Universities are important - but not important enough. In particular, we don't constitute a pressing political threat or opportunity to any political party, not least because our public image remains problematic.

In British culture, universities may be respected, but they are not generally liked. They are still often viewed with suspicion; sometimes even with flashes of downright hostility. It still seems difficult to persuade the British public that the sector is a remarkably successful part of the economy that adds considerably to the nation's earnings and supports a range of other parts of the economy. The public also remains to be convinced that universities have much to offer apart from being a necessary hurdle to gaining a better job. The result is that it often feels as though we don't have support or even consent - just grudging acceptance.

Currently, the university system risks being cut down in its prime by a combination of financial cuts, an unnecessary burden of regulation and a diminution of its own values. If we want to make sure that the forecasts of the doomsayers do not come true, we need to win the debates we are presently losing.

The most pressing dispute concerns the cutbacks in public spending that are engulfing a good part of the sector. I am not sure that we have totally lost the argument yet. The Government and the opposition parties well understand that universities are real assets; after all, how many other parts of the UK economy and society can claim to be so successful? Mighty few, to be honest. But how much of the debate we have won is a different matter.

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As the cuts show, first, our Government talks about going for growth but it does not always recognise the ÖйúAƬ system as a part of that policy, even though universities are central to it. Second, the Government talks about trading our way out of economic problems, but it does not always seem to realise that universities are income-producing assets that you get more out of than you put in. And third, our Government talks about social cohesion, but it does not always seem to understand universities' wider role in fostering cultural understanding - the forms of soft power that US Secretary of State Hillary Clinton is so keen to articulate in the case of American universities.

We have not so much lost these kinds of arguments as never climbed high enough up the policy pole to become a priority.

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The audit culture that has engulfed us has meant that line by line, paragraph by paragraph, page by page, British universities seem to be losing their autonomy. In England, the most recent evidence of this is the current consultation on a revised ÖйúAƬ Funding Council for England Financial Memorandum that - spurred on by the crisis at London Metropolitan University and a concern about the financial health of universities as cuts bite - aims to bind the sector ever closer to Hefce.

If enacted in its current form, the memorandum could produce something akin to a de facto nationalisation, and no self-respecting university is likely to welcome it. But there are other signs, too. From the UK Border Agency to the Quality Assurance Agency for ÖйúAƬ, the forces of regulation are on the move.

I happen to believe in the importance of universities. I believe that they are one of the few sources of genuine hope in the contemporary world: arks containing the knowledge that can help us to get out of the fixes we have created. But the loss of values in British universities is now a real issue. Whereas we once had a notion of what universities were for and where they were going, we have now reached a point where we are too often driven by management consultants and league tables to think of universities simply as managerial problems to be solved. Not only do we have the problem of a national regulatory system telling us what we are and how we should proceed, but now we have the addition of a growing informal national and international regulatory system made up of actors who often seem to have power without any responsibility at all.

We should not be starry-eyed about the academy, of course. Values aren't immutable (although it is helpful to at least know what they are). Furthermore, universities have become large and complex organisations that have to be managed, and that must sometimes mean taking painful decisions: the days of decisions made over sherry by the gas fire are long gone, and a good thing, too. But it is a long way from there to arguing that university academic workforces exist simply to carry out mission statements. Not only does such a view risk the loss of the spark of originality that is the touchstone of good research and teaching, but it cuts across the collegial culture that makes universities attractive institutions in which to work.

So what should we do? We need to make some decisions for ourselves. You never know; we may even get used to it. One thing is abidingly clear. Either the sector makes these decisions or they will be made for us.

First, we need a concerted campaign to draw public attention to the universities' plight: we need to do much, much more to get through to the public. All kinds of actions come to mind that we can take now. We need an aggressive campaign to forestall all those myths about universities that still circulate endlessly at middle-class dinner tables and are so damaging to our cause. We need to focus remorselessly on the issues the public really does care about, such as the shortage of places for home students. We need to mount a number of symbolic events. In the longer run, we need to work on the general lack of public consent.

The real challenge is for British universities to be seen not as a necessary evil but as an indispensable part of British life and, in the end, only universities can meet that challenge. Whatever the diagnosis may be - the longstanding British suspicion of intellectuals, our failure to demonstrate universities' powers and capacities, the lack of engagement of many of our alumni - we need to take action now to safeguard the future.

Second, we need to start saying "no". Part of the sector's malaise is that it has become too close to Government and now seems unable to step away. We have made too many compromises, too many accommodations in search of a bit more funding advantage. The result is that, truth to tell, we do not always have the respect of politicians. We are often seen as a bit of a pushover, invariably able to be fobbed off with some nice words.

