IT USED TO BE that universities didn't have to worry their pretty little heads about anything so fancy as their contribution to the wider economy. Just as long as they taught students reasonably well and created a steady stream of new graduates for companies to employ, everybody was more or less happy.

The 'elite' universities that had been around for hundreds of years undertook research projects to try and keep their academics at the cutting edge of their disciplines, but the rest didn't bother much. The polytechnics in particular concentrated on teaching, often in a sandwich course format where the student would typically spend the third year of a four-year degree course working in industry. As a result, when they did graduate they were 'work ready' and could become productive very quickly.

These days, most companies feel they need to submit their new graduate recruits to a year of graduate training programmes to acquaint them with necessary skills such as team working, negotiation and meeting management, project management and budgeting. Skills you might have thought they could have picked up at university.

In the early 1990s, the government decided to harmonise the higher education system and allowed the polytechnics and then the larger colleges to become 'proper' self-governing universities, at the same time opening them up to sources of research funding.

And when Labour was elected in 1997 they began investing heavily in academic research, particularly in science, technology and medicine. The last 13 years have seen substantial investment in scientific research and it has paid off. The UK is very high in any international league table of measured scientific achievement, and Scotland is at the very top.

So what has all this done to the level of innovation in the wider economy, or to the economic benefit to Scotland plc? Well, to be frank, not a lot.

Our universities are very proud of their record in research achievement but we must face the facts: too few of our graduates are 'work ready' and pitifully few have any aspirations to build a business.

OECD figures put Scotland 28th out of 31 for business R&D, and the UK's Department of Business Innovation and Skills puts Scotland fifth out of the UK's 13 regions for R&D investment. The Global Entrepreneurship Monitor for Scotland reports that entrepreneurial activity in Scotland has slumped to a level well below the rest of the UK and way lower than competitive economies - it is now worse than it has ever been in the ten years they have been conducting their annual review.

And all this despite the fact that over the last ten years the Scottish Funding Council (SFC) has been steadily increasing the level of funding into supporting 'knowledge transfer' activities. From almost nothing ten years ago, this year they will invest £21m in encouraging our universities to encourage commercialisation of their research, plus another £5.3m will be provided to encourage various 'knowledge exchange' activities.

But the fact remains most of the 'knowledge exchange' from universities consists of the graduates they produce being employed by our companies. Somewhat frustrated by all this, the SFC now proposes to allocate £6m of the £21m to be awarded for targeted projects aimed at encouraging more effective 'knowledge transfer' and developing more entrepreneurial graduates.

It is well overdue. Our universities need to start concentrating on making a fuller contribution to the wider economy, and produce more effective, more entrepreneurial, and more 'work-ready' graduates.•