"Troop after troop – one brilliant colour after another … The Queen smiled and nodded her poor tired head." So the 15-year-old Virginia Woolf recorded in her diary the sight of Queen Victoria on the day of her Diamond Jubilee in June 1897. Then all London came out to honour Britain's longest-serving sovereign. The march past and open-air ceremony at St Paul's Cathedral marked the century's high-point of imperial bombast, Victorian self-regard and British self-belief.

It was desperately appropriate that the young Virginia Woolf had stood among the crowds. It would be her generation, and fellow Bloomsbury Group intellectuals Lytton Strachey and EM Forster, who would do so much to rubbish the 19th century in the public mind. All too often when we think of the Victorian era it still remains that Bloomsbury caricature of hypocrisy, prudery, mill owners and Methodism.

But if we know who the "Eminent Victorians" are and what they stand for, what about the Elizabethan era and our own "Eminent Elizabethans"? As yet, we stand too close to an era that has not concluded. Nonetheless, this weekend's epic Jubilee celebrations offer a moment of crystalline, national reflection.

It is first worth recalling the metaphysical aspirations invested in the young, beautiful sovereign for postwar Britain. Proclaimed Queen Elizabeth II in February 1952, she swore the oath in June 1953. By happy coincidence, and some deft media management, news of Edmund Hillary and Tensing Norgay's ascent of Mount Everest was announced on the day of the coronation service. "Be Proud of Britain on This Day," ran the Daily Express headline.

"The coronation was like a phoenix-time," recalled Princess Margaret of the postwar moment. "Everything was being raised from the ashes … and nothing to stop anything getting better and better." The trope of the times was clear: the young Queen offered Britain (but, first and foremost, England) another go at Gloriana. "It is our hope that Her Majesty may live long and happily and that her reign may be as glorious as that of her great predecessor, Queen Elizabeth I," announced Clement Attlee on behalf of the Labour party. "Let us hope we are witnessing the beginning of a new Elizabethan age no less renowned than the first."

But how was this new Elizabethan era to realise itself? In the House of Commons, Tory MP Bernard Braine thought "the old Elizabethan age great precisely because the spirit of adventure led great men in little ships to sail into the unknown". That vision now had to be revived among the "simple, backward, unsophisticated peoples" of the British dependencies. Even if India, Burma, Ceylon and Palestine had gone, clearly empire would still prove fundamental to the modern Elizabethan age.

In fact, the pull of history was all the other way. The 1956 Suez crisis revealed, with humiliating clarity, the limited postwar geopolitical capacity of the United Kingdom, and the slow descent of imperial Britain became inevitable. As decolonisation ground on, culminating in the 1997 handover of Hong Kong, the tides of empire came back to these shores. The modern Elizabethan era will be remembered for the ethnic, racial and religious transformation of Britain.

Of course, there was a long history of non-white communities in the UK, but nothing equals the scale and impact of postwar mass migration. Enoch Powell's warnings of "rivers of blood" and the impact of multiculturalism makes him a defining figure of the age – even if the last 50 years have disproved his terrifying prophecies of ethnic strife. For the most part, the real story is one of remarkable racial integration, with 9% of UK children now of "mixed or multiple heritage", making the likes of Shirley Bassey and Freddie Mercury equally powerful testaments to the Elizabethan era.

If we had lost an empire, then we had also famously failed to find a role. Central to that postwar strategic confusion was the spectre of Europe. For all Winston Churchill's happy conception of a Britain able to manage multiple loyalties of Atlanticism, Commonwealth and empire, Queen Elizabeth presided over an epic identity crisis that has still to be resolved. Referendums, parliamentary votes and political parties have all failed to answer the question as to whether our national destiny lies in an integrated Europe or not.

And one could pick out any number of late 20th-century statesmen to make the point. However, perhaps Tony Benn is the Elizabethan who most obviously embodies the contradictions. From having been a passionate supporter of Europe, he campaigned against entry in the 1975 referendum and attacked the Common Market for decisions that would "make the United Kingdom into one province of a western-European state". The allure of Britain being a global player, head of the Commonwealth and implicit leader of the English-speaking peoples was hard to shake off.

