Distinguished guests,
Ladies and Gentlemen,

I would like to thank the Centre for European Reform for their kind invitation, it is always a pleasure to speak before a critical and intelligent audience on an issue of such importance as this.

I am also happy to react to this report on "The future of European Universities", a text that shows a deep concern for the state of European universities.

I can state at the outset that the concerns voiced here are ones which I share and which are echoed in a series of outputs from the European Commission during the first half of this year - a Communication on what is needed to modernise Europe's universities and university-based research published in May; and two Communications, one in February and one in June, outlining the concept of a European Institute of Technology. I will say a few words on the EIT later.

Why does the Commission find itself taking up these issues at this time? We have been engaged with Member States in seeking to clarify what Europe needs to do if it is to turn itself into the kind of knowledge-based economy and society that was envisaged at the Lisbon European Council in March 2000. Universities stand at the point of interaction of two policy fields which are vital to Europe's ability to meet the high ambitions it set itself at Lisbon - education, vital if we are to equip citizens to contribute and to benefit from the knowledge economy; and research and innovation, which, we hope, will be the source of Europe's competitive advantage in the globalised world of the future. In a sense, as our economy and the demands of the labour market have developed over the last 50 years, so universities and higher education in general have grown in importance almost without governments noticing; and if we are serious about our aspiration to vbecom knowledge-based, they will be even more so in the future. Thus, inevitably, without in any way calling into question that education remains an area where subsidiarity holds strongly, questions to do with the future of Europe's universities and how their contributions to wellbeing can be maximised emerge strongly from the collective reflection under Lisbon, particularly so during the UK presidency of late last year and at the informal meeting of heads of state and government at Hampton Court in October.

So, our first message is that universities have the potential to play a key role in making a successful transition to a knowledge-based economy and society. As the Commission then proceeds to assess the extent to which they are in fact doing so, our conclusions echo very strongly what Messrs Lambert and Butler are saying. We conclude that universities are falling far short of their potential and that they need in-depth restructuring and modernisation if they are to achieve that potential.

Let me look at some of the aspects of this.
Firstly, look more closely at the increased importance of knowledge discovery - through research; on knowledge dissemination in the population - through teaching and learning; and knowledge use - innovation of all sorts, in products and services. These knowledge-based activities are how we build the future: and they are what universities do. But like many other economic sectors in the past, the university sector is fragmented and non-competitive. The comparison with the US is instructive.

If you compare the number of universities which consider themselves to be "research-intensive", we have in Europe 14 times the number in the US. Alas, they aren't. The American sector is much more sharply segmented between those which see themselves as providers of tuition and those who aspire to engage in globally significant research. Our 4,000 universities have a high degree of uniformity in their aims. They can be counted together but they are all administered within national or sub-national systems, each with their own aspirations in terms of meeting tuition demand and serving national or regional cultural, social and research objectives.

We are both asking too much and not enough from them. We have not had a proper debate about how best to find universities, about what sort of missions universities should have or constitutes excellence for different types of university. The result is that incentives drive universities to aim for the "research-intensive" model, even though many of them would do better to work on other local, regional or national objectives; for them excellence should be defined and rewarded on that basis. This lack of differentiation and lack of clarity of purpose is one aspect of the sector's weakness.

Similarly, student numbers have risen dramatically, but funding has not. In Europe generally, about 4% of the 20-24 age range were students in 1950. This had risen to 24% in 1978, and now stands at nearly 60%. Funding, however, has not risen fifteen-fold in real terms. At the same time, other sources of funds - private funding for research or for targeted educational activities; tuition fees - have not been exploited. Underfunding, linked to a failure to develop such diversified forms of funding, is a serious problem.

Let me be clear with you: we don't advocate throwing more money into more of the same- but where the system has been modernised and is efficient, it cannot produce excellence for the 21st century on the basis of 1980's funding levels. We believe that a minimum of 2% of GDP should go into higher education systems where these are modernised and efficient. At present, that target is met easily in the US - where over half of it is privately funded. No European country is at that level.

Then there is the place in the world of Europe's universities. Europe has also lost its lead, and could well fall further. University rankings are a crude way of looking at things, but they mean something. There are fewer and fewer European universities in the top 50. The widest-used world ranking of universities comes from Shanghai Jao Tong university. Their top 50 list includes 9 European universities - of which 5 UK, 1 each from CH, NL, SW, FR - 2 from Japan and 39 from the US. California alone has 6 in the top 20.

Our average level is quite good. But that's no longer enough. We need more of our best universities to reach the summit.

And incidentally, while in our Communication we make comparisons with the US, the US is not our only competitor. Others are there already. The reasons why Jao Tong is doing rankings is because the Chinese government set out to create 20 world-class universities by 2025, and asked Jao Tong to work out what a "world-class" university would be. The Chinese government has set itself an objective of matching US research spending within 20 years. India, though it spends much less, is also a strong competitor. You will have noted that the Indian Institute of Technology was rated the world's 3rd best Technological institute in the T.H.E.S. rankings, and that much of the worlds software development is now happening around its hubs in Bangalore and Hyderabad.

