Leading article: As the LSE has learnt, Libyan leaders bearing gifts are also to be feared

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It is rare to find someone in public life who accepts responsibility for a mistake as frankly and cogently as Sir Howard Davies did in resigning as director of the London School of Economics over research money from the Gaddafi clan, and he deserves credit for that.

Here, at last, is someone who recognises where the buck stops and draws the appropriate conclusion.

Sir Howard's departure, however, must not be used as a pretext for sweeping under the carpet awkward questions about foreign money in British academia. So far as the LSE is concerned, it is to be hoped that the inquiry, which will be headed by the former Lord Chief Justice, Lord Woolf, will sort out what was given, by whom, and how it was used, so that clarity is brought to the whole affair. But the LSE is far from alone among educational establishments in having benefited from links with Gaddafi's Libya. Nor is the colonel's the only dubious regime to have seduced British universities with its money.

If the soul-searching at the LSE encourages others to review their sources of recent funding, that is all to the good. The incentives given to universities to take any money that might be going, both in fees from overseas students and endowments, has brought about a situation where – it might seem from outside – almost anything goes.

The spotlight now cast so harshly on the LSE should prompt other establishments to ensure that the money they have so actively solicited has neither skewed academic priorities nor given the impression that degrees are for sale. Either, in the end, would prove counterproductive, as British qualifications started to lose their kudos. But such long-term considerations may not be treated as seriously as they should be, at a time when government grants and home-grown cash are running short.

A distinction is also worth making between genuine commercial contracts for education and training purposes and gifts that may conceal an ulterior motive. In an interview elaborating on the reasons for his resignation yesterday, Sir Howard Davies drew a distinction between the acceptance of a donation – which he admitted was wrong in this case – and a contract with Libya to train the country's future leaders, which he defended. That distinction is valid. It reflects well on Britain and its universities if they are chosen to educate the world's elite of tomorrow. Our military establishments have long been seen as academies for the very best; our universities are justified in seeking a similar role.

It should already be evident, however, that the links forged by the LSE and the Gaddafi family had their origins in more than mutually advantageous opportunism. Sir Howard has noted that the initial contacts received official encouragement from Tony Blair and his government, as part of the effort to bring Libya in from the cold (and profit from business) after the "Deal in the Desert" of 2004.

Sir Howard was invited to take part in official delegations, as were other members of his staff, and he became a financial adviser to the Libyan leadership. There was not just the uncomfortable fusion of personal and professional roles that Sir Howard regretted in his resignation; there was active government involvement. When the wind of change started to buffet Libya, the LSE – and how many others? – was left, embarrassed, behind.

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