The most high-profile victim of our Euro-obsession was, of course, Margaret Thatcher. She too tried to play the role of Gloriana and, inevitably, did not always see eye to eye with Queen Elizabeth II as the impact of monetarism took its toll on Britain's social fabric. Thatcher's place in history lies with a disputed political and economic legacy, but as the first female prime minister in British history she elucidates a broader truth about the Elizabethan age.

"Women can – and must – play a leading part in the creation of a glorious Elizabethan era," Thatcher wrote as a young woman in an article for the Sunday Graphic on the eve of coronation. "Should a woman arise equal to the task, I say let her have an equal chance with the men for the leading Cabinet posts. Why not a woman chancellor – or a woman foreign secretary?" But the real women's revolution of the Elizabethan age was taking place elsewhere as birth control, abortion reform, and the 1970 Equal Pay Act transformed the gender settlement of the 1950s. One could point to Germaine Greer, Iris Murdoch, Vanessa Redgrave or JK Rowling as eminent Elizabethans in their own right and as part of a broader shift in female equality.

The liberalism of the Elizabethan era continued with a legally driven transformation of rights for gay and lesbian people. The 1967 Sexual Offences Act, decriminalising homosexual acts between men, was followed by reforms to the age of consent and the 2004 Civil Partnership Act. Social opinion followed the law as a steady process of acceptance and tolerance transformed the life experiences of millions. However, social liberalism had its price as family breakdown – not least within the House of Windsor – reshaped the societal foundations of Elizabethan Britain. Divorce, cohabitation, and single-parent households all sky-rocketed as the traditional, postwar family structure – on which the welfare state was erected – came under unprecedented pressure.

Such flux was a part of the broader Elizabethan tale of social mobility. Even if structural economic inequalities proved resistant to change, the prewar age of deference and hierarchy would end under Elizabeth. The opening up of schooling, universities and the professions – the world of the 1963 Robbins Report, Richard Hoggart and Kingsley Amis's Lucky Jim – and the rise of mass culture eroded class divisions and unleashed a surge of creativity. From music to literature to television to film to radio to fine art to poetry, from the Beatles to Salman Rushdie to Cilla Black to Ken Russell to Alastair Cook to Francis Bacon to Philip Larkin, Britain under Elizabeth II repaid the cultural hopes of her coronation.

Again, this renaissance has had its price. What the postwar years also wrought was a collapse in regional identities, working-class culture and Protestant sensibility. The demolition of Manchester Union Chapel in 1950, once known as "the nonconformist cathedral of Lancashire", signalled the start of the effective demise of nonconformity in British public life. The decline of trade union membership, the loss of dominant local employers, and the modernist destruction of Victorian urban environments undermined provincial culture and (aided by the BBC and globalised media) homogenised British identity. The Guardian stopped being the Manchester Guardian in 1959.

And yet the irony was that during Queen Elizabeth's reign, Britishness also subsided as a default form of national identity. The natural, instinctive, 1950s sense of British nationhood – forged through two world wars, a Protestant faith and an imperial project that elided any sense of internal UK differentiation – had come to an end by the early 2000s. For many urban communities in Birmingham, Leicester or Glasgow, being British would be one part of a hyphenated identity which might include Pakistan or Jamaica.

For the white British of Glamorgan, Hampshire or Dundee, it could well be that being Welsh, English or Scottish overrode a federal, British affiliation. Despite all the Windsor monarchy's attempts at harmonious British iconography, the leeks and thistles and roses woven into wedding dresses, the allure of an ethnic nationhood trumped the rational architecture of the United Kingdom. Scottish and Welsh nationalist MPs Margaret Ewing and Gwynfor Evans are the real representatives of this age.

Underscoring the demise of Britishness was the relative decline of the UK economy. "There is a lot of talk about the new Elizabethan age but whether it will be implemented will depend on all ranks in industry," Brigadier Ralph Rayner told parliament in 1952. "The British industrialist and merchant, if given half a chance, will wipe the floor with any other industrialist in the world. The British working man, if given a good lead, will certainly beat any other working man in the world."

