Hamish McRae: Why do we ignore the crucial issues and agonise over much less important ones?

In no part of the debate do you hear anything about the quality of our schools by world standards
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I learnt a new killer fact yesterday. In India one company, Tata Consultancy Services, the country's largest software house, hired 18,000 software graduates last year and the number is rising. The UK's entire annual output of such graduates is just 5,000. This joins my favourite killer fact about China. Last year, it built more additional electricity power station capacity than the entire annual output of the UK power industry.

There is a strange disjunction between what seems to matter in British politics and what matters in the world economy - and hence ultimately to our prosperity and our influence in the world. We agonise about things that are, at best, second-order issues but we almost completely ignore the first-order ones.

You can see this most clearly in three of the current political hot potatoes: education reform, the deal on the European budget and our energy and environmental policies. All are being viewed through a narrow domestic prism rather than from a global perspective, a worm's- eye view rather than an eagle's.

Take education. The current debate over schools is about parental choice or lack of it, fairness, the importance or otherwise of academic merit and so on. The debate about the universities which will soon re-emerge is about access, the squeeze on funding, the debt burden of students, etc. In neither element of the debate do you hear anything much about the quality of our schools by international standards, the changing needs for different sorts of skills, the global performance of our universities. Yet these are the huge issues that will determine the extent to which the UK remains competitive in the world.

If we were to start from the position of asking how best we could craft our education system to remain competitive against the two huge workforces of China and India that are now changing the shape of the world economy, we would be debating a quite different set of questions.

We would be worrying about access in schools but from the perspective of the need to improve the ability of our workforce in the years ahead. For example, we would be trying to figure out how every child with potential software expertise can be spotted early and have his or her aptitude developed to give an edge over those thousands of new Indian software graduates. We would be identifying other aspects of our schools that pull down our performance in the Organisation for Economic Co-operation and Development's study of the ability of 16-year-olds.

At a university level, we would be wondering how to cement Cambridge and Oxford's place in the global top 10 and how Imperial and University College London could claw their way back into the top 20. And at a postgraduate level, we would be looking at ways of keeping the best foreign graduates in this country for as long as possible rather than requiring them to go home.

If all this sounds rather un-Prescottian, I would add another twist. Some of the most important skills that will determine success in the world economy have nothing to do with the skills learnt through a conventional education. Sir Richard Branson dropped out to devote more time to his business career. We need to find ways of patching the skills of people who fall through the net. John Prescott himself is an example of someone who failed the 11-plus but then went on to go to Oxford, via Ruskin.

The key point here, though, is to recognise our young people will not be competing against other young Europeans. The competition is the world beyond.

Now take the deal on the European budget. It is, of course, profoundly depressing, but it is depressing not just because the UK played a strong hand badly - though I have been interested to find that people whose judgement I trust feel real anger at the way the UK allowed itself to be outmanoeuvred.

It is depressing because the more Europe rejects reform the further it will slip down the global growth table. The whole palaver of the debate - the size of the handouts to the new members, the subsidies for large farmers, the level of VAT on French restaurants - is about what are, in world terms, footling matters.

There are things that are tremendously important to Europe's future. These include such questions as: is German, Italian and Spanish welfare policy partly responsible for the very low birth-rates in those countries? Or why are there several hundred thousand continental European science graduates choosing to live and work in the US? Or why is new business formation so much lower in parts of Europe than it is in the US?

Now you could say that these are not matters for the EU budget and I accept that. But these are issues where the scarce time of senior European politicians should be allocated. They devote energy to second-order issues, not primary ones.

Finally look at the debate about energy policy here. There is the issue of nuclear power, of North Sea oil taxation, of security of supply of gas, and of the ability of the UK to meet its own ambitious targets for reduction in carbon emissions. But these are not discussed in their global context. Yes, of course we participate in global climate talks and it is true that, from time to time, some hugely important global environmental issue - such as the weakening of the Gulf Stream - reaches the newspapers. But real forward-looking work is not focused on the big issues of the future.

For example, the world may be quite close to a peak in oil output. The UK has been a laggard not just in specifics such as the introduction of biodiesel but in research into a more sustainable approach to energy use. Yet Shell and BP have an enormous interest in being big global players when mineral oil production starts to decline. Does the Government listen to their advice?

We should not kid ourselves that we have any real influence over the energy policies of China and India, which will increasingly determine what happens to the world energy market. But we do have energy-saving expertise, which could help them grow in a less energy-intensive way.

The frustrating thing isTony Blair and Gordon Brown understand all this. They can see, in education, we have both a problem and an opportunity. The problem is the quality of too many of our schools; the opportunity to use our strong position in higher education not only to help this country prosper but also to influence the new giants. They can see how Britain ought to be able to help Europe lift its economic performance.

But this does not come out. The words are fine. Both say the right things, at least most of the time. But if you look at what the Government does, rather than what its two leaders say, the result is very disappointing. We should not kid ourselves that the UK is that important in the world and we should acknowledge we will gradually become less important. But we do at the moment have a strong and interesting hand of cards, and we are not playing them at all well.