Comment: Learning curve coming up for universities

Scotland’s universities, their staff, students and graduates represent a major advantage for Scotland. As economies around the world look to generate competitive advantage in order to secure and retain high-value, high-wage economic activity, Scotland starts from an enviable position.

To quote the Scottish Government’s 2010 assessment of the sector: “From a country of just five million people, we have five universities in the top 150 in the world. In comparative terms, only England, the USA and China fare better. We also punch above our weight in research: 1.8 per cent of the world’s cited research comes from Scotland with just 0.1 per cent of the world’s population. This makes Scottish-based research the most cited by GDP in the world.”

In light of this, the question for policymakers is how can this be best harnessed in support of economic growth. Scotland faces significant challenges in maintaining its comparative high-level skills advantage and in securing industry investment in research and development. Organisation for Economic Co-operation and Development [OECD] data indicate that, in 2000, the UK was ranked third among OECD nations for the percentage of young people educated to degree level.

Our competitors have increased their investment in human capital with such rapidity that the UK fell to 15th in this table in the 2008 figures, below the mean for OECD nations, and Scotland is not an outlier within the UK.

This skills race is undoubtedly a major challenge for any government seeking to support continued economic growth. Unlike their counterparts elsewhere in the UK, Scotland’s policymakers face a challenge of equal magnitude in terms of business investment in research and development [R&D]. The Scottish Government’s latest figures for Business Enterprise R&D in Scotland show that expenditure was just 0.52 per cent of Scottish GDP in 2010, compared to 1.09 per cent for the UK and 1.16 per cent for the EU. This low level of investment would position Scotland as the fourth lowest among the 26 OECD countries.

While this situation is in part mitigated by higher levels of government investment in university R&D, Scotland will have to continue to develop policies and approaches in order to sustain a total “offer” comprising R&D base, skills, employment policies and lifestyle which match, or better, those of competitor countries, whatever the outcome of the constitutional debate.

This is important as attracting R&D investment from multinational enterprises is critical – the aggregate spend of the world’s largest eight such companies was greater than the R&D investment of all individual countries except the USA and Japan. It is in this highly competitive and fast-moving global context, as well as the context of constitutional change, that Scotland’s leaders must consider how Scotland’s higher education system can drive economic growth.

Chief among policy-makers’ challenges will be increasing the undergraduate and postgraduate capacity to position Scotland as a high-level skills economy able to compete for knowledge-based inward investment. This will need to be supported by continued investment in HE in line with our international competitors and policies which foster the production of intellectual capital through encouraging innovative industry/university relationships and capturing mobile business investment in R&D.

At present, Scottish levels of expenditure on R&D, on higher education and approaches to attracting foreign direct investment are ultimately determined by both the UK and Scottish parliaments. The current levels of Scottish public expenditure cannot be viewed as completely disconnected to those of the UK as a whole. If the UK reduces spend on HE, as with the recent tuition fees reforms, then the consequential funds for Scotland decline. Similarly, other Westminster decisions have consequential effects on Scottish university funding potential, for example, through Research Councils UK [RCUK] budgets.

What further devolution or independence might mean for this RCUK funding of circa £330 million has, to date, been the primary focus of political debate about universities and constitutional change.

However, it can be argued that the overwhelming majority of powers which might be used to enhance skills development or to incentivise R&D investment and economic growth based on intellectual property already rests with Scottish ministers. They can already put in place policies which enable universities to take on additional undergraduates, do so in specific subject areas and can encourage knowledge exchange through allocations of research funding and incentivising business and universities to work together. Through outcome agreements and targeted funding, there can be no doubt that ministers are using these powers with the objective of increasing universities’ contribution to economic growth. This is clearly an area which the Scottish Government has prioritised and worked across multiple agencies to support the sector.

Latterly, a second question, that of the tuition fee regime which would operate in the case of full independence, has arisen. It is suggested that, without action and assuming continued EU membership for an independent Scotland, students from the remaining parts of the UK would be entitled to free tuition at Scottish universities at Scottish taxpayers’ expense. However, despite the fact that these are critical issues, they are far from being the full picture.

This is not to belittle the issues – competitively won RCUK funds are undoubtedly critical and not just financially. They also enable collaborative activity focused on problems or “grand challenges” requiring teams of scale and expertise drawn from across multiple institutions. Attracting such funding also signals the international quality of Scottish research through direct comparison to the leading universities in the rest of the UK.

Similarly, students from the rest of the UK bring an important diversity to Scotland’s university populations. Under the new rest of UK fee regime, their fees also play a key part in funding the Scottish system. In the case of some smaller undergraduate subject areas, it can be argued such students are critical in sustaining a subject’s viability and maintaining the current breadth of subjects available in Scotland.

Nevertheless, the potential impact of various constitutional options on HE still requires further exploration. In particular, reference should be made to the sector’s UK collaborations, its international connections, the intellectual property our universities contribute to the economy, the single UK market for staff and foreign direct investment. Each requires detailed consideration in the run-up to the 2014 referendum.

In light of the scale of international investment in higher education, three structural questions emerge. Can Scotland match, or surpass, the OECD average for the proportion of GDP invested in higher education? And, if so, what is the balance between public and private investment to be? And in what kind of sector should politicians invest?

The Scottish Government’s 2011 spending review prioritised investment of public funds in the sector for a three-year period, but the planned investment, boosted by income from fees now paid by rest of UK students, will not come close to putting Scotland among the leading nations in terms of percentage of GDP spent on the sector. Even this investment has come with significant negative commentary relating to cuts to college budgets over the same period and has seen opposition politicians question the current government’s free tuition policy in terms of both affordability and social equality.

Whatever outcome the constitutional debate delivers, there are specific powers and policies which will play a critical role in determining the future of our universities. These include the economic environment and growth performance; attracting talented people; global connectedness; personal and corporate taxation; and the regulation of professions and scientific practice.

To date, the debate has focused too narrowly around inputs to the sector and not addressed the outcomes the sector delivers for Scotland. The central question for all those engaged in the constitutional debate is how can the higher education and research activity carried out within Scotland’s universities continue to contribute to the nation’s sustainable economic growth? The sector’s role in Scotland’s future should not be underestimated, and the debate about the sector’s contribution needs to move higher up the agenda of all those involved in the debate about Scotland’s constitutional future.

• Professor Sir Jim MacDonald is principal of Strathclyde University. Simon Jennings is the university’s strategy and policy director. This is an extract from Scotland’s Future: the economics of constitutional change, a new economic commentary on constitutional options facing Scotland, edited by Professor Andrew Goudie. Scotsman readers can buy the book for a discount price of £13 at www.dundee.ac.uk/dup. The code is SCOT1.