Josiah Wedgwood was the Terence Conran of the 18th century. An inspired entrepreneur and keen motivator, he had a brilliant eye for both art and opportunity, as well as a completely original sense of mass-market design.

Wedgwood's Queen's Ware and Black Basalt ranges have still not been bettered as examples of industrial art: they have a dignity, purity and usefulness that breezily transcends fashion. The Museum of Modern Art in New York has examples in its permanent collection. No one, anywhere, more firmly grasped the commercial opportunities of what was becoming an “industrial revolution” than Wedgwood. This was because he realised it was a consumer revolution too. And when grasped, Wedgwood wrung these opportunities for all they were worth.

From the unlikely HQ of Burslem in Staffordshire, Josiah Wedgwood conquered the known world. Or, at least, he conquered the new generation of consumers who now lived in it. Like the scientist Erasmus Darwin, the iron-master Abraham Darby and the painter Joseph Wright, Wedgwood was part of Britain's “provincial enlightenment”, our distinctive contribution to the Age of Reason. And as we are a nation of shopkeepers, our Age of Reason was not based on philosophy, but trade.

Wedgwood used artists, including the sculptor John Flaxman and painter George Stubbs, to design his crockery. He diligently expanded markets by appreciating the enlarging tastes of a new middle class and supplied them with quantities and qualities of merchandise hitherto unimaginable, still less accessible. He understood the working realities of Adam Smith's division of labour, but was also a responsible employer - Etruria, the town he built just outside Stoke-on-Trent, was an experiment in making ideal communities.

He was a proto-modern man who predicted current business school philosophies of market segmentation and divided his goods into “useful” wares (from Burslem) and “ornamental” ones (from Etruria). He was a technical innovator (developing a pyrometer that would work in dizzy furnace temperatures), but he also understood the voodoo of brand development. When in 1790 his Portland vase demonstrated that modern Stoke-on-Trent could equal Ancient Rome, he charged visitors to see it. In the 1770s Wedgwood was, like Conran's Habitat, producing seductive sales catalogues. Josiah Wedgwood did not invent the consumer, but he anticipated his needs. He wrote: “I saw the field was spacious and the soil so good as to promise ample recompense to anyone who should labour diligently in its cultivation.”

So what went wrong? The china shop has not been destroyed by a rampaging bull, but by a savagely defensive bear market. If you believe the health and competence of a culture can be measured by the vitality of its manufacturers, this is an ignominious moment. Wedgwood knew that the beliefs and preoccupations of a nation are betrayed by what it makes. It is not just Wedgwood's shops and factories that are in trouble, so are his ideas.

There are a handful of prosaic reasons that accountants can offer for Wedgwood's collapse: the rising cost of labour, materials and fuel; competition from Asia. But the larger reason is more subtle and complex since it concerns taste and desire.

The type of home that buys a tea set is rapidly disappearing. Even where it still exists, no member of such an establishment ever rushes home and says: “Darling! I've had a wonderful week, let's go and buy a 96-piece floral-pattern dinner service.” The provincial enlightenment may have evolved into a provincial suburbia with bevelled glass cabinets and a habit of a family Sunday lunch, but that disappeared with the arrival of hatchbacks, lager, satellite TV and Ikea.

The very idea of a cup and saucer now seems ridiculously quaint. The Coke bottle is a great symbol of mid-century America because you hold it with one hand and drink it on the move. The cup and saucer is a great symbol of mid-century Britain because it requires the decorous employment of two hands and you must be sitting down very quietly. You can't get animated with a cup and saucer. Those days are gone.

Wedgwood's recent management made some half-hearted attempts to keep in touch with Josiah's creative spirit, employing celebrity “designers” to make new ranges, but this was deckchair rearrangement on the Titanic. The same management even failed to realise the value of Wedgwood's greatest asset: its name. Anybody in Thailand can make a plate; only one entity can make Wedgwood. In Germany, Villeroy & Boch successfully diversified into bathroom fittings. In Staffordshire, they clung to the guard rail of the Titanic as the hungry ocean lapped at their feet.

This is the more elegiac because pious politicians are now telling us how important manufacturing is. This from Labour who cheerfully supervised the destruction of native aerospace in the Sixties and Seventies and Conservatives who, following Mrs Thatcher, told us we could get rich by selling each other hotel rooms, luxury coffee and collateralised debt obligations as unfathomably murky as a cappuccino.

At this stage in history, once you lose the ability to manufacture something, you never get it back. Britain no longer makes aircraft, trucks, consumer electronics, furniture, computers, optical equipment, trains and lifts. We used to make very good avionics, but sold out to America a few years ago. We hardly make any clothes. Soon we will not make ceramics or glass.

You look around at the skyline of London, that great workshop of wealth which believes abstractions are more valuable than hardware. Happily, two of its most distinctive new landmarks are designs by successful British architects: the London Eye by Marks Barfield and the Swiss Re building by Norman Foster. And each is made of imported materials and components: American control systems, castings from the Czech Republic, Japanese glass. This in the home of the industrial revolution.

Josiah Wedgwood would have been dismayed. His passion was that the values of any culture can be discerned in the quality of the things it makes. Tragically, we don't make anything. But let's not get too morose. Wedgwood's legacy is not an idle factory and a deserted shop. His legacy is the idea that making beautiful, desirable merchandise is a very good way to make money. It's five minutes to midnight, but there may - just - be time to learn this lesson. Dwell on this while you sip your premium coffee in its fine Japanese mug.

Stephen Bayley's latest book is Cars: Freedom, Style, Sex, Power, Motion, Colour, Everything (Conran-Octopus)

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