They are the pillars of the community, champions of the underdog, the scourge of corruption, defenders of free speech. Their demise could deal a mortal blow to democracy. Any guesses yet? How many of you thought of local newspapers?

But this is the universal view of the national media: local papers – half of which, on current trends, are in danger of going down in the next five years – are all that stand between us and creeping dictatorship.

Like my colleagues, I mourn their death; unlike them I believe it happened decades ago. For many years the local press has been one of Britain's most potent threats to democracy, championing the overdog, misrepresenting democratic choices, defending business, the police and local elites from those who seek to challenge them. Media commentators lament the death of what might have been. It bears no relationship to what is.

I'm prompted to write this by a remarkable episode in my home town, Machynlleth, which illustrates the problem everywhere. A battle has been raging here over Tesco's attempt to build a superstore on the edge of town. Its application received 685 letters of objection and five letters of support, but the town council, which appears to believe everything Tesco says, supports the scheme. The local paper, the Cambrian News, appears in turn to believe everything the council tells it.

A couple of weeks ago consultants hired by Powys county council published a retail impact assessment which supports the arguments put forward by the objectors. If the new store is built, the assessment says, it will cause trade in the centre to decline and generate longer and less sustainable shopping trips. How did the Cambrian News respond to this devastating blow to Tesco's application? By running a smear job on its front page.

According to the town clerk, the consultants had fabricated a complaint by the local butcher. They had claimed to represent his views in their assessment, saying that he feared he would be forced out of business by Tesco – "but they haven't even spoken to him!". The Cambrian News, ironically, ran this story without speaking to the butcher, the consultants, or, apparently, performing even the briefest check. Its only informants were the town clerk and the councillors, who lined up to say that the behaviour of the consultants was "disgusting", that they were "scaremongering" and that they should apologise to the butcher. It took me 30 seconds to discover that the story was completely untrue: the assessment says nothing about the butcher or his shop.

I asked the editor of the Cambrian News to tell me whether her reporter had read the assessment before filing his story, or whether anyone at the paper had checked it. Her response was priceless. "Any information that we obtain, we keep exclusively for the Cambrian News and do not pass it on to rival newspapers." I pointed out that I wasn't trying to steal her non-story, but asking her to defend her decision to publish it. She has not replied.

This petty affair is a synecdoche for the state of local journalism. Most local papers exist to amplify the voices of their proprietors and advertisers and other powerful people with whom they wish to stay on good terms. In this respect they scarcely differ from most of the national media. But they also contribute to what in Mexico is called caciquismo: the entrenched power of local elites. This is the real threat to local democracy, not the crumpling of the media empires of arrogant millionaires.

Since May, Roy Greenslade, professor of journalism at City University, has been running a series on the Guardian's website called "Why local papers count". It's a brave effort, but it demonstrates the opposite of what he sets out to show. In six months he has managed to provide just one instance of real journalism: a report by the Kentish Express on the inflated costs of upgrading a local road. Otherwise he appears to have found no example of local papers holding power to account.

There's one respect in which the local press is confronting power: by campaigning against the free papers published by local authorities. These, the papers say, are propaganda sheets, which provide a biased view of council business. Does that sound familiar? In his book Flat Earth News, Nick Davies cites a survey of press releases issued across two months by Northumberland county council. Ninety-six percent of them were turned into stories by local papers. In many cases the papers copied the releases verbatim; in no case did they add any information. They might as well have been published by the council.

The failures of the local press are often blamed on consolidation by the big media corporations, which have squeezed as much money out of their collapsing possessions as they can, leaving no funds for real journalism. Davies, for example, asked a reporter on a regional paper to keep a diary for a week. In just five days the reporter published 48 stories. He came across one original story in that period, but he didn't have time to pursue it, so he let it drop. Otherwise he just recycled old copy, lifted stories from other papers or simply concocted them.

But this is not the whole reason for the failure of the local press. The Cambrian News, for instance, is owned by the man who is universally hailed as the only success story in local publishing: Sir Ray Tindle. His company, which runs 230 papers, is independent, free from debt and booming, but it suffers from many of the diseases that afflict the rest of the press. When the Iraq war began, Tindle ordered his editors "to ensure that nothing appears in your newspapers which attacks the decision to conduct the war". His letter was reproduced in the Totnes Times, with the following comments. "In a brave move, which could easily be seen by some as censoring the news, Sir Ray ordered that once war in Iraq was declared his newspapers would not carry any more anti-war stories … As editorial manager of eight of Sir Ray's titles, I am proud to say I totally agree with his decision."

It's true that the vacuity and cowardice of the local papers has been exacerbated by consolidation, profit-seeking, the collapse of advertising revenues and a decline in readership. But even if they weren't subject to these pressures, they would still do more harm than good. Local papers defend the powerful because the powerful own and fund them. I can think of only two local newspapers that consistently hold power to account: the West Highland Free Press and the Salford Star. Are any others worth saving? If so, please let me know. Yes, we need a press that speaks truth to power, that gives voice to the powerless and fights for local democracy. But this ain't it.