Terence Kealey: Beware of selling your soul to the knowledge economy

In an article I wrote in this space on the 21 June 2007 in the week Brown became Prime Minister ("We Should Be Very Afraid of Gordon Brown"), I said: "Brown respects only business people and the City, and he treats public servants as public serfs." As the PM was to show by his response to the credit crunch (he showered the City with money but is now preparing the public sector for cuts) that wasn't a bad prediction of his actions in Number 10.

Now Brown and his government have delivered a further blow to the public sector – and a further boost for the private sector – in their so-called framework for higher education, Higher Ambitions: The Future of Universities in a Knowledge Economy, which represents yet another step towards the subordination of the universities to commerce.

Before the Great War, British universities were independent, and focused on two tasks, namely the education of students and the furthering of scholarship. But the Great War bankrupted the universities (its inflation destroyed their endowments and its conscription depleted them of students), so in 1919 the universities turned to the Government for money. The Government of the day – which like all governments through the ages distrusted independent universities – was only too happy to cough up, because he who pays the piper picks the tune. And latterly the various successive Governments' tune has been corporate welfare.

The great myth of science policy is that governments need to subsidise science to ensure economic growth. But there is no evidence that this is true. In 2003 the Organisation of Economic Cooperation and Development (OECD) published a book The Sources of Economic Growth in OECD Countries, which reported a comprehensive regression analysis of the different factors that might explain the differing growth rates of the world's 21 leading economies from 1971 to 1998, and found that only "business-performed research and development" (R&D) drove economic growth. "Public R&D" had only "negative results."

Yet Government consistently ignores such empirical findings, and persists in believing that it needs to tax companies – only to immediately return them their money in the form of publicly funded university-based science. The universities applaud such subventions, but they are learning that their dependence on Government money distorts their mission.

Once, universities directed their own research according to their own goals, but Higher Ambitions says that universities should serve other goals, namely that they should "contribute to economic growth ... through the commercial application of the knowledge they generate." To ensure the universities do as commerce wants, the framework says that "the role of business people play as members of university boards of governors...will become greater in future." And to help those business people turn the universities into industrial labs, the new Research Excellence Framework will "reward those institutions ...whose past research has made an impact on the economy."

This abuse of scholarly research is arousing resentment in the universities who are mobilising to defend universities as centres of independent research but, astonishingly, there is greater (if passive) opposition to this prostitution from industry. Higher Ambitions laments that "the lack of demand from business for such services [collaborating with university labs] has been a long-standing challenge in this area."

So here is a strategy to spend up to £4bn annually on university science on condition that that science is integrated with industry's – when neither the universities nor industry wants to do it! Brown can of course dismiss the universities' opposition as being the usual namby-pamby obstructionism of socialists, but when industry itself says that the model does not work, you'd have thought Whitehall might listen. But as Douglas Jay explained, "the gentleman from Whitehall really does know better".

It was Francis Bacon who said in his 1605 Advancement of Learning that governments needed to fund university science to promote economic growth. It was a nice theory but Bacon was a politician and lawyer who knew nothing about economic growth and, as Adam Smith pointed out in his 1776 Wealth of Nations, economic growth and new technology actually emerge out of the untaxed, undirected efforts of industrial labs. Contrary to Gordon Brown's beliefs, companies get more value out of their own in-house research than from university science.

But the taxing of companies to pay for public science empowers politicians – and politicians love power – but it not only distorts university science, it also impoverishes industry.

The writer is vice chancellor of the University of Buckingham and the author of "Sex, Science and Profits"