Make the intellectual capital work

At a recent conference on knowledge transfer organised by the Association for University and Industry Links (Auril), speakers queued up to spell out the role that universities can play in "delivering a route to growth" and "adding value to the UK economy".

David Sweeney, the director of research, innovation and skills at the Higher Education Funding Council for England, wanted institutions "to be the engines of recovery" and "to drive the post-recession economy". Despite difficult times ahead, he assured the audience, it was widely accepted that "if you slash funding on higher education, the whole economy will suffer - so it won't happen".

Diana Warwick, the chief executive of Universities UK, hoped to position universities at the heart of what the 2007 Sainsbury review of science and innovation policies called "the innovation ecosystem". In every university, she added, we need "a front door to business".

The argument was developed further by Oisin MacNamara, the chair of Auril and director of research for regional and European affairs at Northumbria University.

"Universities can act as catalysts for the growth of business, as sources of knowledge and as connectors, linking with Government and development agencies as well as with companies," he said after the conference.

"It is not just about universities selling their products to businesses. Serendipitous interactions often open up many of the most exciting opportunities for growth. Anecdotal evidence suggests that interest from business is holding up, but there has been caution for three to six months - deal flows have slowed."

Yet MacNamara remained confident that "proactive efforts are keeping exciting things going". Among other factors, he cited the success of Knowledge Transfer Partnerships, which have developed into an effective tool.

There is great enthusiasm for the model of the business-focused university and the achievements of knowledge transfer. Many believe, more or less explicitly, that if universities are allowed to build on this and grab their opportunities, they could do much to help revive the UK economy.

Perhaps, however, some of these claims ought to be taken with a few grains of salt. Protests during the Auril conference from a campaigning student group called Education Not For Sale show that not everybody is convinced that universities are going in the right direction.

Higher education is not the only sector proclaiming itself to be the saviour that will lead us into the promised land of prosperity. "Generally speaking," says George Peden, emeritus professor of history at the University of Stirling, "I am sceptical about what any interest group claims it is doing to save the economy. Some parts of the university system are crucial, but most are not."

Historical precedents are scarce. Before the 1980s, notes Peter Howlett, senior lecturer in economic history at the London School of Economics, "the university sector was relatively small", which makes it "unlikely that it could have provided any significant 'recession relief' ... I am not aware of any academic work that (shows) universities have been crucial in combating earlier recessions."

Today, of course, universities are a much bigger feature of the national landscape. So what legitimate claims can we make for their role in forging a more dynamic economy?

For Pam Tatlow, chief executive of Million+, the university think-tank, the crucial issue is the skills base. "What we should be looking at are students. The key is producing people with graduate aptitudes, problem-solving skills and flexibility. We cannot afford to have them joining the dole queue.

"Graduates are the people who respond to change most flexibly," she says. Enhancing workforce flexibility in this way is a far more productive approach than relying on politicians' vain attempts to "second-guess the precise skills and jobs that will be needed in five to ten years".

In a recession, many people want to update their skills. Tatlow is worried about inadequate funding for what is likely to be "a record number of applicants this year. That's crucial if we want to emerge from the recession more skilled than when we started. The funding is not following the need.

"The role of universities is more important than ever during a recession - they should be enhanced and not just seen as an easy source of cuts. Gordon Brown rightly said that a recession is not the right time to cut back on education, but that applies all the way from primary schools up to graduate supply and knowledge transfer."

Tatlow applauded President Barack Obama's early decision to make higher education "one of the five pillars of his stimulus package (for the US economy). It should be a focus for further investment here, too, so we can ensure that Britain emerges stronger from the recession than it went in."

A spokesman for the strategy unit at Research Councils UK, on the other hand, sees the knowledge-transfer agenda as key. "The recession provides opportunities for businesses and other organisations to make better use of the knowledge and expertise within universities to underpin the recovery phase ... Businesses need to engage more (many for the first time) with universities to understand what is available and how effective links can be made."

There remains much scope for some pretty basic interventions. A business development officer at the Auril conference described how his university had recently provided consultancy support to a medium-sized local engineering firm that had never employed anyone to take responsibility for marketing. As long as there are companies that have not yet realised that marketing might be a good idea, universities have many opportunities to offer easy help.

But RCUK also made other points about the pivotal economic importance of universities in recessionary times. "Universities are themselves major employers and contributors to local, regional and national economies," the spokesman said, "and therefore any investment in universities will have a beneficial effect on such economies."

Furthermore, while there are already good links between the higher education sector and Whitehall, developing these further would help "ensure that policy is decided on the basis of sound evidence. There is a need for more research into defining the necessary elements and systems that combine to make up a resilient economy."

To take this last point first, academics clearly have a function in feeding ideas to policymakers. The only problem is, many of them proved as ineffective as bankers and ministers at predicting the credit crunch. Why should we take their role as saviours seriously now?

The answer, of course, is that some economists did predict economic meltdown, and others had long been sceptical about the assumptions that have served us so ill. A number are clearly positioning themselves to offer bold new alternatives to now discredited orthodoxies.

Take, for example, Richard Bronk, who worked in the City for 17 years as a pensions fund manager. He is now a visiting fellow in European political economy at the London School of Economics and recently published a book called The Romantic Economist: Imagination in Economics.

"Standard economic assumptions about rational expectations and efficient markets are very useful but can be applied too dogmatically," he observes. He has been "increasingly struck by the mismatch between economists' models and how economies work in practice", and a widespread failure to take on board "the huge importance of innovation and creativity in causing uncertainty. Recent waves of financial instruments driven by the geeks, the financial forecasters," he said, relied on elaborate mathematical models that could not cope with the realities of risk.