Which brings me to a further point of weakness - European business and European universities are often distant partners. You can see this in governance structures - in most European countries, it is rare for business to be present on University Boards - if, indeed, national rules allow such things to exist. Some researchers retain a resolutely anti-commercial view of the results of their work: a CNRS researcher from France wrote recently that it was morally wrong to patent research undertaken with public money: it should be freely available to everyone for ever. That's not an attitude which will encourage companies to invest in innovation.

Let me stress that I am not blaming Universities in particular for this - it's also about what companies want to do, and where they think that they can get research best and most effectively done. But there's a clear shortfall in investment in company research in Europe. And this despite the fact that - a positive point for our universities - we are producing more PhDs than almost any of our major competitors.

That, overall, is the landscape as we see it. What do we suggest should be done about it? There seem to us to be three main areas where change is necessary.
The first is to give universities the capacity to organise their own lives. There is no evidence that decisions made by civil servants are better than those made by academics. Autonomy in choice, coupled with accountability for results are the key words. That means letting go of all those controls, giving block funding not line-by-line budgets, withdrawing the cold hand of bureaucracy from the lifeblood of knowledge.

Secondly, a more forceful attitude to excellence is needed. Professor Kafatos, the Chair of the European Research Council, recently described the funding of research in most Member States as "social" rather than "competitive". You can see how this happens - in a small country, you will only have one university in which (say) Veterinary science is taught at high level. So when it applies for research grants, there is no competition. It's a choice whether you support Vet science or whether you let it die. And we all need Vets for public health. So you fund it on an "out-of-competition" basis. Most of our countries are small countries, and this scenario applies, one way or another, in most of them.

We have to become more competitive, just as we have to invest more in research. At EU level, we have a substantially increased Framework Programme for Research, with a budget of nearly € 50 billion over 7 years; and we have the new European Research Council, which will support frontier research in any discipline wherever it happens in Europe. Those are two key weapons in Europe's battle to improve its universities and its research.

But the third problem is less easy to deal with. It's one of scale.
I have just said that the EU Framework Programme will have about €50 billion over 7 years. The US Federal Government alone spends about $150 billion every year on research. That's about 2O times as much as the EU. Much of this goes to a small number of universities, the small o number of fully-differentiated and genuinely "research intensive" US universities which dominate the uppoer places in the Shanghai rankings. You may have noticed earlier this year that the Defence Department gave MIT a single contract worth $3.17 billion. There is no government in Europe capable of doing that; and, no, the EU is not going to do it either.

And this leads me to the final suggestion from the Commission on how to support excellence in teaching, research and innovation in Europe tomorrow. This is, I think I am right in saying so, the one point on which I and Messrs Lambert and Butler part company.
I'm referring to our ideas for the creation of the European Institute of Technology.

The Commission sees the EIT as a way to help respond to the problems of scale. Not the only way, but one way. It should be a network organisation, based on the excellence that is already to be found in Europe, but which today is fragmented geographically. We envisage a small central structure driven by a Governing Board with equal shares of scientists and business people; and a set of "Knowledge Communities" whose business would be to bring together excellence wherever it exists in the EU and to help it flourish and expand.

These Knowledge Communities would be bottom-up. They would carry out research, they would teach at MA and PhD levels, they would be in the business of using the IP which they produced. They would involve different sorts of partners - universities, research centres or companies, user companies, and others - perhaps regions or banks. Knowledge Communities would be the scientific powerhouse.

The aim will be twofold. The EIT should become in itself one of the leading university institutions in the world, a global mark for excellence in the filed of scientific education, research and innovation, contributing a large volume of research, a flow of innovations and good numbers of highly qualified specialists. But no one institution can on its own bridge Europe's deficit in these areas. It will only succeed if it becomes a model for the change and modernisation I have been speaking about, an example which causes them to spread well beyond the confines of the EIT itself. That is why the model of partnership of different institutions is both a pragmatic response to the situation and also a benefit in its own right - the possibility of becoming a participant in the EIT should cause Europe's ambitious universities to change and to modernise. And so, as I have done on many occasions over the past months, I would ask this audience to embrace the possibilities offered by our concept of an EIT and not simply to see the difficulties. We continue to be open for dialogue about how in practice it should work; but I am more and more convinced - as are President Barosso and my fellow commissioners - that it should become a reality.

Before finishing, I would just like to say that, while the agenda for change in universities mapped out both by the Commission and by Lambert and Butler has to do with maximising the economic impact of universities, I do not think that this in any way interferes with or weakens the other roles - cultural and social, for example - of universities. On the contrary. The more universities are given the structures which allow them to exercise academic choices; and the more they get new resources allowing them to function at a higher level - then the better they will be able to address these other equally important objectives. We should not forget how the powerful US universities perform not just a major economic role through their research and education, but they also globally undertake important cultural activities reaching into all corners of the globe and the most obscure branches of knowledge. Better university governance will allow better university performance in relation to all their activities.
I would like to conclude now by most warmly congratulating Richard Lambert and Nick Butler for the quality of their report. It is an important contribution to an important debate. I commend it to you all.

Thank you.

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