The Challenge of Establishing World-Class Universities Jamil Salmi 1 “I do believe that it is necessary to stress that for most countries today, human resource development and human capital formation are either extremely important, absolutely vital, or a matter of life and death. In the case of Malaysia…we think it is a matter of life or death.” Abdullah Bin Ahmed Badawi, Prime Minister of Malaysia (Opening Speech of the 2006 Meeting of the Association of Commonwealth Universities) 1. Introduction In September 2005, the new world ranking published by the Times Higher Education Supplement was received like a bomb shell in Malaysia when it showed the country’s top two universities slipping by almost 100 places compared to the previous year. Notwithstanding the fact that the big drop was mostly due to a change in the ranking methodology, the news was so traumatic that there were widespread calls for the establishment of a Royal Commission of Inquiry to investigate the matter. This strong reaction was not out of character in a nation whose current Ninth Development Plan aims at shaping the transformation of the country into a knowledge-based economy with emphasis on the important contribution of the university sector. Preoccupations about university rankings reflect the general recognition that economic growth and global competitiveness are increasingly driven by knowledge, and that universities can play a key role in that context. Indeed, rapid advances in science and technology across a wide range of areas from information and communication technologies (ICTs) to biotechnology to new materials provide great potential for countries to accelerate and strengthen their economic development. The application of knowledge results in more efficient ways of producing goods and services and delivering them more effectively and at lower costs to a greater number of people. 1 Jamil Salmi is the Tertiary Education Coordinator of the World Bank. The findings, interpretations, and conclusions expressed in this article are entirely those of the author and should not be attributed in any manner to the World Bank, the members of its Board of Executive Directors or the countries they represent. The author wishes to express his gratitude to Roberta Bassett for her excellent research assistance. The author would also like to thank all the colleagues who kindly reviewed earlier drafts and offered invaluable suggestions, in particular Vladimir Briller, Marguerite Clarke, Richard Hopper, Isak Froumin, Nadia Kulikova, Sam Mikhail, William Saint and Alenoush Saroyan. Full responsibility for errors and misinterpretations remains, however, with the author.