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Universities have always been ambivalent about whether they are local institutions. Most seem detached from their surroundings in the spirit of the ivory tower, and the trend to build universities on windy hilltops away from cities reinforced this idea.

But looking ahead, it is possible to see two directly contradictory trends that might change all of this. How the two trends balance out will starkly shape just what kinds of creatures universities are.

The first is the vision of the virtual university - a series of Web sites, with papers and conferences connecting a community of students and scholars which might be dispersed throughout the world, meeting only for occasional summer schools or congresses.

The use of e-mails and faxes to mark essays; the rise of correspondence courses; the ever-more intensive competition for students in the international marketplace; the virtualisation of the extramural courses that used to be taught in dusty basements; and, arguably, the further nationalisation of control over funding - all of these are giving shape to the idea of a university that is very connected, but not to its locality.

The second trend runs in precisely the opposite direction. Student catchment areas are becoming increasingly regional, rather than national, for simple reasons of economics.

In Britain, as in many other Western societies, people are now leaving home much later than 10 or 20 years ago, and all of the forecasts of declining real incomes for 16 to 24-year-olds over the next few years suggest that these trends will intensify.

But there are also other factors rerooting universities. In most of Britain's big cities universities are now the largest employers. Many have overtaken the role of local councils in that respect, and all are far larger players in local labour markets than even the biggest private firms. This is why, in cities like Manchester, universities have become key players in urban regeneration: building housing, science parks, facilities and even hotels.

To that we can add the way the great mushrooming of MSc courses since the early 1980s has driven hundreds of thousands of students out in search of local businesses, and the way in which the great shrinkage of student grants has forced the same students at the weekends and in the evenings to take up jobs in everything from fast-food restaurants to prostitution.

It is not easy to guess exactly how these two trends will affect each other. It may be that some universities will consciously go global, detaching themselves not only from their cities but even from national government, while others dig roots deep into their local societies, tying in every potential stakeholder they can find.

The hopeful side of both trends is that they should be liberating universities from Stalinist centralisation. The virtual universities should be less dependent on national funds, while the genuinely local ones should be able to use the Private Finance Initiative and its successors to broker partnerships that again insulate them from domination by the Higher Education Funding Council.

But the worrying side is that both trends might leave Britain a more parochial place. For the British university system has been one of the great agents of geographical mobility, probably as significant as the railway in the 19th century. Successive generations were able to get away from their homes and experience a different culture, different places and different assumptions.

The challenge is not to choose between going global and going local, but rather to find ways to combine local roots and global connections.

That will not be easy. It may mean short stays in distant places rather than permanent residence, and students having local placements as well as taking part in worldwide teleconferences.

The alternative, in universities as elsewhere, is a widening divide between a mobile elite and a majority for whom mobility is a luxury they cannot afford.

Geoff Mulgan is director of Demos, an independent think-tank. The Return of the Local, a special issue of the Demos Quarterly, is published this month.