Martin Harris and John Howells take issue with Douglas Hague's warning that the information superhighway may bypass universities

Douglas Hague's "Knowledge goes out to market" ( THES, May 24) offers a Hayekian view of wealth creation in the emerging knowledge society. The article uses the powerful imagery of the information superhighway to suggest that existing structures of learning and knowledge creation will be superseded.

British universities are out of touch with the training needs of employers, who have responded by founding their own "learning organisations", argues Hague. Even fundamental research may be more perpetually realised by the private sector, and a new breed of "knowledge entrepreneurs" will provide many of the research activities previously carried out by universities.

The rapid development of broadband communications technology signals the advent of the "virtual campus", and technological development will follow where the market leads.

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These ideas, which will surely be uncongenial to many in the British university system, may offer some insight into the shape of things to come, and they deserve serious attention. But the article presents a highly selective view of the ways in which markets and institutions may come together in national systems of training and education. The information superhighway should be shaped by institutions and values and not just by markets.

The in-house universities created by firms like Unipart and Rover can be seen as a useful departure from existing training practice. However, these initiatives are atypical of the United Kingdom private sector where a relatively high proportion of workers receive no training at all. Nor do these initiatives add up to a national strategy for training.

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The poor record of employer commitment to training derives from the ways in which British firms are forced to compete for valuable knowledge and skills in open labour markets.

Contrast the poor training record of British employers with the German industrial associations, which are empowered to levy a training tax on member firms, thus eliminating poaching and other disincentives to train.

These arguments are well-known and they have been endlessly repeated over the years. Both Unipart and Rover have benefited from their close relationships with Honda, which like its German counterparts, can rely on high standards of secondary school education when recruiting graduate and non-graduate personnel.

German and Japanese employers regard enterprise training activities as a complement to, not a substitute for, the higher education provided by the state. German university reforms in the late 19th century formed the basis for the enduring comparative advantage in the chemical and drug industries.

In Japan and South Korea, state investment in higher education provided a key input to rapid industrialisation. Seen in this broader context, the UK can be regarded as something of a special case, and one could argue for more state involvement in training and research rather than less.

Fundamental research conducted in universities continues to generate commercially viable innovations in such sectors as electrical engineering, chemicals, pharmaceuticals, and latterly, biotechnology. Here again it is hard to argue that the market should hold sway.

Douglas Hague suggests that the universities may not provide the bedrock for fundamental research in future. This misunderstands the ways in which private and public sector effects may work in concert. The success of MITI, the ministry of international trade and industry, in stimulating innovation in Japanese industry demonstrates the importance of public and private sector collaboration. The historical development of R&D capacity has been enabled by the cartelisation of industrial structures.

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This is true of both United States corporations, and of the Japanese Keiretsu where investors can be assured that free market disincentives to train and research do not operate. Douglas Hague offers a vivid, but essentially flawed picture of the information superhighway and its role in disseminating training and education through the virtual campus. Here again, the vision is an overtly Hayekian one of deregulated markets, and a world composed of many different service providers selling their services on the superhighway.

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Information networks are held to offer the possibility of costless information transfer. Knowledge will "become divorced from organisations and places" and people will use knowledge "where it is, and not where it can be institutionalised". However, there is an obvious conflict between free-market approaches and the goal of universal service and public access to information networks.

Our research suggests that the institutional dimension will be crucial if the new communications technologies are to develop in a way which will promote social and commercial innovation.

Those responsible for maintaining standards in creation of the virtual campus advocated by Hague would be faced with very substantial problems of validation and coordination since network technologies may generate information which is divorced from existing institutional frameworks.

It is therefore a mistake to equate the idea of a virtual campus with free markets or the abandonment of organisational forms. Labour's plans for a University of Industry are in fact aimed at creating new institutional forms that are designed to avoid the extremes of both free markets and costly bureaucracies.

The preferred solution is the Channel 4 model where a central commissioning body would validate and contract out the supply of learning material, leaving the actual production to a myriad of small suppliers.

Hague correctly argues that the communications revolution will allow information to be more widely disseminated across organisational boundaries. However, it does not follow that knowledge "has become divorced from organisations and places". The new communications technologies, far from signalling the end of organisations, offer unprecedented challenges to those concerned with organisational and institutional innovation.

Markets cannot be regarded as the font of all applied knowledge. They represent a necessary, but not a sufficient condition for innovation. The universities may be a legitimate target of reform, but they should remain an essential feature of the knowledge society. They should not become the victim of the market triumphalism advocated by Hague.

Martin Harris and John Howells are the co-directors of Brunel Research on Innovation and Organisation (BRIO).

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