The ideal of the English gentleman has evaporated. No one talks about what's 'not done': now anything goes, with enough aggression. There are still two doors to success, marked Pull and Push, but Push is quicker and more effective. If anyone practises the old English understatement - 'I've done nothing much, really '- they are taken literally. No one follows the old imperial rule: 'Never ask for a job, never refuse one.' If you want a peerage, you do not wait for the Queen to offer one - you fill in a form to ask for it.

The English seem to have been defeated in their own country, and imperialism has gone into reverse as former colonials have returned in triumph to the home country. Australians, South Africans and Canadians invade London to scale the citadels of power, ignoring the hierarchies of the natives and racing to the top. The South Africans have risen quickly to the peaks of business and the law; Australians have penetrated the media; a Canadian, Conrad Black, owned the Daily Telegraph for 15 years; one former Rhodesian, Gavyn Davies was chairman of the BBC until earlier this year, another, Sir Michael Walker, heads the armed forces. An Afrikaner, Jan du Plessis, chairs British American Tobacco. Another, Johan Steyn, is a respected law lord. Two other law lords are South African.

Successive English strongholds have fallen to outsiders. Harrods was bought by an Egyptian, Mohamed al-Fayed. The Trinidad-born Bill Morris led the huge Transport and General Workers' Union until he retired last year. Jewish immigrants win most of the Nobel prizes for science. Half of the biggest British companies are run by foreigners. The English banking families have lost control to the North Americans, Scots or Chinese. Even the new Archbishop of Canterbury, Dr Rowan Williams, came from the Church in Wales, while his runner-up, Michael Nazir-Ali, the Bishop of Rochester, was born in Pakistan. Top universities invite Americans to become vice-chancellors, while they depend on Asian students for their survival. The England football team is run by a Swede; Chelsea FC is owned by a Russian.

It is the English who are in retreat, not the British. The Scots, whom the English have long patronised with jokes about meanness and lack of humour, are still advancing. The Scots make up only 8 per cent of the British population, but they are everywhere in England. They showed their political clout in the Eighties: a quarter of Margaret Thatcher's Cabinet were Scots, while the Labour opposition under John Smith was virtually based in Scotland. But after Tony Blair's victory in 1997 they entered their English kingdom. Blair had been at school in Edinburgh, and four of the five top jobs went to Scots; the last three Lord Chancellors have all been Scottish. The accents of Parliament are increasingly Scots, including the leader of the Liberal Democrats, Charles Kennedy, his deputy, Sir Menzies Campbell, and the Speaker, Michael Martin. Nor are they Anglicised Scots like the old Tories Harold Macmillan and Iain Macleod: they retain their accents and northern networks consolidated at Edinburgh or Glasgow universities, which have replaced Oxbridge as the chief political nurseries.

In business Scots professionals have turned the tables on the English amateurs, and accountants and engineers who were number twos have become number ones. Scots managers have become the models for rationalisation: Adam Crozier is shaking up the Royal Mail, Brian Souter runs South West Trains. Among broadcasters Scots voices sound more classless than Oxford vowels: the Kirstys multiply on the news, while TV drama has rugged heroes from the Gorbals.

What has happened to the archetypal English hero of my childhood, the strong, silent man with the stiff upper lip? The empire and two world wars built up the self-confidence of the English leadership, though the Scots had run much of the empire. 'We are the people of England, and we have not spoken yet,' wrote G.K. Chesterton in 1915. But they turned out to have not much to say, and as the empire disappeared the English gentlemen were blamed for economic decline, while the young rebels of the Sixties reacted angrily against the imperial aftermath. 'Damn you England,' wrote John Osborne in 1961. 'You're rotting now.' Strong, silent men are not much use in competing with immigrant salesmen or on TV talk shows.

The English have been left with quieter qualities and the boring images evoked by John Major: the village cricket field, warm beer, green suburbs and dog lovers. Without wars or colonial adventures they appear merely passive and unassertive, with no clear identity. The Scots and Welsh have been given their own assemblies with powers over their public services, while they can still vote at Westminster on English issues. But old English nations such as Wessex or Mercia have no real ambition for assemblies and no fiery sense of grievance to stir up territorial patriotism to compete with nationalists in Edinburgh and Glasgow. England, which has provoked so many foreign nationalisms, seems one of the least nationalistic places in the world.

