Last week's Cabinet shuffle and attendant ministerial reorganisation will have major effects on post-compulsory education. Or so it will seem.

11 = /Whitehall reorganisation has been rare in 16 years of Conservative government. The removal of responsiblity for science from the Department for Education and Science to the Cabinet Office was an exception - a welcome one compared to last week's further move to the Department for Trade and Industry. The massive merger of employment with education is therefore highly unusual.

This merger has been discussed for years and even planned in detail not least by Geoffrey Holland, as permanent secretary both for employment and education. It, like the relocation of science, is in fact much more a response to changes well under way than the beginning of something new. These reorganisations will make more explicit the growing emphasis on vocational relevance in respect of education and technology transfer in respect of research.

That the reorganisation is being carried out to accommodate rather than initiate change does not, however, mean it will have little effect. How the changes are implemented will have a major impact. Sir Geoffrey (page 10) sketches a radical programme for the merger which could greatly alter both the ethos and organisation of further and much of higher education.

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But it is not clear that things will be done on such a coherent basis. There are to be two permanent secretaries and ministerial responsibilities appear to have been dished out on the basis of a bit of each for everyone: Eric Forth has responsibility for higher education, student support and the Jobseekers' allowance: James Paice has "post-16 issues", Lord Henley has 16-19 qualifications.

On the science side, the director general for the research councils, John Cadogan, has written to the chief executives of the research councils telling them that it is business as usual at the Office of Science and Technology. This is doubtless intended to reassure but could have the opposite effect, giving the impression that the director general may not be sufficiently careful of the research community's concerns. The relocation of science brings both threats and opportunities. The heads of the research councils will have to be firm about ensuring their money continues to flow into basic research but they will also have an increased opportunity to get the message over to British industry that greater investment in research and development by them is overdue. Research council heads who already work closely with industry broadly welcomed the move this week, but Denis Noble, one of the founders of Save British Science has warned that the move is "disastrous", that it had been handled insensitively without consultation and that "it will quite simply strangle the creativity of the science base".

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There are, of course, fears and dangers attendant on these moves. Mary Warnock states some of these with her usual clarity (page 11) particularly with respect to the scholarly study of the liberal arts. Labour's spokesmen, John Battle for science and Bryan Davies for further and higher education will seek political advantage from such anxieties, but in truth the Labour Party is in difficulties: it is at least as determined as the present government to harness education and research to economic regeneration: it might have carried out just such reorganisation itself.

And it is that which should alert the academic community. For the anxieties expressed are not without foundation. Crassly implemented, these changes could indeed damage and diminish pure science, disinterested scholarship, creativity, study for its own sake. And it is vital that these should survive and flourish for, as the so-called information revolution gains ground, they are the raw materials of the future.

In a sparkling talk, one of the many put on for the 3,000 alumni attending the London School of Economics' 100th birthday party this week Danny Quah described a future of "dematerialised production", one of his examples the stellar success of Super Mario 3 which helped turn Nintendo from a small playing-card company into the most profitable company on the Tokyo Stock Exchange. This is wealth not from manufacturing (the manufactured content of a cassette is trivial) nor from services but from products where the vital components have no material existence: ideas, information, micro-code. Dr Quah warned of the evident polarisation of countries, between those which can and do compete successfully in such "dematerialised" enterprises and those which do not.

Over the past 50 years universities, especially in the United States but also in Britain and elsewhere, have generated the knowledge and discoveries which underpin this revolution. Now we are into the development phase which will involve massively greater numbers and much larger investment if these advances are to be carried into job creating activities in this country. Intellectual raw material will not be enough. If we concentrate only on that, our ideas will only make others rich.

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Not only must many more have higher education, they must also be able to move back and forth between companies, public agencies, universities, developing and extending new dematerialised enterprises. The divisions between research institutes, universities, industry need to be more permeable. Such initiatives as Link, the Teaching Company Scheme and the Foresight exercise help but are not enough. A cultural change is needed in the attitude of many British companies - and many more companies need to be created. Last week's reorganisation demonstrates the extent to which both the ivory tower and the linear model are obsolete.

Engaging with this challenge has large implications. The sums of money involved will be huge. People will have to invest in themselves. British industry cannot expect a trained workforce and neatly packaged research delivered on demand. And universities will need to be active partners if the quality of the intellectual raw material is not to be debased.

And there is the rub. Governments, however sympathetic individual ministers may be about the importance of pure research and study, are bound to give priority to short-term economic performance, employment rates and vote winners like nursery schools. Safeguarding long-term intellectual capital, the prime responsibility of the universities, will come further down the list. We cannot be confident, as Mary Warnock realises, that the Government will provide the means.

The implication of this is that, as they provide the practical services in education and training, applied research and technology transfer which the economy requires, universities must look to their own financial health. Payment of overheads for commisssioned research, protection of intellectual property rights, copyright rules, course fees - whether by employers, government or students or some combination - are going to be the areas where universities will have to dig their heels in. They will be bullied since all will hope to get these services as cheaply as possible. But only if universities are financially strong will they be able to support those whose research and scholarship is purely speculative and protect study which lifts the spirit but does not evidently enrich the nation.

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With both major political parties keen to harness education and research to economic regeneration, and the machinery being put in place to do that more effectively, universities will be best able to protect the life of the mind if they too make themselves into profitable "dematerialised" enterprises.