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At the same time, the sector is obsessed with government policy. When vice-chancellors meet, they seem to spend most of their time interpreting the twists and turns of the policies of the government of the day, rather than saying what they want universities to be and where they want them to go. It is symptomatic that the high point of a Universities UK or Hefce conference often seems to be an address by a government minister. Saying "no" every now and then is going to be difficult, but it is key to maintaining our independence.

Third, we need to take hold of our own destiny again. That means a number of things. For a start, we need to establish some compass points. For example, perhaps we need a commission that addresses what values universities hold dear and tries to work out how they can be defended in a world that too often seems to believe that everything can be reduced to the bottom line. Certainly we need some means of gaining agreement about what the sector is for. Then we need to work out where we think the sector should be going. Would it not be good if the sector took the lead, rather than the Government or Hefce? Perhaps we could set up a summit to look at the sector as a whole and try to negotiate a solution among the various views and groups. Rather like the United Nations Climate Change Conference 2009 in Copenhagen, there may now be too many players to ever get serious agreement on anything, but surely it is worth a try.

Of course we have to be realists: I am not advocating a "summer of love". In the current financial climate, we must recognise that not all can have prizes. But there may be other ways to proceed.

In a number of speeches I have already said what I think should happen. We need a much more diversified and less hierarchical ÖйúAƬ system, one that embraces a number of different forms and functions, and is therefore both more resilient and more able to promote parity of esteem. So, I believe that a few - a very few - universities will probably carry on much as they are: the four or five top universities and a handful of others. A few universities may seek private ownership (not privatisation) on the US model. Others, starved of capital to expand, may seek friendly takeovers by foreign competitors. Others may join in so-called holding company mergers that pull together equals. Others still may model themselves on the US model of a state system, drawing several universities into an alliance around a research-intensive partner that carries out the bulk of postgraduate research - this model allows aspirant staff to still have a research career wherever they may be located and also allows students to follow pathways that allow them limited capacity to move within the alliance if their results merit it. In other words, I believe we need to move closer to something like a US model, at least as far as breadth is concerned, both to provide more diversity, and therefore resilience, and to safeguard our values.

No doubt there are other models of the future to be considered. But whatever happens, we can't just stay as we are. Many institutions will need to make large and painful adjustments. But perhaps we could at least begin to work out some accommodations. Instead of continually trying to eke out tactical advantage, perhaps we need to think about how to get strategic advantage for the sector as a whole. The watchword must be co-operation.

And there is one more reason for setting out on a new path. After all, we may be in the last of days with regard to the kind of civilisation in which we have grown up. Perhaps one of the most extraordinary ironies of the cuts we may face in the future is that they could attenuate universities' ability to do research on the epochal issues that now confront us, just as we most need that research. We are not helped by our own predilection, which is to compete. However, after a time, competition between global public goods becomes self-defeating at a point in history when the global public is crying out for something more - and something good. What is needed is co-operation, real and prolonged co-operation.

I should say straight away that I am not optimistic. We have probably come too far down the track. But I know what the alternative is. The various mission groups will take over and there will no longer be a single British ÖйúAƬ sector. Each group will seek its own salvation, gradually producing a more and more Balkanised landscape. Indeed, we may already have reached that point, in all but name. But I think it is worth one more push before we all go our separate ways.

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AFTER FOUR DECADES OF POLITICAL MISMANAGEMENT, A VETERAN CALLS FOR VISION AND INNOVATION

At the end of July, I retired after a career of 41 years in three different countries, with very different educational traditions, and in very different kinds of university. I spent 35 years in research-intensive universities and the final six struggling to help build the smallest and newest of Scotland's universities.

Now, with relief, I have moved from the embattled front line to the sidelines, where anthropologists properly belong, and from which I watch anxiously my former colleagues among the principals and vice-chancellors trying to work out the strategic paths they should take through the very uncertain times ahead.

My career spanned two distinct periods in British university history. During the first, ÖйúAƬ in the UK was beginning to expand under the Robbins initiative, but institutions were still highly exclusive and traditional. As students in the mid-1960s, we agitated about the small numbers of working-class students, an inequality not appreciably redeemed by the creation of a set of "new" and emerging universities.

There was little serious public debate about the purpose of universities: universities were about knowledge, and knowledge was regarded as a good in itself. Funding was based on quinquennial cycles, and was therefore stable and predictable, allowing research time to mature and develop. Academics were expected to be scholars, rather than having to prove their credentials through research grants and publication records. Students had mandatory means-tested grants. Teaching was based on small tutorial groups, and students were expected to make independent use of the library - the core and treasure house of every university.

