Universities are becoming key recruitment agencies in the new economy, says Frances Cairncross. But this role could be jeopardized if governments try to use them for social engineering

Few successful public companies have been in existence for more than a century. The world’s top universities, on the other hand, have shown an extraordinary ability to reinvent themselves and to survive. Among the global top 10, as measured by the league table compiled by Shanghai’s Jiao Tong University, only one – Caltech (California Institute of Technology) – is a child of the 20th century. Even though 18th-century Yale dropped to 11th place, the 2005 top 10 included two universities, Oxford and Cambridge, that have been in continuous existence since the early Middle Ages; and three relics of the 17th and 18th centuries – Harvard, Princeton and Columbia.

Power, wealth and welfare

Now the world’s most successful universities are inventing themselves again. In the process, they are becoming even more important than individual companies in the competitiveness of nations. The reason for this is that top universities produce the key ingredient of economic competition: intellectual capital. Knowledge is not just power; it is also wealth and welfare. Universities both discover and sift knowledge, and develop in the young the power to use it effectively.

Nowhere is the impact of knowledge and ideas more apparent than in America, both for the economy and for the individual. Perhaps three-quarters of the value of America’s publicly-traded companies comes from intangible assets, such as patents, technologies and brands. Twenty years ago, that share was perhaps 40%. Alan Greenspan, outgoing chairman of the Federal Reserve, has talked of “the recent increased conceptualization of the GDP” (national income) of America. No wonder that the number of jobs requiring a higher degree has risen in the past decade at roughly twice the pace of those needing only on-the-job training. No wonder also that the real (after inflation) median earnings of male college graduates have risen by about 15% in the past quarter century, whereas the real median earnings of high-school graduates have declined by 10%.

Universities are key to this transformation. The best perform two functions crucial to the conceptual economy: they train undergraduates and graduates, and they undertake research. Increasingly, universities also give birth to small businesses that commercialize and market the fruits of those two activities.

On top of that, the best universities increasingly perform another highly-important function: they suck in young talent from around the world. They are becoming the key recruitment agencies of the conceptualized economy.

More and more young people want to have at least part of their higher education abroad. According to the Organisation for Economic Co-operation and Development, the club of rich countries, the number of people studying abroad has doubled in the past two decades, to 2.1 million. Most of them go to universities in one of five wealthy countries. At the top of the list is America, which takes 28% of all foreign students, followed by Britain (12%), Germany (11% – although this is inflated by the practice of treating the children of immigrants as foreign), France (10%) and Australia (9%). Given the importance of English in the conceptualized economy, it is no wonder that three of the top five countries speak English. Continental European universities also increasingly offer courses in English, partly to attract foreign students.

Biggest demand from Asia

The hunger for a foreign education is greatest in Asia, from where almost half of all overseas students come. By far the largest group is Chinese: one in eight overseas students comes from this country, compared with one in 20 from India, the next largest. After 9/11, the proportion of students from North African and other predominantly Muslim countries studying in the US declined; the proportion from China and India rose sharply.
For universities, the need to attract foreign students frequently began as a way of raising revenues. That has been especially true in the US, UK and Australia, where universities have comparative freedom to act competitively. Universities in Britain and Australia, for example, have succeeded in setting higher fees for foreign than for domestic students. In these countries, higher education has increasingly become a notable export industry in its own right. In the countries where foreign students account for the largest share of enrolments, as in Australia and New Zealand, exports of educational services ranked third in terms of total services exports in 2003.

Attracting foreign students

Foreign students bring other direct benefits to the universities that import them. They keep alive some departments that would otherwise lack students. At some British universities, the undergraduates studying some science subjects come almost entirely from overseas. Without them, the department would close. They may also encourage universities to think of their students as customers, to pay more attention to the quality of service they receive, and thus to be more competitive and commercially-astute.

Attracting foreign students has two even bigger advantages. First, it is at university that young people build the first network of contacts that will see them into their careers. In the course of doing, say, a doctorate, students will meet people in their field of specialism, and will use equipment and consult books produced in the country where they study. When they return to their own country, these contacts and experiences will continue to influence them in many subtle ways and will direct their purchasing and investment decisions when, in time, they get to control substantial budgets.
Second, a significant proportion of foreign students remain for at least part of their career in the country that has educated them. Sometimes, this is deliberate. A student visa offers a much higher chance for a youngster from a developing country to gain permission to enter a wealthy country than does any other immigration path and a better chance to be allowed to stay on as a skilled migrant after completing the education. Deliberate or not, the impact on the receiving country’s competitiveness, however, may be disproportionate. The high-technology industries of California have thrived to a great extent thanks to the supply of clever Chinese and Indians, many of whom first came to the state to study at one of its outstanding universities.

The success of American universities in attracting the brightest youngsters from around the world will be the underpinning of American economic success in the coming century. One other country has spotted the power of this approach and is trying to emulate it as a deliberate act of policy. Singapore aims to become an educational hub in Asia. Its Economic Development Board sees several advantages, including the need to boost the island’s skills base and the potential for a university degree to act as a four-year immigration interview.
Such a way of looking at universities is only just beginning to creep into European minds. Tony Blair’s speech to the European Parliament in Strasbourg in October 2005 hinted at it, when he argued that “our university sector is not competing in the way it needs to with America”. For most Continental Europeans, the idea that universities should see themselves as engaged in international competition is a novel thought.

Policy dilemma

Indeed, as universities go down this road, and tertiary education opens up as a competitive international market, they will face an increasing policy dilemma. A university education is a route to higher earnings, and a degree from a top university is a route to top earnings. Universities, therefore, are not just a tool of international competition, but also of social engineering. Governments worry about ensuring that a university education is accessible to all their citizens who can benefit from it. Given that governments pay a substantial part of the costs of university education everywhere, they have a considerable say in how universities behave.

As it becomes clear that many of the cleverest young come from abroad, governments and universities face a dilemma. Is their first duty to educate the brightest, wherever they come from, and to see universities as a tool of international competition? Or is it to see them as a tool of social engineering and to provide a service for the young people of their own country?

The more university places at the very best universities go to foreign students, the sooner these goals will clash. They will generate a new sort of protectionist pressure, as parents clamour for their children to have protected access to top universities and not be squeezed out by brighter students from overseas. It will be important to fight such protectionism and to focus on the fact that talent is increasingly mobile. Educating the young is one of the best ways to attract talent and, with luck, to keep it.

CV Frances Cairncross

Frances Cairncross is rector of Exeter College, Oxford, chair of the Economic and Social Research Council and president of the British Association for the Advancement of Science.