It is a baleful sign of our times that one of Newt Gingrich's most effective attacks on Mitt Romney is that he is so un-American he dares to speak French. Ever since the Iraq war, France and the French are synonymous with European lack of martial spirit and solidarity with the US, but more is at work than that. Command of a foreign language shows the wrong priorities, according to this line: it shows a willingness to work hard at understanding another culture, its language and mores. Real Americans don't do that.

The British are infected by the same culture, but we don't have the excuse of being the globe's dominant power and of occupying a continent. We live on a large island in the North Sea whose economic power is rapidly waning; any conceivable viable future demands openness and exchange with the rest of the world. Even Eurosceptics preach that, as a country, we have to look globally to secure our future. In fact, Britain should pursue both its European and global ambitions. But whatever your position in this debate, a capacity to speak a foreign language – and to enthuse about doing so – is a vital competence.

However, last week's figures, revealing a steep decline in those applying to study non-European languages – down 21% – appear to suggest we are heading in the opposite direction. What does this say about our young people's interest in the other? Of their awareness of the growing importance of China, the Arab-speaking world and the rest? Or, indeed, of their willingness to subject themselves to the discipline of learning a foreign language? The picture with regard to European languages is no better – 57% of pupils now take no languages at GCSE, while there has been a marked drop in the numbers of candidates studying for languages at A-level.

Seventeen-year-olds applying for their choice of university course are the creation of a series of personal, family and school choices, which in turn reflect our wider cultural reflexes and dispositions. But if part of the explanation is that these 17-year-olds feel that acquiring a language will not be valued by the labour market, then their judgment is completely wrong. The unemployment rate for language graduates is extremely low. The labour market values them.

Perhaps the new fees regime in which students will leave university with average debt of around £45,000 has become a factor; we shall see. (Full declaration: I chair the newly established independent fees commission that aims to explore the impact of the new fee regime on applications.) But this would be a mistake. In sheer utilitarian terms, the economy needs more people who can speak foreign languages. This is a valuable skill, whether you're part of the global scientific community or the world trade system.

Learning a language is thus a double win. The brilliant translator Michael Hofmann has written in these pages of the delight of mastering more than one language. To speak a single language, he argues, is to be enclosed in one cultural possibility – to be preordained to live in the linguistic and cultural cage into which you are born. "If you don't have another language, you are condemned to occupy the same positions, the same phrases all your life," he wrote. "It's harder to outwit yourself, harder to doubt yourself in just one language. It's harder to play." To acquire another language is to open yourself up to the world and to increase vastly your employability.

But such propositions are hard to get off the ground in a popular culture that can appear too shaped by insularity, distrust of foreigners and a jingoistic belief in British superiority. What's more, the initial years of studying a language are tough: there is no escape from the grind of learning how to conjugate verbs, construct sentences and to absorb enough words to begin to understand what is written and said.

To elect to do this, young boys and girls need to know that, like practising a musical instrument, designing clothes or playing a sport, the end-result will be worthwhile. They need teachers who can inspire them, classmates who encourage them and families who understand the value of the skill. In Britain, none of this exists to a sufficient degree.

It is not as though the situation is new. Successive education secretaries say how they deplore the trends. There are initiatives and campaigns galore, whether from the University Council of Modern Languages or the British Academy. But for all their good work, their efforts do not get much traction.

The deep problem is that neither Britain's popular culture nor its elite has yet to come to terms with the country's new international standing or what is implied by our economic position. The hangover from Empire and the legacy of great power, along with the comforting reality that the US is English-speaking, deludes us into still thinking that speaking a foreign language is a nice-to-have rather than a must-have asset.

Instead, in our eyes, the real traffic remains in foreigners learning our language and adjusting to our mores. Worse, there are floods of them beyond our borders anxious to live off our allegedly extraordinarily generous welfare state. The task is not to open ourselves to them as part of rebuilding our economy and remaking ourselves – it is to keep them out, pull up the drawbridge, make our welfare system as mean as possible and to balance our books. Foreigners are part of the problem, not the solution. Perhaps this is why so many of our children embarking on learning a foreign language are teased rather than praised and quickly give up on something that is so demanding.

The crisis in our foreign language studies is thus part of something much larger and why the coalition government's rhetoric and programme are so very, very misguided. There is a poverty of vision about what Britain needs to be – apart from a country that balances its public finances and says boo to foreigners. Without immigration, the European Union and the euro crisis, we would be just fine, or so runs this line, a cultural disposition fired up daily by our popular press.

But Britain has to build, has to trade and has to be open. It has to underwrite the risks faced by ordinary people in a ferociously competitive world, made more acute by the lost decade after the credit crunch. It has to be generous and inquiring, both of itself and of others. Empire and great power status have gone. We are starting over. It is when our elite and popular culture start talking in these terms that we will turn the corner.

Will Hutton is principal of Hertford College, Oxford