Things began to change under the Callaghan Government. Discriminatory fees for overseas students drastically reduced numbers from developing countries and thereby damaged the finances and international reputation of British ÖйúAƬ.

Then came Margaret Thatcher and Keith Joseph, with his appalling disdain for the world beyond Oxbridge, and for the social sciences in particular. The Thatcher regime seemed wilfully to foment an exceptionally adversarial relationship with the universities.

The second phase of ÖйúAƬ I encountered in my career began in 1992. After the depredations of the Thatcher years, John Major's Government executed the most perfidious confidence trick: doubling the size of the university sector by legislatively transforming the polytechnics and the Scottish centrally funded institutions into universities - but without providing the necessary additional finance. This has had enduring and seemingly irredeemable consequences for the new universities. The 1992 legislation ushered in the explicit diversification of the sector, the transformation of universities into efficient businesses, and an increasingly dirigiste approach by governments.

The underfunding of the system remains all too present an issue. I was an undergraduate in the 1960s, a period of growth and of relative plenty. As a (very) young academic in the early 1970s, I was rarely obliged to teach for more than eight or ten hours a week; I had fabulous resources at my disposal - such as postgraduate studentships and library budgets, both now greatly reduced. The transition to the post-1992 era was based on ever greater reductions of the unit of teaching resource, and the effective denial of research funding to the new universities. This mISMAnagement left a legacy of infrastructural deterioration that is still being redeemed.

The underfunding of the post-1992 universities in particular preoccupied me only during the final few years of my career, as the principal of Queen Margaret University. The common assumption that UK universities receive dual support for teaching and for research infrastructure from the funding councils is more true in theory than in practice.

At the time of the 1992 settlement, the new universities received virtually no quality-related (QR) research funds. Those institutions came into existence on the basis of a huge resource gap between themselves and the older universities. The gap is as marked now as it was then. Because of the formulaic funding methodology, it became self-perpetuating. Universities that do not receive research funding obviously have little or nothing to invest in building their research capacities. Throughout the period of the Conservative administration's relentless efficiency gains, older universities may have been able to use some of their QR funds to compensate for the attrition in teaching resource. The new universities had no such compensatory funding on which to draw.

Thus the gulf between the two sectors became unbridgeable. For staff in the old institutions, the winning of research council grants has come to be regarded as routine. For a new university to win such a grant is sufficiently unusual to be a cause for celebration when it happens.

Why does this matter? In Scotland's recent Joint Future Thinking Taskforce, the universities and the Scottish Government jointly reaffirmed the principle that all universities should be research-active, that there should be no teaching-only institutions. And yet the six "new" universities in Scotland, like their peers in the rest of the UK, are largely denied the means of implementing this commitment.

This matters because such material inequality makes it impossible for us to realise the potential of a genuinely diverse system in which different kinds of university undertake research in different kinds of subject, or with differing emphases on the generation and exchange of translational knowledge - that is, knowledge developed to be put directly to practical use. The new universities are particularly concerned with "business-facing" and "close to market" issues. They also accommodate subjects that have come into the sector only in the past 25 years and thus still lack the full infrastructure of a well-founded research base. It is the special responsibility of the new universities to build these humane sciences for the good of society, and yet they are denied the means to do so.

The relative deprivation of the new universities has a harmful effect on learning and teaching as well. Why are we content to perpetuate what are essentially class differences among our academic disciplines and institutions?

I retired with a strong sense of how much remains to be accomplished. I can no longer be disappointed by the absence of strategic thinking within Government and funding councils. Across the political spectrum, policy is dull and uncreative, lacking vision and imagination. There seems little prospect of considered, well-planned change. Instead, the UK Government announces swingeing ill-considered cuts, even before the Browne review of funding and student finance and fees is up and running; while the continuation of the Scottish Government's notable support for the system is under severe threat from the imminent public spending retrenchment.

There is a need now as never before for open-minded and innovative thinking and leadership that seeks to maximise the diverse strengths of the system, and goes beyond the reflex self-interests of its constituent mission groups. I do not argue for a redistribution of funds, nor for consolidation that merely takes value out of the system. Rather, I wish to see creative and radical thinking: about the purposes of universities; about ways of building systemic collaboration among institutions that do not undermine their autonomy; about how to invest in the enhancement of critical mass, quality and genuine choice across the system while reducing hubristic and damaging competition.

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Anthony Cohen was principal and vice-chancellor of Queen Margaret University, and is now honorary professor of social anthropology, University of Edinburgh. He writes here in an entirely personal capacity.