The University Debate: What the Ivy League can teach Britain

When you grow up, do you want to live in a council house, or would you prefer to own your own home? When you grow up, would you be happy to depend solely on public transport, or would you like also to own a car? When you grow up, would be happy to send your children to a bog standard comprehensive school, or would aspire to something better for them?

Public services are very, very important, but in the main they are mediocre. Once upon a time, it was believed that the state could run things better than could the private sector and governments globally nationalised the so-called "commanding heights" of the economy, which were things such as coal and steel in the days when such industries were the Googles and Facebooks of their day.

But experience has shown that, actually, the Gordon Browns and David Camerons of this world cannot run companies as well as the Bill Gateses and Mark Zuckerbergs and the last 30 or so years have seen, globally, the gradual privatisation of vast tranches of the economy, to the advantage of everyone. Now higher education is being privatised and people are very, very cross.

As is to be expected. Higher education was once free, but it will shortly cost up to £9,000 a year in fees alone. Once living costs are added to the bill, graduates are going to be entering the workforce burdened with debts of some £30,000.

But if future graduates think that their degrees were expensive, let them try entering the workforce without them. The calculations cannot be precise, but graduates seem to out-earn non-graduates over their lifetimes by at least some £100,000 and since the conditions of their loans are so benign (the debts are repaid only if graduates earn respectable salaries) those indebted graduates are in a happy situation indeed. They have been underpinned by the state while they acquire the qualifications that will allow them to raise their earning power.

Moreover, thanks to the fees they have paid, their qualifications will be better. Consider higher education within the developed world. The best universities in the West are in the USA. The worst are in continental Europe. But Europe is no poorer than the US.

The difference is that higher education operates in a market in America while most of the universities of continental Europe have been so nationalised that they are actually owned by the state, with the academics being civil servants (yes, actual civil servants, like the staff in JobCentres) and with the heads of the universities or rectors being appointed by the minister for education.

The universities of continental Europe do not charge significant fees, but too many of them are appalling, being characterised by vast class sizes, vast impersonal lecture halls and vast drop-out rates. In America it is normal for lecturers to know the names of their students: on the continent of Europe that would be abnormal. In America it is normal for individual students to have personal tutors to mentor them: on the continent of Europe it is normal for students to flounder as anonymous units within anonymous degree factories.

In America, in short, the market in higher education works to the students' advantage. On the continent of Europe the nationalisation of the universities has failed the students.

Britain a few years ago hovered between the American and European models. Our universities had expanded vastly, but their funding had not and when New Labour took office in 1997 our staff to student ratios had fallen on average to 1:17 (in 1979 they had been 1:9) and expenditure per student had fallen to near-continental European slum levels.

But Tony Blair introduced both top-up fees and the National Student Survey (of satisfaction) and our universities have since improved inexorably, being ever better funded and ever better focused on the student.

Which is where their focus should be. Universities do many different things, but most of those things can take place elsewhere: research, for example, could be performed in dedicated institutes or in industry. But the student experience is irreplaceable because most students study for a degree only once, so if that sole experience is unsatisfactory, the individual student can rarely compensate. But he who pays the piper picks the tune: if the student pays, the universities will compete for that student as a valued client and they will strive to enhance that student's experience; but if the government pays, then the student is merely a unit of accounting, to be served as cheaply as possible.

The universal justification for free or fee-less higher education is social justice: only if universities are free to students, we are told, will the children of the poor attend. How odd, therefore, that America has one of the best records, globally, on access to higher education, while countries such as France or Germany in practice confer degrees almost exclusively on the children of the middle classes.

But because America's universities are rich (Harvard's endowment is some $25bn (£15.5bn), and the other Ivy League universities average around $12.5bn apiece) they can afford so-called "needs blind" admissions, whereby students are admitted solely on academic merit and are then charged only what they can afford. So the market in higher education actually reaches out to poorer students, because that market is focused on excellence.

The universities of the American Ivy League are rich only because they are independent. The American universities, which are old (Harvard was founded in 1636, and there were already nine American universities in existence before independence in 1776) were originally organised as British universities are now. They were independent foundations, having been created by local clergymen to teach theology, but – in those days of unity between church and state – each university soon received subsidies from its local colonial government.

In consequence, that government made conditions: at Yale, to take a typical example, the colonial (later state) Governor sat on the board of trustees, as did the Lt Governor and six legislators. Naturally, they dominated it.

During the early 1800s, however, Dartmouth College in New Hampshire fell out with a local church over the appointment of a professor of theology who was also a minister to that church's congregation, and – frustrated by the intransigence of a College whose costs it was largely bearing – the New Hampshire government simply nationalised it, ejecting the President and trustees and installing its own.

But in the famous Dartmouth College case of 1819, argued before the Supreme Court, the ejected President and Trustees won their case for reinstatement. The Supreme Court restored them to office and it also restored the college to them. Whereupon the New Hampshire government – expecting the college immediately to go bust – vowed to give the college no more money. But to everybody's surprise the college survived on fees and endowments. And, like a domino cascade, over the next few decades every university in America fell out with its state government and in each case was cut off without a cent, whereupon the universities were to survive and become the flourishing Ivy League universities of today: ironically, had the Ivy League universities remained state-funded, they would have remained as cash-strapped as are all state-funded universities globally, in America or elsewhere: it is only because they were cut off that they became rich. And stellar.

It is yet another indictment of nationalisation that, of the best universities in the world today, almost all are to be found in America.