Nothing would surprise a Rip Van Winkle more than the state of London. The capital has become the most cosmopolitan city in the world, from top to bottom, teeming with Americans, Europeans, Australians, Asians, Africans and Arabs. Large areas have become barely recognisable: Docklands looks more like an American city than like the rest of Britain. The statistics confirm the impressions. The 2001 census discovered that London's population of 7.1 million included only 4.3 million white British. Among the rest were 437,000 people whose families originated in India, 379,000 from black African families, 344,000 of black Caribbean origin, 226,000 of mixed race and 220,000 of Irish origin, while those whose families originated in Bangladesh, Pakistan and other Asian countries contributed more than 500,000. The streets and buses are loud with exotic languages, full of Muslim veils and beards and African robes. The high street has restaurants from 30 countries, including Iraq, Iran and Sudan.

All this would have been unthinkable to the imperial Englishmen of 40 years ago - it would have represented the defeat of all they stood for. Was it a defeat or a victory? For many today, including myself, it represents a triumph of adaptability and survival, a reversion to the much older English qualities of pragmatism and tolerance. The English have escaped from the stifling post-imperial malaise to provide a political and economic system which is both continuous and dynamic, attracting capital and enterprise from all over the world. At the same time they can draw in hundreds of thousands of immigrants, most from peoples who have been subjects of the empire, who now provide much of the indispensable workforce and contribute to London's unparalleled prosperity. It's not so much a retreat from empire as a return to Britain's pre-imperial past, recreating its role as an international trading country competing with the world. London's economic success is rewarded by an unprecedented explosion of cultural activities, with a vitality and diversity which eclipses other European capitals.

But all that cosmopolitan diversity calls for exceptional abilities of governance. The British democratic system faces its most difficult challenge in history, to hold together such different peoples - to make them feel they belong to the same country, and to enable them to trust their government and laws at a time when many British citizens feel threatened by terrorism and illegal immigration. The question I have tried to answer before has never been so urgent, nor so hard to answer. Who runs this place?

British institutions have always appeared to embrace drastic reforms, while remaining basically unchanged, establishing facades behind which the real rulers can pursue their objectives. Walter Bagehot in 1867 described how the British constitution was divided into dignified and efficient parts, but now the dignified area has extended to many of the doings of Parliament, of embassies and of the boards of big companies. Every institution now has to have a public face, to justify itself: MI6 has emerged from a dingy building in Lambeth to occupy a glitzy palace on the Thames. But the appearance of openness helps to conceal its real workings: publicity is the new secrecy.

The Law of Unintended Consequences still operates to achieve the opposite of what is expected. After New Labour promised to democratise Britain, the House of Lords is more dependent than ever on patronage, while its average age has gone up by two years. The old aristocracy is richer than ever, while ordinary British people are less socially mobile, not more. The public schools are now more dominant - and much more expensive - while state education has declined further. Tony Blair, who campaigned against Thatcher's policies, is now reckoned to have produced a more Thatcherite younger generation.

Many reforms have been reversed over the decades. Whitehall departments were merged and unmerged, the Treasury split up and then reunited. Hospitals and schools have been centralised, decentralised and recentralised. Such counties as Flintshire and Rutland have been abolished and reinstated. The steel industry was privatised, renationalised, reprivatised. Railways have been denationalised and effectively renationalised. The Royal Mail was turned into Consignia, and back to the Royal Mail.

After all the promises of democratisation and openness, central government has become still more concentrated and impenetrable. New Labour's Freedom of Information Act was more concerned to conceal information than to reveal it. The Ministry of Defence and the intelligence agencies are still obscure, while the danger from terrorism makes it easier to invoke national security and allows the Home Office and the police to cut civil liberties. And more decisions than ever are concentrated on Number 10. Britain, for all its new diversity at the bottom, has become one of the most centralised of all countries at the top. And in the centre a new Establishment has taken over from the old.

The Establishment which caused such excitement and indignation 40 years ago was always a hazy concept. It often meant no more than 'they' - the mysterious people who ruled our lives, or the scapegoats for anything that went wrong. Its fiercest critics depicted it as a close-knit conspiracy, bound together by the same schools, colleges and family connections.