Such chauvinism would prove horribly ill-placed as British business failed repeatedly to invest in plant, innovate or market at the same rate as their American, Japanese or European competitors. Moderate trade union leaders such as Jack Jones and Joe Gormley were pushed aside by militant activists determined to bring down capital. And so the "never had it so good" coronation boom years of full employment, high growth and low inflation could not be sustained – even as succeeding governments racked up spending commitments based on unachievable growth levels.

British industry, management and labour relations proved increasingly uncompetitive on a global stage. But rather than reform our industrial base, the monetarist experiment of Mrs Thatcher decimated our engineering supply chain and unleashed the imbalanced financial services boom of the 1980s. Even the entrepreneurial heroes of the hour – Richard Branson and Alan Sugar – could not hide the structural failings at the core of a weakening British economy.

What did remain true to the New Elizabethan ethos was British scientific excellence. "From the start, the royal couple were directly associated with modern technology," writes the historian Richard Weight. Queen Elizabeth was the first British monarch to arrive in her capital by aeroplane and the Duke of Edinburgh imagined himself as something of a Prince Albert touring research facilities and university campuses. James Watson, Francis Crick and Rosamund Franklin's discovery of DNA in 1953 added to the sense of possibilities and, since then, successful UK science has proved an elemental companion to the Elizabethan era. Christopher Hinton's work on civil nuclear power, Brian Josephson's achievements on superconductivity, Bob Edwards's IVF revolution, and Tim Berners-Lee's contribution to the world wide web can stand tall with anything the Victorians have had to offer.

And what of politics? As with Queen Victoria, the reign is too long to quantify. The 1850s ideologies of laissez-faire, free trade and a nightwatchman state appear an aeon away from the interventionist New Liberalism and municipal socialism of the 1890s. Similarly, the "Butskellism" and corporatism of Queen Elizabeth's postwar years belongs to another civilisation in comparison with the globalised neo-liberalism of the late 20th century. The modern Elizabethan era encompasses both Keynesianism and monetarism; both warfare economies and welfare states; two-party, Westminster politics and devolved, nationalist assemblies. The titans are obvious – Harold MacMillan, Roy Jenkins, Barbara Castle, Nye Bevan, Nigel Lawson – and the trends apparent, with the central state (in historical terms) assuming ever-greater power and responsibilities over British life. Longevity, educational provision, cultural opportunities and lifestyle choices are opened up on an unprecedented basis. But what are the axes of political change in the Elizabethan era? I would offer the death of Churchill in 1965 (and the requiem for Britain as a great power); the election of Thatcher in 1979 (and the end of the postwar consensus); and the victory of Tony Blair in 1997 (and a new conception of a globalised Britain).

Few other western-European nations have been able to cope with the kind of economic and political stresses the past half-century has brought without damaging state instability. The multiple republics of France, the dictatorships of Spain and Greece, the relentless democratic crises of Italy stand in contrast to the relative ease of rule by Queen Elizabeth II. Of course, it is all pomp and no power these days and the House of Windsor has become ever more adept at the flummery of monarchy. But it does the left no favours to dismiss the stability and affection in which the Queen is held as a simple display of false consciousness.

Her reign has encompassed the demise of Britain as a great global power, the transformation of culture and class, the lobotomy of the British economy, the end of deference and a distinctive sense of Britishness, and yet has also maintained a strong sense of national pride and self-belief in which she herself is bound up.

No doubt this weekend, along the Thames tow-path, watching the Gloriana, Havengore and Spirit of Chartwell make their way down river, a modern Virginia Woolf will stand ready to let rip at the failings of her forefathers. But history shows she would best define it before the courtiers do.

What defines the Second Elizabethan era for you? Tell us about the events, objects, buildings, works of art and literature, the moments big and small that have shaped our age.

• This article was amended on 1 June 2012 to change the phrase 'homosexuals and lesbians' to read 'gay and lesbian people', in accordance with our style guide.