The hallmarks of David Cameron's Britain are becoming clearer: payday loans, food banks, the bedroom tax, G4S and now zero-hours contracts. Until this week, it was often claimed that zero-hours jobs – the ultimate "flexible labour market" fix where employees are tied to a company with no guarantee of work – accounted for only a tiny fraction of the workforce.

Now we know that there are about a million of them – and their numbers are escalating. For most, this is 21st-century serfdom: concentrated in low-paid sectors, delivering one-sided flexibility to the employer and insecurity to the worker, with no requirement for holiday, sick or redundancy pay, and imposing wild fluctuations in hours on an often intimidated workforce.

For a minority, they can offer genuine flexible work and even the option of turning jobs down without paying a penalty (though other forms of casual or freelance work are likely to be more attractive). For the most part, however, this is a modern version of the dockers' line-up: on-call casual contracts where employees can be barred for working for another employer and still receive no pay. It's scarcely surprising zero-hours workers complain of being "bullied" and "terrified".

Nor is this Victorian-style scheme mainly confined to small firms or seasonal work. This is about household names: McDonald's, Boots, Amazon, Abercrombie & Fitch, Cineworld, the Tate galleries and Buckingham Palace. All rely on zero-hours contracts. In the case of Sports Direct, they're used to enforce a two-tier workforce: 90% of its 23,000 workers are on zero-hours deals, while the rest are full-time employees on bonuses of up to £100,000.

Now the zero-hours culture is spreading rapidly throughout the public and voluntary sectors. There are already up to 100,000 workers on zero-hours contracts in the health service. And the large majority of home care workers are forced to operate under these standby contracts – which have also colonised colleges and universities, reducing continuity of support for students and the vulnerable into the bargain.

But zero hours are only one part of a far wider casualisation process that has accelerated since the crash of 2008 and the arrival of the Tory-Liberal Democrat coalition. Agency working, temporary work and enforced part-time working have all mushroomed: nearly half the jobs created since 2008 have been temporary, as half a million permanent jobs have been lost.

So while ministers and their supporters claim that labour flexibility has kept unemployment at a mere 2.5 million, or about 8% of the workforce, underemployment – including those on part-time or casual contracts who want to work more hours – is 10%.

It's not as if this embrace of zero-hours contracts and other forms of casualisation has simply happened spontaneously, either. The sharp intensification of privatisation or "opening up" of public services by the coalition has fuelled the process, as local authorities respond to cuts in funding by driving through ever tighter tenders on outsourced contracts.

Councils now commission home care, for instance, from a large number of contractors without guaranteed hours – who can bid online for a contract to provide care even for one elderly person. That is then translated into zero-hours contracts for hundreds of thousands of care workers.

So privatisation of public services, which has generated one scandalous failure and fraud after another and is opposed by a large majority of the public (demonstrated once again by polling for the new "We Own It" campaign) is also driving the race to the bottom in pay and conditions for Britain's workers.

Far from boosting economic recovery or employment, that's one of the factors behind the longest fall in real wages since the 1870s, as four out of five new jobs since 2008 have been created in low-wage sectors, by the TUC's reckoning. The result is a deadweight drag on demand, falling productivity and a spiral of under-investment.

The idea that an even more insecure jobs market will turn that round, and slash unemployment and underemployment, clearly doesn't stack up. The last time Britain had anything close to full employment, in the 1960s and 70s, it also had far more regulated and secure employment, as do Europe's more successful economies today.

But that is of course a long way from the Tory vision of the workplace, made clear by the party's chairman Grant Shapps last week when he complained about firms' need to be "disingenuous" about sacking people. And in case there were any doubt about who the coalition parties want to have the whip hand at work, last Monday the government introduced a prohibitive £1,200 fee for anyone going to an employment tribunal to protect their legal rights – the latest in a string of retrograde steps to load the dice still further against employees.

That's the spirit of zero-hours contracts: unfettered flexibility for capital, powerless prostration for the workforce. Under public pressure, the business secretary, Vince Cable, has now suggested "moving forward with recommendations to consult" about outlawing the most extreme zero-hours abuses; so far, Labour's frontbench hasn't gone much further.

If the balance of workplace power is even going to begin to be righted, these contracts will have to be scrapped – and regulation imposed on other schemes or bogus self-employment arrangements that might be used to replace them. That will also require stronger unions, of course – and a Labour leadership that is prepared to stand up to corporate interests.

Which will take a political and industrial fight. As elsewhere, the response of this government and its business allies to the crisis unleashed in 2008 has been to try to restore profitability at the expense of the living standards of the majority – instead of using the public sector to drive up investment and growth directly. Reducing workers' bargaining power is part of that.

What's clear is that the model of capitalism that crashed and burned five years ago – and they are now trying to resurrect – is unable to deliver secure jobs and full employment, or anything like it. If neoliberalism were just a theory of economic management, it would have been discredited by its failure. What's going on now is a reminder that it's also a system of social power.

Twitter: @SeumasMilne