How business will pay the university piper

Ministers will let more working-class children on to degree courses, but those students will have to

For months, the government has been promising a strategy for the universities. There's still no definite date, probably because Charles Clarke, the Education Secretary, is still locked in mortal combat over top-up fees with the brainy young men and women of the Downing Street Policy Unit. But the higher education minister, Margaret Hodge, has fed us a few coded hints about what's in store.

We learnt nothing about top-up fees. But we did, if we can decode the language, divine four things. First, the government is sticking to its target of giving 50 per cent of the country's young some sort of degree. Second, it's not going to provide enough money to achieve this. Ergo, third, it wants universities to be much more heavily dependent on business than in the past. Fourth, there are going to be two classes of students: those who get traditional, rigorous, academic, three-year degree courses and grow up to run the country, and those who get two-year, business-driven, vocational degree courses and grow up to do what they're told.

That isn't what Hodge said. What she actually said was: "Britain needs more graduates in a mass higher education system, but we also need to maintain a cohort of the most highly achieving graduates who will fuel our future growth and prosperity." This "cohort" is the graduates in academic subjects from posh universities. As for the rest, "most of the expansion of places will need to come from vocational degrees". Some of these will be taught in further education colleges, and some will be "foundation degrees", which require two years' study instead of three. Such courses will "meet local skill shortages and meet business demands".

Hodge expressed a laudable determination to end the middle-class bias of our university population. Yet the bias will almost certainly continue among those who do three-year degrees. In effect, Labour is proposing to recreate what used to be called the "binary system": the middle classes went to universities and studied academic subjects, and the working classes went to polytechnics and learnt how to oil the wheels of commerce. This was supposed to end when the polytechnics were allowed to call themselves universities.

Broadly speaking, the more prestigious the university, the greater the bias of its undergraduate population towards the middle class. And if there is nothing in the government's strategy to prevent it, this will continue.

Given that business is to be the main beneficiary of the new system, it seems only fair that business should pay a big slice of the cost. But the government is frightened of forcing business to do anything, so we shall have what are known in new Labour-speak as "partnerships". This means that universities go round corporate moguls with their begging bowls, asking what industry wishes them to teach.

It is more than two years since Baroness (Diana) Warwick, who heads Universities UK - the university vice-chancellors' union - announced her conversion to this orthodoxy, in impeccable, politically correct language: "Universities are the engine of the knowledge economy. . . . Funding . . . for commercialisation of university research and know-how represents added horsepower."

She expressed proper admiration at commercial developments in the US, such as the immensely profitable University of Phoenix, which sells vocational courses by distance learning, making it what Americans call a "virtual university". She's also enthusiastic about prestigious US universities that link up with what she calls "knowledge providers" - companies such as AOL Time Warner, Disney, Microsoft, and Cisco Systems. "They are already pursuing the route encouraged by Bill Gates," she says enthusiastically.

In this vision of higher education, which new Labour shares, the universities provide "most of the academic expertise and, crucially, the 'branding' necessary for market credibility. The commercial partners provide production facilities, distribution, marketing, etc, as well as much of the underlying technology."

But the universities are struggling - or sometimes, even worse, not struggling - with the ethical problems created by this sort of funding. The University of Wales found itself pushing a wealthy Saudi prince through a doctorate that he seems not to have earned. Oxford, seeking to create a professorship in intellectual history, got it funded by the German heir to an engineering fortune made under the Nazis. When this benefactor took offence at the attacks on him and withdrew the money, Oxford managed to interest a food millionaire. When this second mogul refused to renew his funding in September 2000, the university ceased to have a chair in intellectual history.

It is now several years since Dr Denis MacEoin lost his lectureship in Islamic studies at Newcastle University because the sponsor, the Saudi Arabian government, considered his specialism to be heretical, but we seem to have learnt little from Newcastle's inability to afford the dignity of telling the Saudi government where to stick its money. Nor could Nottingham afford to tell British American Tobacco where to stick the £3.8m it put into a centre for corporate social responsibility. The irony of this seems to be lost on the university, but not on Professor David Thurston, who decamped in protest and took his research team and his Cancer Research Campaign grant to London University's school of pharmacy.

These are a few examples from many. So I asked Hodge if she really wanted a greater proportion of university funding to come from business. She does. So what does she propose to do about the ethical problems this creates? "It's up to the universities to defend academic freedom. They have done it so far," she told me.

The French have a different way. Businesses are required by law to fund the institutions which teach the skills that local business requires. Napoleon set up local Chambres de commerce, which are not at all like British Chambers of Commerce. Membership is a legal requirement and the subscription (taxe d'apprentissage) is like a tax. Two-thirds of the money goes on educating people for business, and one-third on services for local business, such as airports, marinas and harbours.

The Paris Chambre de commerce has 220,000 members and supports 30 different educational establishments teaching such things as business, cooking, engineering and electronics. What goes on in these vocational institutions is, quite properly, the concern of local business, which expects, and gets, a high degree of involvement in the curriculum. This leaves state-funded universities to teach academic subjects without having to look over their shoulders and check that local business moguls approve of their subjects or their research projects. There is no reason, apart from innate conservatism, why a British Labour government could not force business to pay for training people in the skills required by business.

Colwyn Williamson started the Council for Academic Freedom and Standards in Universities after exposing his own university department's efforts to ensure that a degree was awarded to the son of a wealthy donor. He says: "Universities have to live on public money, not private money. All money comes with strings, but private money comes with the narrow demands of profit, and this can be very corrupting. Companies often don't buy research, they buy the result of the research that they want to see."

After Hodge spoke at a conference held by the new Labour think-tank the Institute for Public Policy Research, Sir David Watson, vice-chancellor of Brighton University, identified with ruthless accuracy the trend of government policy. In 1994-95, universities got 60 per cent of their income from the public purse, 40 per cent from outside. In 1999-2000, the figures were 55 per cent and 45 per cent respectively.

This does not even lead to more of the graduates we need. While overall there was nearly a fifth more graduates in 2000 than in 1995, there were fewer in engineering, technology, architecture, building and education. In a country desperate for maths teachers, there were fewer education graduates and virtually no increase in maths graduates.

Making our universities dependent on the goodwill of business is a recipe for a long, slow decline.