After confining the luvvies to their Hampstead barracks for the duration of the last British general election, the youngest - and, in his own egregious words, the most "with-it" - prime minister this century, Tony Blair, came up with the spiffing idea of replacing John Major's image of Britain as one of "cricket and warm beer" with one of Oasis records, Hirst's sharks in formaldehyde and Sheffield strippers going the "full Monty". "Cool Britannia" (/ku:l britanja/) was the catch-cry filling the halls of Whitehall as Blair fingered out his Islington neighbour, Chris Smith, to head the newly named Department of Culture, Media And Sport (the `Art' word not having enough of a populist ring about it, obviously). Referring to a rash of Britpop bands, the Charles Saatchi-sponsored gang of "daring" new artists and the successful young on-its-feet film industry, the phrase "Cool Britannia", however, didn't compute with the real world (anywhere outside the media dens of Soho, that is) and was soon ditched by the government. What the party and the Orwellian-sounding Department for Culture haven't ditched, though, is an approach to the arts and culture in general which has much in common with new business and management theories but has no fully worked-out approach to cultural policy.

The British Culture Secretary, Chris Smith, has recently brought out a book called Creative Britain, which is a combination of his speeches and specially written chapters on the status of the arts in Britain today, which sounds the death knell for "Cool Britannia". Smith emphasises the common themes that government policies should address: access for the many and not the few; the importance of excellence in high and popular art, the ways in which culture can help to tackle social exclusion, and most significantly, the economic significance of the "creative industries".

He writes that his task of "bringing democracy to culture" began, symbolically with the re-naming of his department from the old "Department of National Heritage" to the new "Culture, Media and Sport", "not because heritage is unimportant but because we wanted something more forward-looking, a name that captured more accurately the spirit of modern Britain. We were not afraid to use the word `culture', something the rest of the world had woken up to decades ago and we also wanted to get away from the `Minister of Fun' image."

Smith's first obstacle was to remove the traditional image of Britain as a historical theme park or, as the left-wing think-thank Demos put it: "a country which is a backward-looking has-been, which needs co-ordination, professionalism and cultural changes". To this end he embarked on a media-friendly round of modernisation: welcoming those in the vanguard of popular culture - Noel Gallagher, Damien Hirst, Eddie Izzard et al to Downing Street to meet Tony Blair - who himself once fronted a notvery-good rock band before politics beckoned. It was more the contrast with the ancien regime that caught the imagination in the first place; it was inconceivable that the old Department of National Heritage would embrace Britpoppers and iconoclastic conceptual artists, but Smith's seemingly groovy new Department was after the populist vote and as all sorts of Lottery money was promised, and a special "Rock Music Taskforce" was set up, it all seemed very happy-clappy for all concerned.

It ended in tears within months, though, as New Labour first financially attacked single mothers and then introduced the controversial "Workfare" scheme - whereby people's unemployment benefit was cut off if they didn't accept what the Government felt was a "suitable" training course. More generally, Chris Smith's guiding plan for the arts is couched in Blairite third-way, partnership-with-business speak. Smith's key themes of "access, excellence and education" in the arts are all circumscribed by his notion of "economic value". To the dismay of many at the creative end of the arts, Smith's master-plan, which is painfully elucidated in his book, is to take a broader view of the arts within society and the economy. Artists in Britain, including Damien Hirst and Blur's Damon Albarn, have already voiced concerns that such a move would threaten the spirit of innovation and experiment that lies at the centre of challenging, creative work.

Similarly, many found it significant that the recently appointed chairman of the English Arts Council, Gerry Robinson, is a businessman, and also chairman of the mighty Granada media empire. "A businessman as chairman of the Arts Council may be seen as a threat to the very life-blood of the arts," says Robinson, "but really, we should have more confidence in our arts and artists than that." Adding that the Arts Council was drawing up plans for the arts to play a meaningful role in taking young and long-term unemployed people off benefit, as part of New Labour's "New Deal/Workfare" scheme, Robinson says: "Perhaps some people might suggest that the Arts Council - or the arts - has no part in helping this government, or any government, with its New Deal. I would turn the question around: why should the young and long-term unemployed only look to, say, clerical or construction work as their routes out of benefit? Why not look to work in creative industries?"

With the arts now officially designated, for good or ill, an "industry", the dissenting voices are increasing in volume. Liz Greenhalgh, a respected commentator on cultural and media policy, has put "Cultural Policy in Cool Britannia" under the microscope in an essay entitled "From Arts Policy To Creative Economy" (published in the Australian Key Centre for Cultural and Media Policy Handbook, May 1998). She considers the way that the Labour Party, since its election in 1997, has promoted ideas about the value of the creative economy to Britain's industrial future and finds that "there is now a disjuncture between the recognition of the `creative economy' and the continued existence of traditional arts policy-making institutions . . . The `creative economy' has more in common with some management theory than it does with a idea of real cultural policy". With culture now being seen as a product in much the same way that The Frankfurt School (Adorno et al) in the 1930s predicted it would be, there are obvious repercussions for artists of all hues, in that those whose work takes time to develop (i.e. almost everybody) may be deemed "non-profit-making" and those who choose to criticise existing political institutions may be deemed "surplus to requirements".

However, one of the stranger spin-offs of Chris Smith's New Arts Order, is that now "the days of the blank cheque book are over", many once invincible institutions are under attack: consider the long-running saga of London's Royal Opera House, which has a reputation for snobbery and financial recklessness. The proposed multi-million pound operation to save the ROH will now only go ahead, according to Gerry Robinson, if "they are able to demonstrate its willingness to widen access through cheaper ticket prices and to develop significantly its educational programmes . . . it will also have to demonstrate that it is soundly managed".

While not mentioning the ROH by name, Robinson also says that too many British arts companies are "plying their trade to the same, white, middle-class audiences. Too often in the past, the arts have taken a patronising attitude to audiences. In the back of their minds lurks the vague hope that one day enlightenment might descend upon the rest, and the masses might one day get wise to their brilliance. If we believe that experience of the arts can inspire, can lift the spirit, surely it is nothing less than our duty to go out and spread what can be a life-transforming experience. After all, how many black faces do we see in the audience at the National Theatre?"

While Chris Smith's mini-revolution of placing the arts within a broader economic/industrial agenda may yet be the worst thing for the arts since Margaret Thatcher's slash 'n' burn approach in the 1980s, he is to be applauded for bringing an element of democracy to arts awareness and funding. It may only be symbolic but someone who can mention Rachel Whiteread and Massive Attack in the same sentence as Opera North is doing something half-right. The danger, though, lies in confusing price with value.

Chris Smith's Creative Britain is published by Faber & Faber, price £7.99

Mic Moroney's interview with fiddler Tommy Peoples will appear tomorrow, instead of today, as advertised on Saturday