Steps have to be taken to stem the exodus of industrial research in the wake of huge foreign investment, according to officials from German industry and higher education.

Hans-Olaf Henkel, the president of the Confederation of German Industry (BDI) and Hans-Uwe Erichsen, head of Germany's Rectors' Conference (HRK), warned that industry would have hardly anything left to thrive on if it went on transferring its research and development as well as its production abroad.

Both the HRK and the BDI are alarmed at figures from the Organisation for Economic Cooperation and Development that place Germany in fourth from last position in terms of public expenditure on education, and warn of a "downward spiral" unless the country becomes more attractive for highly qualified young people looking for jobs. Since the onset of the recession, more and more top industrial managers have been laid off.

This has led to fewer enrolments in natural science and engineering. A dearth of expertise in these areas could seriously damage the country's prospects as an industrial nation, Mr Henkel declared. "If we only send our children to the banks and the insurance companies, Germany will not have much of a future in terms of R&D and production."

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Both organisations appealed to parents and students not to base their choice of career solely on current labour market trends. They should also bear medium and long-term developments in mind. Given that training or studying usually took three to five years, future graduates could well be experiencing a very different economic climate.

Professor Erichsen stressed that higher education was prepared to play its part in boosting innovation in Germany. Incentives and opportunities for scientists to take out patents needed improving. "But industry itself, including medium-sized enterprises, will have to see to it that research output really is translated into marketable products," he said. This above all implied the establishment of direct links between industry and higher education.

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The BDI and the HRK agree that state bureaucracy in higher education needs to be cut to increase personal responsibility against the background of scarce funds. Institutions ought to be in a position to compete for qualified scientists, research contracts and gifted students.

Mr Henkel believes that tuition fees could be an important factor in this context, since they would elevate students to the role of customers and at the same time lead to more rational decisions on the length and content of studies.

According to Professor Erichsen and Mr Henkel, the Abitur, Germany's grammar school leaving certificate, has to say more about the academic ability of applicants for study places. If this cannot be achieved, they say, entrance examinations will have to be introduced by higher education institutions.