Charles Leadbeater warns academics that ministers view them as insular and irrelevant

A gulf of distrust and mutual misapprehension has opened up between the government and intellectuals in recent months. Intellectuals accuse new Labour of shallowness. New Labour regards traditional academic intellectuals as self-appointed guardians of the liberal elite: long on windy analysis and high-flown statements of values, short on workable ideas.

How has this situation come about? For this government is open to ideas from outside its ranks. The Social Exclusion Unit's national strategy for neighbourhood renewal was drawn up with the help of 16 teams, in which civil servants were joined by outsiders, including academics.

Tony Blair is quite happy to turn to academics for help writing his speeches, whether on British history or on the future of welfare. Gordon Brown hosts breakfast seminars addressed by academics.

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Yet the self-styled elite has been unable to provide the centre-left with its big story, a guiding narrative of its values and how to implement them. A large share of the problem lies with academics and the conditions under which they they work, conditions that encourage them to think too small or too abstractly to be much help.

Universities are now among our most regulated institutions. The research assessment exercise was much needed. But the side-

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effect is that academics are concerned with meeting the demands of regulators rather than with addressing the outside world.

Academic pay scales make it difficult for universities to attract talent that is lured into the City. Universities are trapped with departmental demarcation lines that would shame a 1960s car plant. It is common to talk to two people at a university working in the same area but in different disciplines who have never met, let alone talked about their work. In most firms people are used to working in cross-functional teams that are central to problem-solving. Academics resist such practices.

Academics advance their careers mainly by building critically on previous works. Creativity is frowned upon. While a 25-year-old can create an internet start-up worth millions of pounds, young academics have to earn their place in the pecking order.

In a society where new technologies are changing the way we work, many of the most creative ideas come from practitioners who are responding to change directly: entrepreneurs in commerce, public institutions and civic life. That is why some of the most insightful ideas about welfare reform, for example, emerge not in university social studies departments but in schemes run on housing estates, where people are trying to find responses to real problems.

Academics are cut off from innovative ideas because too rarely do they move outside their institutions.

And they find it difficult to come to terms with the growing competition they face. In the 1950s most books about the dawn of the post-industrial, information age predicted that universities and professors would be at the forefront. In reality traditional universities face mounting competition from other sources of knowledge, not least because information technologies mean that knowledge once stored within universities is migrating into society. In terms of policy-making this means academic specialists face competition from think-tanks and research funded by charities.

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How should universities respond? The best already are. The London School of Economics, under Anthony Giddens, has a buzz about it because Giddens has attracted talent from around the world and because he has encouraged multi-disciplinary innovation.

The most impressive public intellectuals are scientists who maintain their academic credentials while engaging in noisy public debate - biologists such as Richard Dawkins and Steve Jones. Their work has migrated from the lecture theatre into living rooms because they have big ideas they communicate compellingly. Most political theorists, by contrast, cannot break out of the straitjacket of academic prose.

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The most dynamic universities are engaged in local economic development. The United States abounds with examples of universities made more innovative by their exchange with the outside world.

Universities need to see themselves as hubs in a much wider knowledge economy, collaborating with outside resources. Take Glasgow School of Art. Its traditional role is to provide training for budding artists. But the school is only one of many sites of artistic know-how in the city. A more innovative approach would position the school at the centre of this wider network.

The universities have a great opportunity. They are on the verge of becoming mass institutions, at the centre of society, touching the lives of most people in society for the first time. But too many academics seem happier with life within relatively closed institutions designed to service an elite niche market with bespoke products.

Universities will take this opportunity only if they are capable of innovation from within. One big obstacle they face is the heavy hand of state regulation, which means too many academics are involved in endless form-filling. Universities must break out of this regulatory maze by accepting that they will have to compete in a more open market for students, who pay fees using income-contingent loans. And that shift would entail formidable change in the way universities are organised and academics paid.

Just as traditional banks are made uncomfortable by the arrival of internet banks such as Egg, so universities are slowly waking up to the competition they face from new entrants. To respond they need to compete on new terrain. As Steve Jobs, the founder of Apple, puts it: "The best way to predict the future is to make it yourself."

Charles Leadbeater devised the government white paper on the knowledge-driven economy. His Living on Thin Air is published by Viking.

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Is British academe insular and irrelevant?

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