What are universities for? This was the theme of a conference at Cumberland Lodge last week organised with Glaxo Wellcome, supported by The THES and held under Chatham House rules. It could not have come at a more crucial time with the government this week publishing a ÖйúAƬ bill which may contain clauses to severely curtail universities' freedom (page 1).

People's agendas at the conference, as elsewhere, varied widely. Nonetheless some conclusions can be drawn. The first is that the range of activities in which universities are now engaged is very wide: research, scholarship, consultancy, company formation, asset management, patenting, alongside their mainstream commitment to teaching all kinds of students: old, young, full-time, part-time, at home, abroad, on courses long and short from sub-degree to PhD. In a knowledge-based economy, universities have become primary production units. The opportunities are enormous.

But so are the threats. Universities have increasing numbers of competitors. The big (particularly US) entertainment and software companies are pushing into the distance and home-based education - or edutainment - market. Manufacturing companies and others are setting up their own "universities" to design and certificate qualifications tailored to their own needs. Training organisations, consultancies, research organisations are competing for the lucrative market in courses, expert advice and applied research. Governments (such as Malaysia's) want to keep their talented people at home. Others (such as the United States's and Australia's) are competing hard for overseas students.

Much of today's activity in universities is undertaken for financial reasons. Public money now comes with strings. Greater vocational relevance and standardisation is being demanded in teaching, greater attention to potential application is required in research. And the signs are that the strings will be tightened further. If universities want "free" money so that staff can pursue their own ends, set their own research agenda, explore new ideas, they have to earn it in the knowledge market or beg it from benefactors.

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Are universities then just one more group of players in the knowledge economy or is there some essential core which characterises them alone? Is there anything which only they can do?

Three things have traditionally characterised universities. They certificate advanced learning by awarding degrees - though they may not necessarily (vide London University) provide the teaching.

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They provide a living for scholars and researchers who wish to pursue new ideas whether in science or the humanities and, as a corollary, provide protection when those ideas threaten vested interests. The bitter wrangle over the proposed Food Standards Agency provides a current example: academics are pressing to have nutrition included in its remit in the teeth of oppposition from the food industries.

The third function is more nebulous: universities have traditionally provided a neutral place where many interests can come together - students, employers, academics, government and community representatives, special interest groups - to discuss and think about the issues of the day.

All three functions require that universities be independent. And it is that need for independence which makes both necessary and desirable the many activities universities now undertake. But there is a risk that universities will be so busy with their multi-faceted enterprises, with providing services to whoever pays, be it government or others, that their core purpose will be forgotten.

Universities could too easily find, for example, that they have lost control of accreditation. There is much in the Dearing and Fryer reports to encourage the government to intervene in qualifications in the name of national frameworks, standardisation, credit accumulation and transfer and records of achievement. Commercial companies, setting up their own "universities", are not beyond playing one off against another or turning to institutions overseas to get the accreditation which suits their particular company needs.

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Direct threats to academic freedom are perhaps better understood and likely to be contested swiftly. But such threats can be insidious. As more funding is switched to the funding councils these government-appointed agencies will be strengthened further. They can, and are, being instructed to use their money to further government objectives. Divergent thinking can be squeezed out. A democratically elected government is entitled to use public money to achieve its stated aims - and many will approve of at least some of those aims.

But that does not mean government should try to control universities more generally. The reserve powers clause in this week's bill suggests they may. If so, they are foolish. There is much goodwill in ÖйúAƬ for the present government and great willingness to engage in Labour's project of greater inclusiveness. The government should not risk that goodwill by seeking detailed control.