Head in the clouds

Europe hopes to become the world's pre-eminent knowledge-based economy. Not likely

THERE are few things European leaders like better than talking about their plans for turning Europe into the world's most competitive “knowledge-based economy” by the end of this decade. The aim was first laid out at the EU's summit in Lisbon in March 2000 and has been repeated with hypnotic fervour ever since.

To grasp the full absurdity of this ambition, it is worth visiting the Humboldt University in Berlin. Walk into the main foyer, stroll up the steps to the first floor past a slogan by a former student engraved in gold on the wall (“Philosophers have simply interpreted the world; the point is to change it”) and study the portraits of the Nobel prize-winners that line the walls. There were eight in 1900-09, six in 1910-19, four in 1920-29, six in 1930-39, one in 1940-49 and four in 1950-56. The roll of honour includes luminaries such as Theodor Mommsen, Max Planck, Albert Einstein and Werner Heisenberg. But after 1956 the Nobel prizes suddenly stop.

The list of Nobel prize-winners actually understates the university's past glories. In the 19th century, it not only nurtured such world-class intellectuals as Hegel and Fichte, it also pioneered a new sort of educational institution - the research university. And the drying-up of Nobel prizes in 1956 is not the only indication of the university's current plight. It occupies 95th place on the Shanghai list, next to the University of Utah. The buildings are drab, lectures and classes are overcrowded, and some of the best professors have left.

Apologists might retort that Humboldt is still recovering from its time on the wrong side of the Berlin Wall. Yet Humboldt's problems are replicated across the whole of Germany, west as well as east. The highest-placed German university in the Shanghai rankings is the Technical University of Munich, at 45. The ratio of students to teachers at German universities is depressingly high. For some lectures, a thousand or more students pile into the hall. The only count on which German universities still lead the world is the age of its students at graduation, 26 on average.

Their biggest problem is the dead hand of the state. The German government - both regional and central - tries to micro-manage every aspect of academic life, from whom universities employ to whom they can teach. The state has progressively starved universities of funds, not least because it has forbidden them from charging fees. It has also snuffed out academic competition. Universities have little power to pick their pupils and even less to attract star professors.

Belatedly, the Germans are beginning to recognise that their system is dysfunctional, not least because some of the brightest German students are voting with their feet and going abroad to study. The government is trying hard to encourage foreign students to come to Germany, though its success may have more to do with the fact that higher education is free to both domestic and foreign students than with the quality of the education purveyed. The government is also trying to make its universities more competitive by creating a German Ivy League. Furthermore, Germany's Constitutional Court has ruled against the federal government's ban on tuition charges, opening the way for universities to increase their revenues (and prompting protests from tens of thousands of students). But these reforms are only a beginning. German states controlled by the left are likely to continue to resist fees, and even the more conservative ones will charge only a nominal amount.

Universities are a mess across Europe. European countries spend only 1.1% of their GDP on higher education, compared with 2.7% in the United States. American universities have between two and five times as much to spend per student as European universities, which translates into smaller classes, better professors and higher-quality research. The European Commission estimates that 400,000 EU-born scientific researchers are now working in the United States. Most have no plans to return. Europe produces only a quarter of the American number of patents per million people. It needs to ask itself not whether it can overtake the United States as the world's top knowledge economy by 2010, but how it can avoid being overtaken by China and other Asian tigers.

The basic problems with the universities are the same across Europe: too much state control and too little freedom to manage their own affairs. Governments have forced universities to educate huge armies of students on the cheap, and have deprived them of the two freedoms that they need to compete in the international marketplace: to select their students and to pay their professors the market rate for the job.

Still, the Europeans are taking a couple of practical steps to improve their troubled universities. The Bologna Declaration, signed in 1999, is intended to produce a single European higher educational “space” by introducing a combination of comparable qualifications and transferable credits. Various EU initiatives are also encouraging young people to study in other European countries: the Erasmus programme, for example, has already benefited more than one million students. This combination of increased transparency and enhanced mobility is bound to promote competition among universities.

But this is all too little, too late. There has been little or no progress on introducing realistic fees, freeing universities from government control or concentrating research in elite universities. To understand how far most European countries still have to go - and how difficult it will be to get there - Britain offers some useful pointers.

Britain is a marked exception to the European pattern of complacency and decline. It has two universities in the top ten of the Shanghai rankings, Cambridge at number three and Oxford at number eight, and four in the top 30, a far better showing than any other European country. It also has one of the highest graduation rates in the OECD, with more than 30% of the relevant age group completing university or college, up from only 14% in the mid-1980s.

Half right

Britain's academics were aghast when Margaret Thatcher set about shaking up the universities in the early 1980s. Oxford even denied an honorary degree to the country's first female prime minister, an old alumnus. But the long-term effect of her policies, which have been continued and in some ways intensified under Labour since 1997, has been to leave British universities in a much better state than their continental rivals.

British universities have won a measure of freedom to charge tuition fees: the amount they can charge is set to triple to £3,000 next year. They are also learning how to raise money from both private business and alumni. If the most conspicuous figure on British campuses in the 1960s was the radical sociologist, the most conspicuous figure today is the academic entrepreneur. But Britain's universities still suffer from two vexatious problems.

The first is government meddling. The government's determination to improve academic productivity is creating a Stalinist bureaucracy of “academic auditors” who cannot distinguish between make-work articles and genuine research, and its desire to open up access to higher education is creating a second Stalinist bureaucracy in the Office for Fair Access.

The second problem is a relentless financial squeeze. Successive governments have trumpeted improvements in productivity, which is supposedly rising by 1% a year. But too often this is just a synonym for the erosion of quality. In the 1990s, spending per student fell by more than a third, and the student-teacher ratio doubled from 9:1 to 18:1. Academic salaries have been falling by about 2% a year in real terms for two decades, and the army of part-time lecturers has grown ever bigger. Half the universities are running deficits.

This is undermining the country's ability to support world-class universities. Some of the finest scholars have been lost to foreign competitors. Just as damaging, the universities are being forced to eat into their capital. Oxford is currently running an operating deficit of £20m a year and an accumulated deficit on teaching and research of £95m. This is because the Treasury pays only about half of the estimated average of £18,600 a year it costs to teach an Oxford undergraduate, so the university and its colleges have to make up the difference from their own resources. The new top-up fees will help, but not enough to solve the university's problems.

The British government has led continental Europe in reforming its universities. It has established a system of student loans, and has crossed an important threshold in conceding the principle of “variable fees”. But the sort of managed market it has created, in which the government regulates what universities can sell and how much they can charge for it, is an unsatisfactory half-way house. It should now set the universities free.

Europe hopes to become the world's pre-eminent knowledge-based economy. This article suggests that this is not likely and is very critical of universities in Europe. Article forms part of a survey of higher education.