And inasmuch as American state universities are good, it is because they are benchmarked by their independent competitors.

But there is another reason why students should pay fees to universities, namely that universities do better research and better scholarship when they are independent of government money. Since this flouts received wisdom, let me expand, using Humboldt University as an example. Humboldt in Berlin is the revered research university, having been founded 201 years ago (its bicentenary celebrations last year were lavish) as the world's first such university. But set in its central square, at ground level, is a large slab of glass. Look down through it and you will see a large empty room, lined with empty book shelves. It is in fact the Empty Library, which was installed as a monument to the infamous burning of Humboldt's library books in 1933.

Long before Hitler came to power in 1933 he was being hailed as a saviour by the German universities. Far from being an opponent of the Nazis, the profession with the greatest Nazi party membership and penetration was the academic profession. So when Hitler decreed that the books of his critics (Jews, marxists, homosexuals, psychotherapists et alia) should be burned, his thugs were assisted in their selection from the shelves of the Humboldt University library by Nazi-leaning staff and students.

This introduces a little-understood aspect of university life: academics are not neutral. The big myth is that scholars are dispassionate seekers after truth, but how can they be? Researchers work at the limit of knowledge, where facts are contradictory and all great scholars have to disregard inconvenient facts if they are to make progress in their own research because, all too often, apparently inconvenient truths turn out themselves to be untruths.

Consider global warming. The facts are generally mutually agreed but there are too few of them to be definitive. Some researchers believe they suggest that human activity is warming the atmosphere. But other researchers (see the website of the Global Warming Policy Foundation) believe that the same facts suggest that global temperatures are innately variable and that we flatter ourselves by believing our species can affect them.

Because the facts are incomplete, and can therefore be interpreted differently, the two sets of scientists' interpretations are opposed and – as Climategate showed – researchers will do almost anything to prove their theses. But they have no choice: researchers are working at the limits of knowledge, so individual scholars can do no more than act as advocates – not judges – to promote their own theories. If researchers behaved as Sir Karl Popper suggested they should, namely that they should abandon their theories when competing researchers had apparently falsified them, knowledge would never progress.

How will we resolve the question of man-made global warming unless both sets of researchers continue to try to prove their case and ignore the contradictory evidence?

But in consequence scholars can be no more trusted than can partisan advocates in court. Indeed, researchers are so instinctively partisan that they will even adapt their findings to the needs of their funders.

In a recent survey of 70 different studies performed in hospitals on the risks of a particular class of calcium-acting heart drugs, it was found that those university professors and hospital consultants whose studies were funded by neutral bodies such as charities or government research councils tended to find the drugs to be more dangerous than did those professors and doctors whose studies were funded by the drug companies themselves.

Consequently, academic objectivity can be guaranteed only by fostering a multiplicity of funders. If every university is funded by the government, they will all end up like Humboldt in propagating a particular point of view. But if different universities are funded by different sources, the competing melee of voices will foster a more balanced public debate.

It is a tribute to the Massachusetts Institute of Technology, which is a prominent independent university in America, that it fosters on its staff Noam Chomsky, who is a bitter critic of the American government. Although, in theory, there is no reason why a state university could not have employed Chomsky through five decades of bitter anti-Washington diatribes, in practice the self-censorship that pervades, even if unconsciously, the public university sector would have made his continued tenure difficult. But Chomsky has noted that no authority figure at MIT has ever criticised his politics. Thus the best way to ensure a plurality of university thought is to ensure plurality of funding, by ensuring that a significant number of universities are funded by student fees rather than by government grants.

It is often forgotten that the universities were originally created by the private sector and were only later nationalised. So the Western world's first universities - in Bologna, Padua, Montpellier et alia - were originally created by the students and staff themselves, and were only nationalised by the church and state when they emerged as threats to the intellectual dominance of the establishment. Later, the pattern of nationalisation was repeated in Britain, though for different reasons: during the 19th century the civic universities such as Newcastle, Leeds, Sheffield, Liverpool, Manchester, Birmingham et alia were created as independent institutions, funded by the students and by philanthropists. These universities only applied for government funding in 1919 because of an historical accident, namely that the inflation of the Great War had destroyed the value of their endowments and they had lost their fee income because for four years their young men had been fighting on the Western Front. Consequently the British universities were bankrupt by 1919 and thus they applied for, and received, government support. But once the government had started to fund them, so it crowded out their further private funding and by the 1980s British universities had become almost wholly dependent on state money.

That dependence was retrospectively justified by appeals to social justice, but that was not the motive in 1919, just as it wasn't the motive for the nationalisation of the first European universities in medieval times.

The universities were born in the private sector and that is where they should be because only when they are independent will they promote an independence of thought. Economic justice demands that their funding should largely come from students because – contrary to myths of public goods – the prime beneficiaries of a university education are students. Moreover, it is only when the universities are funded privately that they will be well-funded.

The rise of the for-profit institutions, such as training providers BPP, is a challenge to the system, which is more comfortable with conventional charities like the University of Buckingham which are independent but nonetheless otherwise conventional, but markets select and it will be interesting to see where the for-profits are in a decade.

It would be easy to say that, in an ideal world, a university education would be free, but that would actually be untrue because it is only when services are paid for that their beneficiaries really appreciate them and that their employees strive to perfect them. A world in which students pay for their own university education will be a world where the universities are better funded, intellectually freer and where economic justice ensures that the burden does not lie on the taxpayer but on graduates.

Well done, Tony Blair in 2004 and well done, David Cameron, today.