Alison Wolf

The existence of contemporary universities is largely justified by the boost they give to the economy. The universities may not sign up to this as wholeheartedly as governments do. But few academics, and, I would guess, no vice-chancellors, would argue that our existence, let alone our subsidies, should rest entirely on contributions to pure knowledge and the welfare of the nation's souls.

This view has become so much part of the wallpaper that we barely register yet another political speech about promoting the knowledge society. Or not until it involves direct threats to our funding.

One of the highest profile "knowledge society" gimmicks to come out of Brussels is a proposal for a European Institute of Technology to rival the Massachusetts Institute of Technology. The EIT is meant to advance the "Lisbon agenda", which is supposed to make the European Union the world's "most competitive and dynamic knowledge-driven economy" by 2010. In practice, since EU leaders signed up to the plan in 2000, we have had mostly sluggish growth and widening gaps between US productivity and that of almost all European countries.

The idea that an institute of technology could change this shows a touching faith in universities. It is an idea shared by the leaders of France, Germany and Austria, who are trying to create elite technology institutes of their own. Yet, in spite of the shared belief in salvation through research, the EIT proposal is being drastically modified well before a single shovel of earth is turned.

Establishing an EIT as a real institution would involve the usual horse trading, coalition building and arguments about whose turn it was to have an EU institution. Whether the site was academically appropriate would hardly figure. But that is not the problem. European scientists enjoy (and compete for) a large research budget; and that budget is threatened by the EIT.

In 2005, at the start of the UK presidency of the EU, Tony Blair gave a speech to the European Parliament that was enthusiastically received by the European press and MEPs, with the exception of the cynical Brits. It was about political leadership and renewal and making the EU budget reflect Europe's real priorities, including, of course, research and innovation.

There were hopes that the next funding round for science (Framework 7) would be bigger than ever before and that reform of the Common Agricultural Policy might actually get under way.

What we got were acrimonious rows over contributions and a budget that was pretty much unreformed. So, faced with a proposal for an EIT, scientists have every reason to worry. The institute is supposed to be in operation by 2009, but funding is unclear, other than murmurings about "industrial contributions". The obvious source is FP7.

The universities, not surprisingly, organised opposition. Opponents include the League of European Research Universities, the European Research Advisory Board, Universities UK and Lord Sainsbury, the Science Minister.

Latest indications are that they have won, and that the EIT will be a virtual institution, with a central administration distributing funds - in which case most of us will never notice that it happened.

EIT's opponents argue that top-down interventions are always driven by political considerations and so are bound to fail. Successful universities are not created by shovelling money into a physical site. They grow up gradually, given the right governance and environment. The implication is that the EIT could never succeed because no new government creation could.

That is only partly true. Governments do construct successful universities.

The state of California created a whole network of world-class institutions that are fully public, and mockers of the state of Texas should keep an eye on what it is buying in Austin. The 19th-century German universities, from which our modern institutions developed, were supported by competing German states before the unification of the country. The founders of Göttingen University, for example, wanted to make its home of Hanover visible as a leading intellectual and cultural centre. Universities thrive only if they are also given large amounts of academic freedom and operate in an academically competitive environment. But money never hurts.

The problem with the EIT is not so much the idea of a new publicly supported institution. It is that the entity creating it is not a country, state or city, and not the first point of loyalty for its constituent parts. Southern California put up with paying for Berkeley's pre-eminence for a long time as part of California's general climb to the top. Houston and Dallas accept Austin as the flagship because they are similarly Texan.

The EU, by contrast, horse trades about anything and everything, because loyalties remain national. That makes it hard to run a whelk stall, let alone a rival for MIT.

Alison Wolf is Sir Roy Griffiths professor of public sector management, King's College London.