Unless we merge we will surely die

The sector will survive only if it embraces the business ethic, says Adrian Monck. What it needs is a Wapping or a "big bang"

Remember the big bang? Not the Stephen Hawking variety, but the one 20 years ago, when Margaret Thatcher's Government blew away the cloistered world of the London Stock Exchange. Out went colourful trading-floor banter and gentlemen's agreements. In came foreign firms with frightening names suddenly able to buy up crusty old brokerages.

The City has never looked back. Threatened with irrelevance and international competition, it has seen off rivals and strengthened its global pre-eminence. All thanks to a bit of a regulatory tie loosening and an influx of companies changing the shape of the market through takeover deals or, as the City calls it, M&A - that's mergers and acquisitions activity to you and me.

The only place you find M&A activity in the higher education sector is in business schools. There it remains resolutely confined to textbooks and lecture theatres. Educational mergers are lengthy political processes. As for acquisitions, the word is about as welcome in higher education as Lord Voldemort is in Hogwarts. It remains unspoken in committee rooms or any of the dark places where the nation's institutions of higher education talk to themselves.

Mergers and acquisitions are, of course, exactly what the sector needs. When I arrived in academe, a wise senior figure gave me a quick survey. Higher education, he said, is in essence hotel management. It exists to fill rooms. But instead of a modern hotel chain serving customers and catering to their needs, it's more like Fawlty Towers , where everyone from the receptionist to the manager is involved in meetings debating what actually goes on in the rooms.

In London alone there are more than 40 higher education institutions occupying buildings and spaces, and using facilities that bear little relationship to current needs. The principal driver of mergers is to allow institutions to better fulfil the bureaucratic requirements the Government attaches to its cash, which currently runs to about 60 per cent of higher education funding. Small colleges are encouraged to seek shelter with bigger neighbours to support the levels of bureaucracy required by the Higher Education Funding Council for England.

Traditionally, universities have looked at mergers as "strategic partnerships", bulking up to save on prospectus print runs or to pay for more administrators. So places that are close neighbours huddle together to share libraries, labs and office support, or they join forces with the intention of getting rid of duplicate departments and overprovision. The reality is that these are just political mergers. They've taken place in Manchester and London, along with many smaller scale partnerships between universities and further education colleges.

Critics claim that, as in business, mergers and acquisitions do not always increase value. Both the initial costs and the transaction costs can be high. But they do provide a way of managing consolidation and facilitating growth that does not exist right now.

Look around. Crumbly old federations such as the University of London are falling to bits with elite schools making universal declarations of independence. Prospective mergers in Birmingham and Bristol have failed to get off the blocks because the detailed negotiations that depend on keeping everybody happy can't. Institutions occupy expensive properties that they cannot afford to maintain or improve. It's a recipe for rationalisation by default.

The media has been here before. In the past 20 years, the newspaper business has abandoned Fleet Street and broken a union stranglehold that would have killed the industry stone dead.

If we allowed universities to be bought and sold like companies, we might see them spending less of their time maintaining property portfolios and more on educating students and research.

What education is waiting for is a Wapping, or a big bang, to remove the shackles of over-regulation and antiquated governance. If that bang is just an official whimper, the sector will face piecemeal rationalisation driven by the demands imposed by centrally allocated funds. A dynamic, privatised sector would also set up British education to compete more effectively in the global market.

The market is already taking a lead in closing down institutions. If higher education does not adopt radical solutions then the market may move round it as well as over it. Professional training companies that rely on customer demand, rather than on regulatory box ticking, to tell them whether they are getting their product right will move in to fill the space. Already private industry sees the potential in being in the knowledge business.

The prescription is as straightforward in principle as it is difficult in practice. Education needs to be opened up to fresh talent, expertise and constant innovation, and to be regulated lightly. Get it right, and we can start to grow a world-leading education business sector. It worked for financial markets, it will work for universities. All we need now is for politicians to stop spouting platitudes and start showing some imagination.

Adrian Monck is head of journalism and publishing at City University.