Robert Rowland Smith: How universities lost their innocence

The taint of Libyan money has shaken the reputation of the LSE, but that's the price of making education a commodity

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The resignation of Howard Davies from his post as director of the London School of Economics reignites the ever flammable question of the relationship between university and money. We might find it distasteful to discover financial links between the LSE, one of the country's premier education brands, and Libya, especially at a time when the Libyan brand itself seems even less shiny than usual.

But for years our politicians have been pressing universities to find alternative sources of funding. As for the public, and the tax it is willing to pay on education, universities languish well down the list from schools. So let us not indulge in too much moral outrage on hearing about universities striking deals with the international rich. Of course, there are degrees to which one can be compromised, from the sensible to the satanic, but Davies resigned citing reputational risk to LSE, not moral turpitude.

Despite and because of the marketisation of universities, there is a view tenaciously held, and not just by academics, that higher education should remain untouched by any money with strings attached. Investors have a way of distorting a university's purpose, which is the disinterested pursuit of research. What's more, that research should be excused from meeting any target, not because academics are lazy, but because research is, by definition, a process of finding out, in which the goal cannot be defined in advance. Indeed, so unfettered should university researchers be that if, say, they write critiques of the very government that channels public funds towards them, so be it. Universities have a role as grit in the nation's oyster.

That is one end of the spectrum. Its fatal flaw is easy to spot: publicly funded universities also have shareholders, namely the public, who deserve a return. Gone are the days when few enough students went to university that the public did not really worry about the fact that they were subsidising them; they might not even have known this was the case. Now gazillions of teenagers pack up hatchbacks for freshers' week, and it is this sheer rise in volume that sends us towards the spectrum's other end.

With very few exceptions, today's universities are not primarily research institutions: they're teaching colleges with add-on research functions also designed to attract money. The reasons for this shift are political. Universities were perceived to be elitist, so they had to be both expanded and opened up. Clearly the economics had to adapt. What emerged was a "sweat the assets" model: larger classes, lecturers doing admin, fewer contact hours. This model was more or less sustainable, depending on your feelings about quality. Not just quality of teaching – clearly staff-student ratios had an impact on that – but quality of students. You cannot send that many kids to university and expect them all to be eggheads. It would not be an overstatement to say that some could barely write. Still, they were funded by the state, and the economy was doing well enough to get most of them jobs, so the financial loop could be satisfactorily closed.

It also meant that universities didn't have to listen terribly hard when politicians started warning them to wean themselves off public cash and diversify their income. The few that did, including the LSE, were thus getting ahead of the game. Once you're told to go out to the market, however, you are in open country. It is a fact of the market that money sources will be varied and come with varying degrees of cleanliness.

And that is the case, just with the last person you did a deal with. Like drinking water, money goes through lots of cycles of purity and dirt. By the time you consume it, it's passed through God knows how many systems. Not only that, as the cliché has it – markets know no boundaries. Once universities entered the game, they did so internationally.

What was remarkable was how highly valued British universities were when they arrived. It is a fact still little recognised within Britain that "a British education" is among the most desirable international goods we produce.

Soon British universities had campuses in the Far East, and legions of Asian students were taking degrees, especially science degrees, in the UK. Lecturers might have gone on deploring it, but it was blessed by politicians and university apparatchiks alike, not least because, based on that brand value, you could charge the foreigners more.

So, in many respects, Libya was merely another market where "a British education" could be sold. What made it different, apparently, is that the funding came not only from students buying degrees – fair enough in an international market – but from high-rolling patrons, including those in the Gaddafi family. This classed it with other donors – not just Arab – to other British universities.

Let us set aside the whole question of Britain's complicity with regimes it strategically disowns, or those it has armed and then condemned, and so on. The point is that, irrevocably, higher education has become a business. A British degree buys you earning power pretty much anywhere in the world. That there is some learning involved is nice, but it is evanescent and it is secondary. As Howard Davies himself said, the mistake he made was reputational, not substantive.

In many ways, education in this country is like cricket. We have a highly sentimental attachment to both. We sort of invented them, and sort of think they are good in themselves. Meanwhile, both have been thrown to the dogs of the market, and there is no going back.

The LSE story is really one about innocence and experience. The British love to think of themselves as innocent, and education is its main symbol. Even Davies's resignation can be read as a last-ditch attempt to save some innocence, rather than appearing like the calculating market-monger he was in danger of becoming. The truth is that we were always a bit guilty.

Robert Rowland Smith is the author of 'Driving with Plato' (Profile)