Does the credit crunch have a silver lining for literature?

It hardly sounds like the prelude to a literary revolution. Under a hard-as-nails free-market government, old industries sicken and die at a pandemic rate. Unemployment rockets; inflation spikes as well. As public spending plummets, riots break out on decrepit city streets. Rancour and rage dominate the public realm, twisted up another notch when a skin-saving foreign war polarises an already fractured nation. To cap it all, a long-planned final battle with union power culminates in the mother of all mining strikes.

What else happened in Britain in the first half of the 1980s? Well, literary fiction – for a couple of decades, a dowdy old aunt among the arts – suddenly bred a generation of spellbinders and seducers. When Anthony Burgess lost the Booker Prize in 1980 (with Earthly Powers) and Salman Rushdie won in 1981 (with Midnight's Children), a fusty coterie game all at once began to feel like a thrilling battle of the giants. Two years later, Granta magazine logged its ascendant stars and – in its first list of "Best of Young British Novelists", set an agenda for attention and appeal that has, staggeringly, lasted a full quarter-century: Rushdie, Julian Barnes, William Boyd, Martin Amis, Ian McEwan, Graham Swift, Timothy Mo, Kazuo Ishiguro, Pat Barker, Rose Tremain – the last a hugely popular winner of the 2008 Orange Prize.

On the high street, a former WH Smith executive called Tim Waterstone plunged some get-lost money into – of all things – classy upmarket bookshops, just as the retail world froze. Did they fly? They soared. Culture hounds who, a few years previously would have burned "modern British novels" for warmth while they queued to catch the new Scorsese or Bertolucci or see The Clash, haunted the faux-library charms of the new chain in search of excitement from new arrivals or – with JG Ballard and others – resurrected greats.

Some advances for literary fiction sped – unsustainably – to the height of a Dynasty hair-do. By the time that the first light fingers of a service-led recovery began to dawn, in the metropolis at least, it felt as if half the fans of Martin Amis's Money (1984) not only wanted to read him but to be him as well.

As recovery took hold, new publishing houses made their entrances, committed to innovation and – in a few cases – destined to triumph. Bloomsbury and Serpent's Tail both launched in 1986. Within a few years, the musty tumbler of publisher's sherry had blossomed into a scintillating, post-colonial glass of New World fizz. Vision, ambition, even sometimes avant-garde experiment, for once raised a British cheer.

Sequels always disappoint, we know. Within and beyond books, things have changed beyond hope of rewind. The cluster of talent codified by Bill Buford at Granta largely existed already, but alone and – often – isolated. If each had their own style and story, together they opened British fiction to a wide and interwoven world. You can't step into that river twice. Tim Waterstone saw the abysmal state of British book retailing, and knew that a swelling band of younger, educated readers might heal it. And, if the North limped, the South strode, with graduate-rich county towns and suburbs full of buyers prepared to give something original – and, for the first time, over-hyped – a try.

Even in the iron years of Thatcherism, vital booster-fuel to serious writers came from protected allies such as public-service broadcasting: Channel 4 began in 1982. In no sense did recession – and the social tension it fostered – make the 1980s BritFiction boom. All the same, the sense of grave and urgent times did open readers' minds to new choices of style and story - which these writers deployed so well.

So could hard times once again not cause but coincide with high achievement? Few factors at work today quite match the conditions of the Eighties fiction upsurge. Waterstone's, now a centralised retail machine, scrambles to make it through the slump along with every other business. Advances have plummeted, with agents obliged to accept ever-thriftier deals from those publishers who still dare to bite.

Even before this downturn, sales of literary fiction had fallen away. Few talents who combined large ambition and broad appeal had come through to match the millennial cluster that gave us David Mitchell, Sarah Waters and Zadie Smith. By and large, the class of '83 still rules at the tills and in the headlines. Whatever their gifts, that exposes a failure to replenish the stock.

One strong view suggests that, mostly, tough conditions will mean safe choices: tried and trusted recipes, even beyond the obvious genre boxes. This week's Costa First Novel Award has gone to Sadie Jones's somewhat McEwanesque tale of class and corruption in the postwar suburbs, The Outcast. No big change there.

Where could the silver lining lurk? Might the flight of big – or even middling – money from literary publishing prompt a quest for bolder choices and wider horizons from authors who know that their finely-finessed debut now stands no chance of reaching the Richard-and-Judy sofa or the Waterstone's front table? If slimmer cheques and smaller expectations force some novelists to give up altogether, surely they might inspire others to thumb their noses at a deep-frozen marketplace and go – as it were – for broke.

The cliché of the decade demands that web culture zooms in to rescue every wheezing ambulance-case in the arts and media. Certainly, the kind of maverick publishing and magazine production that made a plucky showing in the hard British winters of the early Eighties migrated online years ago. Sites such as 3:AM Magazine keep faith with the old little-review tradition of avant-garde provocation and seditious literary cheek.