But the Establishment also had a more interesting and benign meaning: a network of liberal-minded people who could counteract the excesses of autocratic and short-sighted governments. As Henry Fairlie, the journalist who first popularised the word, argued: 'Men of power need to be checked by a collective opinion which is stable and which they cannot override: public opinion needs its counter; new opinion must be tested. These the Establishment provides: the check,the counter and the test.'

In fact the heads of Britain's established institutions were far from cohesive, and common backgrounds often concealed deep rivalries and differences. The old universities, the law courts, the Lords, the Commons and the Church all inhabited very separate worlds with different interests; and many people saw this diversity and pluralism as providing the sturdiest shield for British democracy, perpetuating an informal separation of powers.

The separation of powers in the unwritten constitution is a much vaguer and less defined concept than in the United States, where it expresses the separation between the President and Congress, while the British put their faith in the sovereignty of Parliament. But the British institutions can still provide obstacles to overbearing Prime Ministers. The law lords can deliver devastating judgments on the Government's abuses of power, which no Minister can suppress. The House of Lords, for all its natural conservatism, can still produce original and independent views to compel the House of Commons to think again. The prestige of the monarchy, with all its pomp and ceremony, prevents the Prime Minister from acquiring too much splendour. The 'wise men' of academia can provide a much longer historical perspective than short-term politicians. Civil servants are bound by their own professional standards to resist party political corruption.

In my first Anatomy in 1962 I tried to depict Britain's Establishment as a set of intersecting circles of varying size - each representing a different institution - loosely linked to each other round an empty space in the middle. It was in the nature of Britain's democracy that there was no single dominating centre, and much of the power depended on fixers and go-betweens to connect one circle with another.

The idea of the Establishment became still vaguer and more confused in the Sixties and Seventies. But the popular image of an all-powerful network became a forceful stimulus to those who felt themselves outside. It provoked them into building up their own rival networks until the systematic networking of newcomers became more effective than the more casual friendships of the traditional old-boy networks. A new generation of ambitious politicians and businessmen could build their careers on their reputations as outsiders who claimed to represent ordinary people against an entrenched and privileged elite. The anti-Establishment soon became more potent than the Establishment.

Blair promised the Labour Party conference in 1999 to fight 'the forces of conservatism, the cynics, the elites, the Establishment'. The media especially thrives on appearing to be the enemies of the Establishment. Rupert Murdoch and successive editors of his Sun could build their circulations by castigating the toffs, long after those toffs had lost their political power.

In journalism, art and literature no newcomers can make their mark without showing themselves to be anti-Establishment. Many businessmen and advertisers leap on to the bandwagon. They can say they are giving the people what they want, which the Establishment has kept from them, and they reap their rewards. A new generation of populist tycoons has emerged, linking business with the media and politics, offering people's entertainment, people's sport or people's airlines, in defiance of the old exclusiveness. They soon formed a new Establishment, with greater resources and stronger bonds than the old one: the bonds of money. But they can still appear as champions of the people The old image of the Establishment was summed up by the cartoons of H.M. Bateman in the Twenties, showing a hapless outsider committing a faux pas at a club or grand reception, faced by spluttering colonels or outraged dowagers.

Today shocking the old guard is the first step to success, and in the place of the colonels are the masters of the marketplace, desperate for innovation. But the marketplace has its own rules of conformity. Its masters can promise consumers more choice, but mass marketing leaves less room for dissident views or eccentric tastes, and discourages any leisure that does not involve spending. At the heart of it is TV, whose multiplying channels are hailed as providing ever greater variety, but become less and less distinguishable from each other, while the financial control becomes more concentrated.

Politicians are inevitably influenced by the same trends, as they depend more on advertising and television and are interlocked with the burgeoning media Establishment. The traditional bastions of the old Establishment, such as academics and diplomats, are becoming more vulnerable to the charge of elitism as they lose their hold on the public. The counterweights to government are weakening, while more power is passing to the centre.