As a believer in "disciplined eclecticism", Bronk is depressed by the wholesale rejection of neoclassical economics and the instant uncritical embrace of neo-Keynesianism when we should be "imaginatively experimenting with different models - we don't want groupthink but governments exposed to a range of different advisers". Although his polemic is aimed partly at academic economists, many of the lessons are relevant to financiers and policymakers.

Another attempt to replace received wisdom comes via the book Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, by Nobel laureate George A. Akerlof and Robert J. Shiller. Conventional thinking, the authors suggest, has long neglected the irrational fads, panics and enthusiasms - what John Maynard Keynes called "animal spirits" - that govern much economic behaviour in the real world. A deluded overconfidence has now been replaced by an equally blinkered crisis of confidence. One of the solutions, according to Shiller, the Arthur M. Okun professor of economics at Yale University, is for governments and journalists to stop talking up the gloomy comparisons with the Great Depression, which only encourage a self-perpetuating cycle of economic inactivity.

There are, of course, dozens of other social scientists stepping into the market gap opened by the collapse of older economic models and suggesting different routes through the treacherous waters ahead. Some will no doubt prove influential. If universities have always operated as ideas factories, this mission - provided others listen - may gain more significance during a crisis. As many businesses fight for survival, it is higher education that can keep long-term thinking alive.

What else can the sector keep alive? RCUK mentions the importance of universities in driving local economies. But there are also sectoral factors. At a recent conference organised by the Royal Institute of British Architects, a delegate noted that "we are not in just a slowdown but a wholesale stop for much of the commercial construction sector. Does this mean that government-funded projects are what the construction industry wants?"

There certainly seem to be possibilities here. Ian Mehrtens, director of estates at the Royal Veterinary College, says he has accelerated a major new capital project, as Hefce has encouraged institutions to do by bringing forward capital funding of £150 million from 2010-11 to 2009-10. This will allow the college "to take advantage of the downturn in construction activity. This will have two effects: the first that the college will hopefully benefit from keener costs and the second that the project will maintain or create employment opportunities." Although some architectural and engineering firms are likely to suffer in the current economic climate, universities may help keep in business those with experience and contacts among public-sector clients.

"As a senior management group," Mehrtens adds, "we are considering options - and one might be to spend our way out in true Keynesian style. This could include major infrastructure developments that can themselves generate an income stream, such as renewable energy schemes."

For almost three years, says Peter Fotheringham, head of estates at the University of Greenwich, his institution had been searching for a site for a new school of architecture and construction within Greenwich town centre, but during the property boom it appeared to be impossible to find a large site. "With the downturn, the situation began to change and we have been able to acquire an excellent site previously owned by a developer who had planning permission for a mixed retail and residential scheme." After delivering a fillip to the construction industry, the project will give the local economy a permanent boost as 1,800 more students plus staff move to the area.

Julian Robinson, director for planning and development at the LSE, paints a similar picture. Although his colleagues are "looking at (their) budgets and won't escape fully unscathed", the student experience agenda is still driving "a fairly sizeable capital plan" within his institution. "If we can afford it," he says, "now is the time to build as we can get very good value in consultants' fee bids and tender prices. Suddenly we're getting lots of inquiries - we're very popular!

"It's a lean time for contractors, but those working in the public sector are finding a refuge, although they have to fight hard because of more competition. Some public-sector specialists will maintain cashflow and turnover, even if they have to cut their margins to the bare minimum."

There is room for debate about how important this is for the economy as a whole. Yet as Robinson looks out at the stilled cranes on the City skyline and "the half-completed building sites in the vicinity of the LSE", it is clear that higher education is doing something to take up the slack.

So universities can play an important part in national recovery along a number of tracks: developing a high-calibre workforce, fostering innovative research, forging tighter links with business, feeding new ideas into policymaking, keeping local and sectoral mini-economies busy. But where should they devote their main energies?

Perhaps the most thoughtful and eloquent response comes from Jonathan Kestenbaum, chief executive officer of the National Endowment for Science, Technology and the Arts. "Universities are one of several very powerful national assets," he says. "Countries should focus on core strengths, industrial and institutional, and build on them."

Universities can act as local anchors, holding communities and regional clusters together because they tend to stay put and can form an essential counterbalance to the forces causing companies, workers, markets and sources of capital to relocate. Kestenbaum also notes "an increasing appetite for interdisciplinary research. Universities are best placed to capitalise on collaborations across sectors. They are the test bed and natural home for bringing disciplines and people from different backgrounds together."

Furthermore, "it is only knowledge-intensive universities that can bring in the risk capital to drive some sectors of the economy". He cites the biomedical cluster around Manchester, the spectrum of creative industries in Sheffield, and plans for a form of environmentally friendly "green cement" being developed by Novacem, a spin-off company of Imperial College London. In each case, universities are at the heart of potentially world-beating industries.

And what about the importance of universities in stepping into areas where other clients have fallen away?

Kestenbaum is unimpressed. "It would be a mistake to think of university capital projects as taking up the slack. For a start, it's not true: responsible institutions will have to make difficult financial decisions. Besides, we need to see universities as drivers of the new economy, not as soft options to prop things up. We need to think about universities and the new economy in a more forward-thinking way.

"The community is unrecognisable from what it was 10 to 15 years ago - universities have demonstrated that they have the capacity to develop these wider functions, engage with public policy and take a strong leadership role. I feel confident they will claim that role."