Any would-be Kafka or Kerouac can bypass the sluggish routine of print entirely. Many more will try. Yet the critical jury on e-literature still has very little solid evidence to consider. Even after years of activity in a climate of back-slapping boosterism about digital art, where are the masterworks that started, or stayed, online? Rather, the cyber-critics have effectively done their print ancestors' old job, charging into battle for the overlooked visionaries and the unsung avant-garde – who write for print. The current bloggers' passion for Paul Griffiths's Let Me Tell You – a novella composed solely of the words that Ophelia speaks in Hamlet – shows the current state of play. Do virtual arbiters still prefer the whiff of paper?

The authors and publishers I asked of course see the fragile future through different sorts of lens. No one proposes that lean years will lead novelists (still less publishers) to snub the market, dump all material aspirations and pursue a dream of perfection. Yet some at least sense a chance that emptier pockets might bring fuller minds. As for favoured genres, much escapist pulp and feelgood schmaltz flourished in the eventful Eighties, and will no doubt do so again. Celebrity titles also began to shout then: the same genre, having pampered publishers though good times, will now be expected to cosset them through bad.

But new marvels, and new gifts, will come to light. And even corporate publishers will find that, to make that quirky, innovative literary fiction reach the whole gamut of its potential readers, they will have to act like small-press guerrillas. Every ambitious writer will need the internet – from Facebook to Amazon – to tell the world about their brilliance, to transmit tasters across cyberspace, and to flog the product. Even if that remains an ink-on-paper book, just like we read in 1981.

That year, when Brixton and Toxteth burned, IRA hunger striker Bobby Sands was elected an MP and died, the SDP split Labour (and Charles and Di wed to give us a comfort break), felt as apocalyptic as any since the Blitz. Yet, in the free state of fiction, a mid-thirties writer who had tanked with his debut published a second novel, Midnight's Children. As we brace for the worst, we should look for the best.

Safety or audacity? Writers and publishers on the prospects for fiction in a slump

Simon Prosser

Publisher (Hamish Hamilton)

In terms of fiction writing, I think there will be two very different responses to the downturn in the market (which is around 12 per cent year on year and likely to worsen). The first and most obvious reaction will be for some writers to try to tailor their books all the more neatly to a perception of what the market demands... But I think there will be a second and more exciting response, which is for writers to think that since the chances of being published successfully in the mass market are even tougher, they may as well take the chance to write exactly what they want to write.

Pete Ayrton

Publisher (Serpent's Tail)

Avant-garde fiction thrives where writers do not expect to live off their writing either because the publishing industry cannot pay the advances writers need to live from... or because they are paid by universities to teach creative writing... Neither condition applies in the UK where writers (often under the influence of agents) will stick even closer to the conventional as mainstream publishers cut their staff, their lists and their advances.

Geoff Dyer

Novelist & critic

Anyone who has an eye on the market is not a writer but a whore. Nothing wrong with being a whore, of course – just don't try to make out you're a writer. Writers sometimes talk of pressure from their publishers to do this or that in order to be more commercial. Nine times out of ten this is sophistry and cowardice... I have this existential conception of writing not as a career but as a back-against-the wall option, the thing you turn to when you've got no other way of making a mark on the world. In those circumstances, whether or not you're going to be adequately recompensed is irrelevant.

Carole Welch

Publisher (Sceptre)

These haven't been great times for literary fiction lately anyway, so in that sense the recession... will probably just reinforce existing trends... I can't really see lowered material expectations... making writers bolder. I can't speak for writers, but I'd say most of them want as many readers for their books as possible, so are unlikely to be avant-garde and experimental unless they believe that's the way to greater sales... I also can't imagine any publisher turning down a novel like David Mitchell's 'Cloud Atlas' now on the grounds that in a recession readers would find it too structurally innovative. But I do think publishers will be less inclined than ever to take a chance on a novel that is seen as bleak and depressing, or a novel that might be written with great skill but doesn't have something about it to make it stand out from the crowd.

Gordon Burn

Novelist & critic

It would be encouraging to think that maybe even just a handful of the thousands being laid off... might be encouraged to take time to stop and reflect on their experience, rather then being goaded into the hopeless task of chasing after jobs that... no longer exist. [In the 1980s recession], 'Frieze' with Hirst, Hume, Sarah Lucas etc happened. They are sometimes seen as Thatcher's children – single-minded, aspirational, entrepreneurial. But if the slump could spark a similar from-the-ground-up invigoration of the publishing scene in this country, still run by an Oxbridge-dominated, and largely monocultural establishment, that would be wonderful to see.

Tom McCarthy

Novelist & critic

I expect the recession will accelerate an already well-established pattern: mainstream publishers will concentrate on promoting non-fiction by television presenters and commercial fiction by creative-writing graduates (which should never have been confused with literature in the first place). People wanting to engage seriously in literature will have to look to other arenas: the art world and its publication networks, for example – at least until their work has found a large enough audience to make it commercially attractive to bigger houses. While this may be bad news for writers' bank balances, it's not necessarily a bad thing for literature, which has always "deterritorialised" itself, had to detour beyond its own boundaries, in order to be reinvigorated. The internet has produced some excellent criticism and debate around literature, but I've yet to see any good "primary" writing on there.