Hamish McRae: The Ivy League it's not, but Cambridge spies a chance to secure the glittering prizes

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The Independent Online

Students congratulating themselves on getting the places they want at university have another thing to celebrate: the top British universities are second only to the US ones in the world league, so they should be pretty confident they will get their money's worth.

If you believe that building intellectual capital is the key to economic success in a competitive world, then the UK can take some modest comfort. The latest 2004 rankings show that Cambridge has climbed to third place behind Harvard and Stanford (it was fifth in 2003), while Oxford has come up one place at eight. All the others in the top 10 are American, as are 17 out of the top 20 (Tokyo University comes in at 14). The highest-ranked continental European university is the Swiss Federal Institute of Technology at 27, followed by the University of Utrecht at 39.

The rankings, of which the graphs above are just a small summary, come from the Institute of Higher Education, Shanghai Jiao Tong University. It ranks the top 500 universities in the world, looking at some 1,000 institutions before picking the 500. After the top 100, they are ranked in bands of 100s, rather than individually. It is a measure of the way influence is shifting in the world that a Shanghai institution should be compiling this list.

But rankings are only as good as the information that goes into them. In this instance, the Shanghai researchers have been a touch more scientific than the compilers of the usual top 10 lists. They take into account six elements of performance in four categories: the quality of the education; the quality of the faculty; the research output; and the size of the institution. Measures include numbers of Nobel prize winners among the students and the faculty, and articles and citations. Then the different measures are compiled into an index, with 100 at the top. Anyone wanting to see the methodology and indeed the full list should just put "world university rankings Shanghai" into Google.

The way the list is drawn up is open to criticism. It may rather overweigh the sciences vis-à-vis the humanities, and outstanding specialist universities such as the School of Hygiene and Tropical Medicine and the London School of Economics suffer against the multi-disciplinary universities.

Still, it presents some pretty stunning conclusions, which have profound implications for the world over the next generation. I can see at least half a dozen.

First is the extent to which Harvard outpaces every other university in the world. It comes top in four out of the six elements, with Cambridge top in the quality of education (a big selling point) and the California Institute of Technology top in size. And Harvard comes out overall champion by a huge margin. No other institution is anywhere near it, and given Harvard's wealth, it is hard to see that changing any time soon.

Second is the way the US outpaces the rest of the world, with eight of the top 10, 17 of the top 20, and 35 of the top 50. No wonder it is a magnet for global talent.

The third is the problem of continental European universities, with just six in the top 50. If Europe is to mount any serious intellectual challenge to the US, it has to train its cleverest people better. In Britain we can just about give the Americans a run for their money, though if we continue to starve our great universities for cash, I'm not sure we will go on doing so. But on the Continent, they are not even in the game.

Four, as education changes from being a national industry to an international one, rankings such as this will increase the "winner take all" element in education. The top universities will get the best staff because they can pay for them. But they will also get the best students from all around the world, which will further enhance their status. That is wonderful for the top 10 but disturbing for the laggards which offer a perfectly good education but not a world-class one.

Five, at the moment neither India nor China has any world-ranking universities - none in the top 100. Yet those two countries are providing excellent students and excellent faculty members for US and indeed UK universities. Indeed, Chinese and Indians probably contribute quite a bit to those high rankings. At some stage, both countries will put sufficient resources into their own education systems to become more serious challengers themselves. So there is no room for complacency.

And finally, we surely need to think about the entire education system in a strategic way. It was announced just last week that Harrow School was setting up a branch in Beijing. This follows Dulwich College setting up in Shanghai. These are private sector initiatives but they have the effect of building the UK education brand. So they should help funnel good students towards British universities, which will not only bring in revenue but build support for Britain in the Chinese elite in a generation's time.

It is hard for the Government to think in these terms. Its preoccupation, understandably, is ensuring greater access to British universities for people who previously might not have attended. That is implicit in the target of getting 50 per cent of school-leavers into higher education. Nothing is wrong with this approach, assuming funds are available for the expansion of places and that the marginal candidates can benefit from what is on offer. But it is not thinking of education as a global industry in which the UK has a comparative advantage. We need to think strategically.

Strategic thinking would be to ponder what proportion of the global university education market British institutions ought to be trying to garner. It would be to use the British Council as a lever to increase the UK share of the market. It would be to think about how Oxford, the UK's next-best shot after Cambridge, can pull itself further up the rankings. I suppose the issue of a merger between Imperial and University College would come up, for combined, they would be close to a top 10 institution. And, of course, we need to use the research money that is funnelled into the universities to support the strategic position of the industry.

There is absolutely no cause for complacency. But at least we have a base of excellence here. Education, especially higher education, is becoming an important international industry. We should celebrate our reasonably strong position - and then set out to improve it.

Cloud over growth as our wells run dry

Latest update on the oil situation: the good news is that the oil price eased at the end of last week, mainly on the mildly better news from Iraq - though it may also have been on expectations that the US will release part of its strategic reserve and so cut prices ahead, ahem, of the November election.

The bad news is that the rise of recent weeks is probably already enough to trim global growth next year, and more parochially that the UK is within a whisker of becoming a net oil importer for the first time for many years.

Being a net importer may be a temporary result of the summer maintenance of the North Sea platforms, but HSBC, which has done some work on this, does not think so. The UK peak production level was in 1999 and it has fallen by 20 per cent since then.

No significant discoveries have been made in the past six years and the question now is how quickly output will fall, rather than whether it will fall further, which it is bound to do.

The run-down will affect both the balance of payments and government tax revenues. HSBC reckons that the effect will be a move from a surplus equivalent to 0.6 per cent of GDP in the late 1990s, to a deficit of perhaps the same amount. While presumably some supplies will be kept going for a long time, in another decade, production could be more or less over.

On revenues, the Treasury expects the present £4bn a year to continue, but HSBC thinks it won't. Since the Treasury has consistently over-estimated overall revenues for the past three years, I'm inclined to be suspicious. That £4bn is less than 1 per cent of government revenues, but when other sources are weak, it is a useful addition.

This is not the time to jump out of the window. All that is happening is that the UK is moving to the same position as most other western European countries: being energy poor. But the resources have to come out of somewhere and it is another reason to think that general consumption will have to grow more slowly in the future.