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This chapter is of a largely contextual character: it seeks to show a comprehensive social and economic context which should be taken into account when considering the various futures of the institution of the university in Europe. Higher education research can make good use of broader, external contexts of transformations already taking place in the universities’ social and economic environments, we assume. Proposals of answers to the questions on external causes of transformations of educational systems and educational institutions (relatively homogeneous on a global scale) are essential to understanding what is changing in universities in Europe and what we could expect for them in the near future.In general terms, Europe is witnessing more general attempts at a reformulation of the post-war social contract which gave rise to the welfare state as we know it (with public higher education as we know it). We argue here for a strong thesis according to which Europe is facing the simultaneous renegotiation of the postwar social contract concerning the welfare state in Europe and the accompanying renegotiation of a smallerscale, by comparison, modern social pact between the university and the nation-state. The present chapter is divided into four sections: a brief introduction, a section on the relationships between the university and the welfare state in Europe, a section on the relationships between the university and the nationstate in Europe, and tentative conclusions. It moves back and forth between the institution of the university and the institution of the state, seeing them as closely linked: problems of the latter inevitably bring about problems of the former, as historically, in the post-war period in Europe, the success of the latter led to the success of the former. We view the modern university and the modern state closely linked throughout the last two centuries, from the very beginning in the Humboldtian ideas of the research university from the early 1800s. This way of thinking about the university and the state can be found in the ideas of new institutionalism in organization studies, especially those emerging in the last three decades in political sciences. Institutions do not undergo their transformations in isolation: institutions operate in parallel, and in parallel they change. There is a complex interplay of influences between institutions and their environments, and universities are perfect examples of powerful connectedness between changes in institutions and changes in the outside world from which they draw their resources, founding ideas, and social legitimacy. The institution of the university in Europe may be undergoing a fundamental transformation – along with the traditional institution of the state in general, and the welfare state in particular.

This article is based on the Keynote Address to the European Conference on Educational Research (ECER), Dublin, Ireland, 7-10 September 2005. It argues that we are facing the simultaneous renegotiation of the major post-war social contract (concerning the welfare state) in Europe and the renegotiation of a smaller-scale modern social pact: the pact between the university and the nationstate. It suggests that the current, and especially future, transformations of the university are not fully clear outside of the context of transformations to the state (and to the public sector) under global pressures. These pressures, both directly and indirectly, will not leave the university as an institution unaffected. Thus it is more useful today than ever before to discuss the future of the university in the context of the current transformations of the state. The study is divided into four sections: a brief introduction; a section on the university and the welfare state in Europe; a section on the university and the nation-state in Europe; and tentative conclusions. The institution of the university seems already to have found it legitimate and necessary to evolve together with radical transformations of its social setting. For in the new global order, against the odds, universities are striving to maintain their traditionally pivotal role in society. The role of universities as engines of economic growth, contributors to economic competitiveness and suppliers of well-trained workers for the new knowledge-driven economy is being widely acknowledged. But it is undoubtedly a radical reformulation of the traditional social roles of the university. The main reasons for these transformations of the university include the globalisation pressures on nation-states and its public services, the end of the ‘Golden Age’ of the Keynesian welfare state as we have known it, and the emergence of knowledge-based societies and knowledge-driven economies. More generally, the processes affecting the university today are not any different from those affecting the outside world; under both external pressures (like globalisation) and internal pressures (like changing demographics, the ageing of societies, maturation of welfare states, post-patriarchal family patterns and so forth), the processes in question are the individualisation (and recommodification) of our societies and the denationalisation (and desocialisation) of our economies. On top of that, we are beginning to feel at universities the full effects of the universalisation of higher education and the increasing commodification of research.

The university in its modern form (invented 200 years ago by German Idealists and Romantics for the University of Berlin) has traditionally been in very close relations with the state and in relatively distant relations with the market. Now, as state/ market relations are changing with the advent of globalization, the university is unexpectedly located in a different landscape in which the state is generally - with notable exceptions - becoming weaker, and the market is becoming stronger. The university, traditionally a very important part of the public sector, is coming under public scrutiny and its social and cultural missions are being increasingly challenged. In the last half a century, despite immense growth in enrollments, and moving towards massification and near-universalization, public higher education remained relatively stable from a qualitative point of view and its fundamental structure remained unchanged. No major changes occurred that were as revolutionary as the changes we are currently witnessing. What we are seeing today is the very beginning of these transformations, though. The forces of change worldwide are similar and they are pushing higher education systems into more market-oriented and more competitive arenas (and certainly towards less state regulation). For centuries, "the market" had no major influence on higher education. Most universities in the world were created by the state and were subsidized by the state. Most students attended public institutions and most faculties worked in public institutions. Today market forces are invading higher education worldwide: while the form and pace of change is different in different parts of the world, this change is happening everywhere.

Social sciences have to adapt themselves conceptually to the new world in which, perhaps, the nation-state may not be playing the decisive role traditionally ascribed to it by modernity. The globalizing world may require a brand new theory of the state and a renewed theory of freedom and democracy in a situation in which the nation-state, although has not disappeared and surely will not disappear, but nevertheless becomes weaker and weaker in its confrontation with new global political entities such as e.g. supranational political entities, or in its confrontation with international organizations, transnational corporations, non-governmental and independent system of commercial arbitration, ratings provided by international rating agencies or with limitations of various military, political and economic treaties and unions. In the face of the unavoidable, as it seems, giving (at least some) way to new political players (including transnational corporations, no matter how they view themselves), classical questions concerning freedom, democracy, state and politics in my view may require a radical reformulation. The key question would be about the chances of a new social justice and the possibility of accepting a new social contract in the situation in which the connections between the nation-state and society are becoming weaker and the choices made by traditional politics of the state are being replaced by non-governmental choices of an increasingly economic character. Ulrich Beck, an influential German sociologist, warns us that in the case of globalization “everything we have is at stake. Political freedom and democracy in Europe are at stake”. In the face of globalization on the one hand and the cultural passage to the late modernity on the other, the questions about the decline of the nation-state are asked continuously by sociologists, political scientists, philosophers, economists or historians.