Andrew Oswald: This is how St Andrews can be a top university

Dr Louise Richardson is the new head of the University of St Andrews. She has been hired from the United States. I hear she is formidable.

Fittingly, tomorrow there will be a conference in Edinburgh on how Scotland's universities can compete globally. At its end, I am down to share a platform with three of Scotland's Members of Parliament – the education spokespeople for the Conservatives, Labour and Liberal Democrats. Perhaps this is because I have Scottish degrees; perhaps the organisers heard that, one windswept night in 1973, I and three gently inebriated undergraduate friends stood outside the St Andrews Principal's House and, partly out of good sense and partly for want of a wee screwdriver, decided not to carry home as a trophy to our university the huge handsome brass nameplate.

It is tempting but inadvisable to turn away from some unsettling data. If we look up St Andrews in a carefully constructed academic world-ranking of universities, which, as a further sign of the times, is produced by a Chinese university, the University of St Andrews is somewhere in the top 300 universities in the world but does not make it into the leading 200. In the main ranking table, it lies between the University of Southern Florida and the University of Stuttgart.

So, the first thing I would decide if I were the boss, is whether I wished to push the university up that kind of international ranking, and thus be not just an effective teaching institution but a force in intellectual endeavour. In Dr Richardson's position, I would be delighted to find that in this ranking my university performs remarkably strongly on the number of Nature and Science papers being produced in the university. But I would not be so cheered by other column entries.

To improve the performance of a small-to-medium-size research university, what should be done? After some decades in university life, my views are the following.

First, concentrate on a few areas. You are not going to win Nobel prizes in half a dozen fields. But your worldwide reputation as an institution will be enhanced by being incredibly good at a couple of things. So you must choose.

Second, change the pay structure. Most UK vice-chancellors do not understand this but it is the single most crucial thing to do. I have seen it in action. I taught at Dartmouth College in the USA for a few years in the late 1980s, and the Economics Department was led by a man called Jack Menge. Dartmouth had refused to pay the going rate for young economists because the humanities full professors could not cope with the idea of 28-year-old economics PhDs earning more than them, so the department was sleepy and had atrophied.

Menge was cross with such short-sightedness. He took a simple but brutal step. He made only job offers to the young world-class economists he actually wanted. Of course, year after year, the latest crop of newly minted PhDs turned down flat the Dartmouth jobs, and went off instead to the other Ivy League universities that paid 40 per cent more. It hurt. Eventually, Menge's plan came to fruition. The parents rebelled: why were there not enough faculty to teach economics to their children? Dartmouth gave in. The institution began to pay the going world rate to young economics faculty. Today, the economics department at Dartmouth is the best in the institution, and was recently ranked in the top 20 in the world on research citations. This was achieved by accepting extreme short-run pain.

Third, do not listen to people in your university who will say that the institution is too hard-up to do X, Y, Z. What they mean is that they do not wish to grit their teeth through the pain of doing X, Y, Z. If you want to double your pay scales, say, you can eventually do it on your present budget. You just employ half as many faculty members to teach the students. Of course students will complain that they are not getting enough attention. But you explain courteously that they are not paying world-class fees, so regrettably cannot have world-class hours of attention. You will still, if you are a good university, be oversubscribed. Students only care about the glamour of your university's name on their CV. That glamour stems from just one thing – the brilliance of your university's researchers from decades earlier.

Yes you can.

The writer is Professor of Economics, University of Warwick