Raising the quality of Europe's higher education

European universities are in urgent need of reform. They have a crucial role to play in helping the EU to achieve its goal of becoming the 'most competitive knowledge-based economy in the world'. But Europe's higher education institutions are underfunded, poorly organised, over-centralised and subjected to severe political constraints. And, as European governments are already discovering, making the necessary reforms will prove both economically and politically costly.

In their organisation, governance and operating conditions, the 3,300 higher education institutions within the European Union are very different from each other. Yet they must face up to a set of similar challenges.

First, universities are subject to rising global competition for both talented staff and for resources. US universities are recruiting growing numbers of EU researchers. A Commission paper published last year concluded that 75 per cent of EU-born US doctorate recipients, who graduated between 1991 and 2000, had no plans to return to Europe. "Better prospects and projects, and easier access to leading technologies were most often cited as reasons behind plans to work abroad", the paper added. The US is also much more successful than the EU at attracting and keeping students from other countries at advanced levels in engineering, mathematics and IT. The Commission estimates that around 400,000 EU-born science researchers are working in the US, some 40 per cent of the total.

Second, funding constraints are forcing education authorities to tackle long-standing inefficiencies. Many EU member-states have very high drop-out rates from higher education. For example, only 42 per cent of Italian students taking academically oriented degrees get through their programmes, partly because they take so long ­ often five years or more ­ to complete. Economic pressures are also encouraging a greater degree of selectivity in the allocation of funds for research and teaching. Spreading resources evenly across the system is no longer a workable option.

Third, there is an urgent need for new sources of funding everywhere. According to the OECD, annual spending per student in the US comes to around $20,000, roughly twice the figure in Germany and three times that in Spain. Public funding for tertiary education represents roughly 1 per cent of GDP in the US, Germany and Spain. But private finance takes the US figure up to 2.7 per cent of GDP, whereas the private contribution in the other two countries is very modest. The Commission has called on EU member-states to increase the levels of private spending in tertiary education, as part of the Lisbon economic reform agenda.

Finally, the link between investment in technology and productivity growth is also throwing the spotlight on universities at a time of sluggish economic performance in the eurozone. The graduation rates for advanced research programmes are only about half the OECD average in Italy and Greece. Less than 30 per cent of 25 to 34 year olds have attained tertiary education in Denmark, the Netherlands, Greece, Germany, Austria and Italy, compared with 40 per cent or more in the US and Japan.

All European governments are beginning to tackle these problems, with varying degrees of urgency and success. Tony Blair, the British prime minister, had to put his political credibility on the line to introduce top-up fees for students, in the teeth of concerted opposition. By contrast, French President Jacques Chirac appears to have put university modernisation reforms on hold following strong student protests. He already has his hands full with mass resignations by French researchers who are seeking to reverse budget cuts.

Germany, Sweden and Italy are considering plans to concentrate public funding for research on a group of elite institutions. The German federal government has promised to 'de-bureaucratise' universities, to make them more innovative and more international. German state governments are seeking to penalise students who take too long to complete their courses. The government in Rome has put forward legislation to reduce the more or less total job security and freedom from control enjoyed by Italian academics.

Individual member-states, rather than the EU, are facing up to these major challenges. The EU is struggling to find a truly European dimension in higher education. Student mobility, for example, is still marginal: just 2.3 per cent of European students are pursuing their studies in another EU country.

The EU funds a variety of initiatives to promote research. But efforts to create a European research council, to help fund scientific work across the EU, are a long way from fulfilment, mainly for financial reasons. The so-called Bologna process, which is designed to increase student and research staff mobility by ensuring degrees and other forms of accreditation are recognised across the EU, is making patchy progress.

The relative weaknesses of European universities are obvious. Put simply, the financial, material and working conditions available to the most talented academics are not nearly as good as they are in the US. In particular, the balance between teaching and research across Europe is increasingly being skewed away from the pursuit of intellectual excellence.

But of course there are real strengths and fresh opportunities as well. For example, the science base in countries like Sweden, Finland, the UK and the Netherlands is highly productive and efficient by global standards And the EU as a whole produces rather more science and technology graduates than the US does. Enlargement will provide fresh supplies of talent and brains. Meanwhile, public universities in the US are facing growing funding pressures of their own.

The big question is whether national governments will have the courage to introduce the bold reforms that are now required, and whether individual universities will have the imagination to support them. The EU could play a greater role by making the overhaul of its higher education sector a more explicit part of the Lisbon agenda. There are enormous vested interests in the status quo, as Mr Blair has discovered. But in what has become a international market for talent, the status quo is not an option.

Richard Lambert was an external member of the Bank of England's MPC and is member of the CER's advisory board.