The rise of Tony Blair marked a new stage in the centralising process. In opposition he connected more directly and effectively to potential voters than his predecessors had, bypassing existing institutions, including Parliament, trade unions and Old Labour. And as Prime Minister he still depends on a small group of advisers, and feels few obligations to the old institutions. His massive majority gives him a mandate for bold reforms, but his zeal for modernising inevitably brings more power to the centre.

Both Blair and Brown have been determined to achieve 'joined-up government', which has meant joined to Number 10 and the Treasury. They have imposed their controls over other departments, which have extended those controls down the line. The Department for Education has taken decisions away from schools and local authorities; the Department of Health sets targets for hospitals; the Home Office gives firmer directions to the police and judges; the Lord Chancellor tells magistrates how to sentence criminals. The Treasury tightens the screws on Whitehall, and Whitehall tightens them on the rest of the country.

Of course that is not how it looks from Number 10. All Prime Ministers feel frustrated by the limitations of their power to change the country, as they confront lethargic civil servants, interdepartmental muddles and obstructive colleagues. 'Power?' said Macmillan. 'It's like a Dead Sea fruit. When you achieve it, there 's nothing there.' Blair is no exception: he has been frequently exasperated by the obstacles to change; he complained about the 'scars on my back' from confronting the public services. But he has dominated his Government more than any predecessor since Churchill. He is less of a natural autocrat than Thatcher, but he has faced less effective opposition from rival Ministers, opposition parties or countervailing bodies.

Blair has been determined to reform old-fashioned institutions, but quickly seemed less sure of what to put in their place. He expelled the hereditary peers from the House of Lords, but opposed an elected chamber. He announced the abolition of the Lord Chancellor, but had not worked out an alternative. He made an issue of top-up fees for students, but gave no clear picture of what kind of universities he wanted. The old guardians of institutions, with their self-serving rituals and resistance to self-regulation, are easy targets for any politician in need of a popular vote. But working out a more democratic alternative has been more difficult.

Only a few people at the centre are taking these decisions, and it is not clear that they understand the full implications for a country without a written constitution. When Blair announced his drastic reforms of the Lord Chancellor's office, leading jurists - including Lords Bingham and Woolf - were surprised by the half-baked preparations. 'It does suggest that additional constitutional protection may be necessary,' said Woolf.

Lord Falconer, now the temporary Lord Chancellor, firmly rejected calls for a written constitution. The legitimacy of the reforms, he assured me, flowed naturally from the Government's large Commons majority, and they would be subject to debate and voting in the House. But the sovereignty of Parliament is looking less reassuring as a guarantor of justice and liberties. Meanwhile, many traditional British institutions have been left in a state of suspense, like crumbling mansions in a park awaiting planning permission.

And the future of the monarchy itself, in the centre of the park, is looking more uncertain. It has become more isolated and politically more exposed as the last relic of hereditary rule, long overdue for reform and an easy, enjoyable target for the anti-Establishment. It has been the source of so much entertainment and profit for the media and tourist industries that it is hard to remember that it plays a crucial institutional role as the symbol of continuity and impartiality at the pinnacle of the unwritten constitution. But the combination of the eccentric courts and their retinues, with an insatiable and still more intrusive media, has made that role ever more difficult to perform. Its growing numbers of critics still show all the ambivalence of the anti-Establishment: they love to attack it, but are uninterested in proposing a substitute, in the form of a republic with an elected president. They are like rebellious teenagers, always blaming their parents but not ready to leave home.

Today the circles of Britain's power centres look very different from the pattern of 40 years ago. The palace, the universities and the diplomats have drifted towards the edge. Many institutions - including Parliament,the Cabinet, trade unions and industry - look smaller. The Prime Minister, the Treasury and Ministry of Defence loom larger at the centre. The bankers are more dominant while the nationalised industries have almost disappeared as separate entities. The media are more pervasive, seeping everywhere into the vacuum left by the shrinking of the old powers.

In fact the British concept of pluralism is looking less credible, as established institutions have lost autonomy and confidence. Judges, professors, permanent secretaries all feel less secure, while the clergy have almost vanished from the political scene. There is less diversity of public views at the top as rival powers have been marginalised. 'The Establishment,' wrote the late Hugo Young in 2002, 'whether in politics, in business or in intellectual life, is all of one colour. There is little point in being anything else.'

