependency broken. Benefits will be capped, workfare will be enforced. The old must sell homes to pay for care; working parents must buy childcare; and incapacity-benefit recipients must find work. Sure Start, the schools refurbishment programme and the Education Maintenance Allowance scheme are on hold. Wealthy parents can buy children an Oxbridge education: but many other students will go into lifelong debt to get a degree. You cannot make £20bn savings in the NHS without affecting frontline, clinical and nursing services. Andrew Lansley, however, "does not recognise that figure". Similarly, though everybody else knew that most universities would charge the maximum £9,000 tuition fees, David "Two-Brains" Willetts doesn't recognise that figure. Saying that square pegs fit into round holes has become a front-bench speciality.

Women stand where many of these savage lines intersect. As Beatrix Campbell reminds us, cutting the state means minimising the arena in which women can find a voice, allies, social as well as material support; and in which their concerns can be recognised. It means reducing the resources society collectively allocates to children, to making children a shared responsibility, and to the general "labour" of care and love.

Second, there is privatisation – returning public and state services to private capital, redrawing the social architecture. The Blair government was an innovator here. To avoid the political hassle of full privatisation, it found you could simply burrow beneath the state/market distinction. Outsourcing, value for money and contract contestability opened the doors through which private capital could slip into the public sector and hollow it out from within. Privatisation now comes in three sizes: (1) straight sell-off of public assets; (2) contracting out to private companies for profit; (3) two-step privatisation by stealth, where it is represented as an unintended consequence. Some examples: in criminal justice, contracts for running prisons are being auctioned off and, in true neoliberal fashion, Ken Clarke says he cannot see any difference in principle whether prisons are publicly or privately owned; in healthcare, the private sector is already a massive, profit-making presence, having cherry-picked for profit medical services that hospitals can no longer afford to provide; while in the most far-reaching, top-down NHS reorganisation, GPs, grouped into private consortia (part of whose profits they retain), will take charge of the £60bn health budget. Since few GPs know how, or have time, to run complex budgets, they will "naturally" turn to the private health companies, which are circling the NHS like sharks waiting to feed. Primary Care Trusts, which represented a public interest in the funding process, are being scrapped. In the general spirit of competition, hospitals must remove the cap on the number of private patients they treat.

Third, the lure of "localism". In line with David Cameron's Big Society, "free schools" (funded from the public purse – Gove's revenge) will "empower" parents and devolve power to "the people". But parents – beset as they are by pressing domestic and care responsibilities, and lacking the capacity to run schools, assess good teaching, define balanced curricula, remember much science or the new maths, or speak a foreign language, while regarding history as boring, and not having read a serious novel since GCSE – will have to turn to the private education sector to manage schools and define the school's "vision". Could the two-step logic be clearer?

Fourth, phoney populism: pitching communities against local democracy. Eric Pickles intends to wean councils permanently off the central grant system. Meanwhile, social housing is at a standstill, housing benefits will be cut and council rents allowed to rise to commercial levels in urban centres. Many will move to cheaper rentals, losing networks of friends, child support, family, school friends and school places. Parents must find alternative employment locally – if there is any – or allow extra travelling time. Jobseekers' allowances will be capped. As the private housing lobby spokesperson said: "We are looking forward to a bonanza." Since the early days of Thatcher we have not seen such a ferocious onslaught on the fabric of civil society, relationships and social life.

Fifth, cutting down to size state involvement in quality of life. Amenities such as libraries, parks, swimming baths, sports facilities, youth clubs and community centres will either be privatised or disappear. Either unpaid volunteers will "step up to the plate" or doors will close. In truth, the aim is not – in the jargon of 1968 from which the promiscuous Cameron is not ashamed to borrow – to "shift power to the people", but to undermine the structures of local democracy. The left, which feels positively about volunteering, community involvement and participation – and who doesn't? – finds itself once again triangulated into uncertainty. The concept of the Big Society is so empty that universities have been obliged to put it at the top of their research agenda on pain of a cut in funding – presumably so that politicians can discover what on earth it means: a shabby, cavalier, duplicitous interference in freedom of thought.

What is intended is a permanent revolution. Can society be permanently reconstructed along these lines? Is neoliberalism hegemonic?

The protests are growing. Weighty professional voices are ranged against structural reforms, and the speed and scale of cuts in a fragile economy. There are pauses, rethinks and U-turns. Finally, there are unexpected developments that come out of the blue, such as the phone-hacking scandal that enveloped Rupert Murdoch's News International. In the free-for-all ethos of neoliberal times, this sordid affair blew the media's cover, compromised the Cameron leadership and penetrated echelons of the state itself. As Donald Rumsfeld ruefully remarked, "Stuff Happens!" If the Lib-Dem wheeze of delivering cuts in government and campaigning against them at the next election fails to persuade, they face the prospect of an electoral wipe-out. The coalition may fall apart, though at an election the Conservatives might get the majority they failed to muster last time. What happens next is not pregiven.

Hegemony is a tricky concept and provokes muddled thinking. No victories are permanent or final. Hegemony has constantly to be worked on, maintained, renewed, revised. Excluded social forces, whose consent has not been won, whose interests have not been taken into account, form the basis of counter-movements, resistance, alternative strategies and visions … and the struggle over a hegemonic system starts anew. They constitute what Raymond Williams called "the emergent" – and the reason why history is never closed but maintains an open horizon towards the future.

However, in ambition, depth, degree of break with the past, variety of sites being colonised, impact on common sense, shift in the social architecture, neoliberalism does constitute a hegemonic project. Today, popular thinking and the systems of calculation in daily life offer very little friction to the passage of its ideas. Delivery may be more difficult: new and old contradictions still haunt the edifice, in the very process of its reconstruction. Still, in terms of laying foundations and staging the future on favourable ground, the neoliberal project is several stages further on. To traduce a phrase of Marx's: "Well grubbed, old mole." Alas!

• This article was amended on 14 September 2011. The original said "Independent Maintenance Grants are on hold". This has been corrected to Education Maintenance Allowances.