Hamish McRae: Britain still has some cards to play in the global struggle for skills

We have the only universities that are effective competitors against America's

Where will the jobs be when the economy recovers? Or, to put the point more brutally, what can we do in this country that other people can't do just as well? To ask the question may seem a bit premature, for at the moment there is no bottom yet in sight. But it matters massively that our workforce, or indeed the workforce of any country, has the appropriate mix of skills to take the opportunities of future growth. Growth will follow skills as well as skills following growth. We might have assumed a couple of years ago that the economy would continue to be carried along by the financial services industry, but now we have to think about other industries and their education and skills needs. So it is encouraging to be able to report that people are focussing on this right now.

One trouble is that we cannot automatically assume that people with what seem to be high skills will necessarily emerge as winners in the fight for talent. This is the issue to be tackled in a seminar later today at the Economic and Social Research Council's Festival of Social Science at Cardiff University. It is called "High Skills, Low Wages: Global Auction for Brainpower" which sort of says it all. It challenges the belief that "the UK's future prosperity depends on gaining competitive advantage in a skills-based, global knowledge economy ... high skills are seen as core not only to economic success, but as a route to individual prosperity, social justice and social cohesion".

Actually, the seminar will suggest that assumptions behind current policies are likely to become redundant in the early decades of the 21st century. It will argue that there is a huge, competitive challenge to developed economies such as Britain from the emergence of a global supply of highly-skilled, low-cost knowledge workers in developing countries. That has profound implications for education and labour market policies – the issue being how to develop high-end activities that cannot easily be replicated elsewhere.

As it happens, the Department for Business and Regulatory Reform published a paper yesterday about doing business with the two main places from which these highly-skilled but low-paid workers will come – India and China. It argues: "Although China and India have made substantial progress in improving their skills and innovation capabilities, protectionist fears about the competitive threat from these countries are often overdone. In practice, over the next few decades they will (in general) continue to specialise in activities which complement rather than compete with those carried out in the UK."

So who is right? I suspect both are. A lot of high-tech jobs will indeed migrate to lower-waged economies, just as manufacturing jobs have done, but there will be some things where we can retain a competitive advantage. But you have to make one proviso: we will retain a competitive advantage only if we are sensitive to the shifting demand for skills – soft skills as well as hard ones.

We have some advantages. At the top end, we have the only universities in the world that are effective competitors against the Americans. You can see that in the global rankings developed by Jiao Tong University in Shanghai (interesting that such a ranking should be developed in China, isn't it?) The UK has five universities in the top 40, Japan two and Switzerland one. All the rest are in the US. Ours are Cambridge, Oxford, Imperial College, University College London, and Manchester; Google the rankings if you are interested. This index has been criticised as too mechanistic but it is not a bad starting place. If you take a different and more market-oriented measure of educational excellence – the share of international post-graduate students – much the same picture emerges: the UK has 11 per cent per cent, second only to the US at about 20 per cent.

So if the question is "where do the world's cleverest young people go for their education?", we are still in there. That leads into debates about how to maintain and improve that position, how to obtain better funding in a colder financial climate, and so on. True, our position may be more fragile than we would like but the fact is that most other countries would do anything to capture the crown from our top universities, and we should surely celebrate that more.

Another thing we should reflect on is the performance of our best secondary schools. They happen almost entirely to be in the private sector, which some people find hard to come to terms with. There is lots of evidence of this. In tests set by the Organisation for Economic Co-operation and Development's Programme for International Student Assessment, British 15-year-olds on average do reasonably well – not as well as their counterparts in Finland, New Zealand and Hong Kong but better than most of Europe and certainly the US. But our best students are wonderful, and top of the league.

So that is the educational picture, a good place to start from and an industry which should surely be expanded. What about other industries? There is an interesting parallel between our educational performance and our manufacturing one. If you look at the technology element of our exports and divide them into low-tech, medium-tech, medium- to high-tech and high-tech, we have the highest proportion of high-tech manufactured exports of any major country. Why? Well it is partly because we have vacated the ranks of medium- and medium-high stuff – unlike, for example, Germany, where most of its exports are medium-high. But it also because a lot of the manufacturing we do, such as pharmaceuticals, has a high knowledge element embedded in it. You could argue that we were wrong to get out of the lower-end products so swiftly, but what is left should be reasonably resilient to the downturn and recover more quickly when it is over.

Finally, take another area where our knowledge workers should retain some competitive edge: the creative industries. Did you know that there are now more book titles published in Britain than in the US, and far more than any other country? Did you know that more than half of the unscripted television shows in the world (so-called "reality" shows) are owned by British companies? We sort of assume this is normal; it is what we do. But we not only do it; we are actually gaining ground in these areas. That suggests that in some elements of the knowledge business we can find ways of justifying our high cost structure.

None of this, however, should take away from the scale of the challenge. Anyone who feels the tiniest bit complacent about the UK knowledge business should go to Bangalore. The last time in was there, I was stunned by the new, shining university-style campuses on the outskirts of the city, from which India's knowledge workers compete against us. We should never assume the tiny lead we seem to have is secure. In 1947, Britain was the second-largest producer of cars in the world, after the US. Japan made hardly any. We know what happened from then on. But now the sands of competitive advantage are shifting again. In January, for the first time ever, China sold more new cars than the US. This year, it may become the world's largest car market.

The truth is that we cannot know what our true competitive advantage really is; it constantly changes. All we can do is to recognise success and try to reinforce it – or, at the very least, try not to muck it up.