The colour is the colour of money. The new elite is held together by a desire for personal enrichment, its acceptance of capitalism and the need for the profit motive, while the resistance to money values is much weaker and former anti-capitalists have been the people least inclined to criticise them once in power.

It was a change among Tories as well as socialists. Macmillan kept his distance from bankers - 'banksters' he liked to call them - and Ted Heath talked about the 'unacceptable face of capitalism'. But Margaret Thatcher's government was full of bankers, and Blair says nothing about boardroom greed or abuses of corporate power. Many businessmen feel more at home with New Labour than they did under John Major.

As government depends more on private investment and party donations, both Ministers and permanent secretaries come closer to bankers and corporate chiefs: the centre of gravity of the power world is shifting away from Westminster towards the City. The new Establishment looks more like one giant boardroom, linked by common interests and agreements.

The British political elite had always tended towards a single social plateau, firmly based in London. The old pattern keeps reasserting itself with a different cast, still forming a narrow circle at the top. But the earlier society, with its snobbery, always kept its distance from the world of new money, and looked down on 'the poor devil of a millionaire', as Bagehot called him.

Today the elite looks much more unified, as a small number of familiar names keep reappearing in different disguises - whether as tycoons, trustees or patrons of public funds. Visiting Americans are surprised that most people they want to see can be found at a few clubs, dinner parties or gatherings in a few central London postal districts. Was this the outcome of all those fierce Labour protests against the Establishment? George Orwell characterised England in 1941 as 'a family with the wrong members in control'. The new Establishment has not necessarily produced the right members, but they are still in control; and it remains ironic that it has been left to New Labour to embrace the business world more warmly than any of its predecessors.

The Trade and Industry Secretary, Patricia Hewitt, dared to recall Orwell's Animal Farm, where the pigs who had rebelled against their masters were soon competing to fatten themselves at the trough, as they proclaimed: 'All animals are equal, but some animals are more equal than others.'

The rich are still different

The new rich of the twenty-first century are beginning to look more like the plutocrats of the Edwardian era a century earlier, as they ostentatiously invade the territory of the old aristocracy, acquiring status and respectability while removing themselves from their own modest roots.

The 76 years from 1914 to 1990 are beginning to look like a temporary aberration in Britain's social history. The First World War undermined the immunity and confidence of the rich. After the Second World War, they faced continuing austerity, higher taxes and fears about socialism and communism. Later, taxes were lowered, and the end of the Cold War brought an expansion of the global marketplace which allowed investors to benefit from the world's resources, on a scale which the Edwardians could only dream of.

Today's rich can detach themselves more thoroughly from the problems of their home countries, as they fly between houses and hotels across the world. In Britain, they can enjoy the comforts of country houses in privacy, without long-term commitments to large staffs of indoor servants or local communities.

They can separate themselves from the lives of ordinary people, while the gap between them widens. The new poor in Britain, the immigrants from Asia and Africa, can remain out of sight and out of mind.

And the rich can feel politically more secure. New Labour has proved more sympathetic to big business than any postwar government except Margaret Thatcher's. Tony Blair is careful not to mention inequality, enjoys the company of business leaders and holidays in the houses of rich friends. Gordon Brown is never publicly critical of the rich.

Wealthy individuals and corporations no longer need representatives in Parliament or government to safeguard their interests and swing votes. A few rich men sit in the Commons, including Archie Norman, the former chairman of Asda supermarkets, and Michael Ancram, heir to the Marquess of Lothian, while the billionaire Lord Sainsbury of Turville (below) is Minister for Science. Yet most can rely on lobbyists and pressure groups to push their cases for reduced taxation, regulation or planning restrictions, while multinational firms hardly need to make the point that if they are not granted special terms they can take their money out of Britain.

New Labour is especially mindful of the need to oblige rich individuals as donors. The explosion of personal fortunes has made all parties more dependent on a handful of individuals than on company donations.

Above all, the rich feel much less need than their predecessors to account for their wealth, whether to society, to governments or to God. Their attitudes and values are not seriously challenged by anyone. The respect now shown for wealth and money-making has been the most fundamental change in Britain over four decades.

· Anthony Sampson, author of the ground-breaking book Anatomy of Britain, is also Nelson Mandela's biographer and has written bestsellers on banking and oil