UK higher education as a strategic national asset


By Paul Clark -

The UK is currently experiencing the most severe retrenchment in public spending since the Second World War. While the higher education sector is not immune to the effects of this fiscal pressure, it has escaped relatively lightly compared to other areas of public service in terms of headline public investment figures. Government investment in science and research will remain constant in cash terms up to 2015, at £4.6 billion a year (still a 9 per cent cut in real terms). And while direct grant funding for higher education in England is to be cut by 25 per cent by 2015, reforms were voted through to replace this funding stream with a system of income-contingent loans for students funded by the government, allowing universities to charge student fees of up to £9000 for UK students from 2012 – much higher than at present.

Thus by 2015 the university sector could see overall levels of funding at least maintained, while other critical public services face significant reductions. There is a very good reason for maintaining this level of investment: a strong and vibrant higher education sector is essential for driving the economic growth that the UK will need to recover from recession and compete in the global marketplace.

Recognising this as the sector’s primary purpose is just one of the major shifts in higher education policy to have taken place recently, one which will set a new course over the next decade and possibly beyond. In this changed environment, higher education is conceived of and treated in policy terms as a strategic national asset, an industry every bit as essential for the economy as financial services, manufacturing, or retail have been in the recent and more distant past.

This new role was recently enshrined in the government’s Plan for Growth, published alongside the 2011 budget:

Higher education is central to economic growth and the UK has one of the most successful higher education systems in the world.[1]

The opportunities for the sector were also set out in a report from the McKinsey Global Institute, which looked at long-term economic priorities for the UK:

Traditional debates about education have focused on its crucial role as a public service, increasing skills and ensuring fair opportunity for all… But if we view education through a different lens – that of an industry – then the UK education sector has many of the characteristics of a very promising growth opportunity.[2]

Research from Universities UK demonstrates the scale of the economic contribution of the HE sector– contributing around £59 billion to the UK economy overall[3]. In terms of export activities alone, UK universities generate around £2.2 billion in non-EU student tuition fees, which places this source of income in the UK’s top 20 most valuable export products[4]. International students also generate an additional £2.3 billion in off-campus expenditure.

In future, this contribution is only likely to increase, as demand for higher skills increases, more diverse connections are made between universities and businesses – both nationally and in their locality, and the UK benefits from the expansion of the global market in higher education. The international student market is set to grow by around 7 per cent a year on average. In 2009 alone, the number of international students increased by 12 per cent, from 2.96 million to 3.43 million[5]. While the US share of this market has declined in recent years, that of the UK (its closest rival) has held steady, meaning that the UK is well-placed in terms of potential future growth. International students are foot-soldiers in the global war of ideas, and the UK needs to ensure that it can compete effectively. Moreover, UK higher education has a strong international brand, and the benefits generated through this industry flow to all regions. In short, it has all the hallmarks of a highly attractive investment opportunity.

Successive UK governments will need to ensure they have in place a strategic and policy framework which on the one hand facilitates domestic and international investment in higher education, while on the other provides the right regulatory structure for the sector to flourish. This means placing a continuing emphasis on self-direction for the UK’s universities, providing the right incentives for sustainable growth, and continuing to encourage greater transparency in operations and service delivery.

One of the main reasons for maintaining this tight political and economic focus is that the sector faces fierce competition over the long term. This applies as much in the domestic arena as it does internationally. Many countries have woken up to the economic potential of investment in tertiary education, and its importance in driving innovation and skills growth, and there is no room for the UK to be complacent.

In a time of scarce resources, universities are competing for domestic attention with other ‘core’ spheres of public service – schools, hospitals, transport, the police and emergency services, to name a handful. Many of these services play a very prominent role and impact daily on people’s lives. The contribution that universities make to public life is substantial, in terms of health, well-being, and citizenship, but this is often less immediately visible than the local A&E service or police officer on the street. The higher education sector needs to work that much harder to ensure that it secures an appropriate share of government resources, and that its economic and wider social contribution is fully recognised.

Internationally, the competition is even stronger, as the UK’s major economic competitors are investing heavily in their own tertiary education systems. In the recent past, the UK has looked across the Atlantic to keep an eye on its primary competitor, but this position is changing as the global balance of power shifts to the Far East. By 2027, the Chinese economy will be as large as that of the US; by 2032 the BRIC[6] countries combined will be as large as the G7[7]; and not long thereafter the so-called N-11[8] countries will also rival the G7[9]. China and India are also catching up very fast with the EU in terms of research and innovation performance, further strengthening their position in the new order of the global knowledge economy.

This shift eastwards in economic influence is also reflected in changes to the international hierarchy of urban power. Cities are essential to economic growth, and attract to themselves substantial investment – this is never truer than when they are centred around a strong university system. One only has to think of the economic power of Los Angeles in the US, or Oxford in the UK. But by 2025, more than 20 of the world’s top 50 cities ranked by GDP will be in Asia, up from 8 in 2007.[10] In this new ranking, three of the world’s top 10 cities will be in China, with Shanghai leapfrogging London as an economic powerhouse.

There is now very strong evidence of the direct connection between cities and universities in terms of driving economic growth. One only has to look at the recent decision by the Bloomberg administration in New York City to invest in the development and operation of a new applied science and engineering research campus in that city – a competition which thus far has attracted interest from prestigious universities around the world, including Stanford University in the US, the Indian Institute of Technology in Mumbai, and the University of Warwick in the UK. Commenting on the development and its importance to the economy of New York City, Harvard economics professor Edward L. Gleiser wrote:

The late Senator Daniel Patrick Moynihan of New York is often credited with saying that the way to create a great city is to “create a great university and wait 200 years,” and the body of evidence on the role that universities play in generating urban growth continues to grow.[11]

Against this shifting domestic and global background, the opportunities for the higher education sector to strengthen and enhance the UK’s overall global economic position are immense. The same is true for a number of advanced and emerging economies. But the potential threats for the UK are also significant.

One of the most significant risks concerns the UK government’s policy on student immigration. The government made a public commitment to reduce net migration to the UK. Once in power, major reviews of the primary channels into the UK for migrants took place, including a review of the student route. The policy proposals which emerged as a result sought broadly to protect universities from the clamp-down on numbers, recognising the economic, academic, and cultural benefits of preserving strong global academic ties. Nevertheless, experience from the US shows that the damage could already have been done, as the message is communicated around the world that the UK is not welcoming to international students. The US has still to regain the market share of international students it enjoyed prior to the visa restrictions imposed after 9/11, with the current figure stubbornly 5 percentage points below the level in 2000. The UK must avoid the same fate.

The policy response therefore needs to ensure a number of things to maintain the global status of this strategic national industry. These prescriptions build on the existing strengths of the UK system, but could easily be applied to other sectors around the world.

First, the quality of the overall brand needs to be maintained, through appropriate regulation and a focus on institutional self-direction – one of the key strengths of the UK sector. Second, overall resource levels need to be sustained at least, now and into the future, so that higher education commands its share of public investment. Third, the regulatory structure needs to play to the sector’s strengths and not act as a barrier – this applies to issues ranging from student visa control, to intellectual property, to data collection and transparency. Fourth, a joined-up response is required across government departments which have an interest in preserving the health and strength of the university system – currently the Department for Business, Innovation, and Skills, but also including Treasury, the Foreign and Commonwealth Office, the Cabinet Office, and the Home Office. A long-term, coordinated effort is required across a range of political fronts and across Party lines.

With the right policy framework in place, one which genuinely treats UK higher education as a prized national asset, universities can continue to cement their place at the heart of the economy, and occupy this newly-inhabited role with more and more confidence. In return, the sector will continue to deliver financial and economic benefits to the regions in which they’re located; to the UK nationally through skills growth, R&D, and effective business interaction; and internationally, by securing the UK’s position as one of the leaders of the global knowledge economy throughout the next century.

 

Paul Clark is Director of Policy at Universities UK where he is responsible for coordinating the organisation’s full range of policy and research activity, working to influence national developments in higher education, and shaping the future policy agenda.

 

Universities UK is the representative organisation for the UK’s universities. Founded in 1918, its mission is to be the definitive voice for all universities in the UK, providing high quality leadership and support to its members to promote a successful and diverse higher education sector.

 


[1] Plan for Growth, HMT, March 2011 (http://cdn.hm-treasury.gov.uk/2011budget_growth.pdf)

[2] From Austerity to Prosperity: Seven priorities for the long term, McKinsey Global Institute, November 2010 (http://www.mckinsey.com/mgi/publications/uk_report/index.asp)

[3] The Impact of Universities on the UK Economy, UUK, November 2009 (http://www.universitiesuk.ac.uk/Publications/Pages/ImpactOfUniversities4.aspx)

[4] UK Exports: General Trade: Top 20 products by SITC, HMRC, November 2010

[5] Unesco Institute for Statistics, 2009

[6] The so-called BRIC countries are: Brazil, Russia, India, and China.

[7] The members of the G7 are: Canada, France, Germany, Italy, Japan, the UK, and the US.

[8] The members of the N-11 group (standing for ‘Next 11’, behind the BRIC countries in terms of economic growth) are: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam.

[9] The Long-term Outlook for the BRICs and N-11 Post-Crisis, Goldman Sachs Global Economics Paper 192, December 2009 (http://www2.goldmansachs.com/ideas/brics/long-term-outlook-doc.pdf)

[10] Urban World: Mapping the economic power of cities, McKinsey Global Institute, March 2011

 

 

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