The leading British universities should be allowed to privatise themselves, argues Alan Ryan, recently returned from the US.

The foul weather that greeted the November 19 Day of Action was all too apt. All hopes for British ÖйúAƬ seem doomed to be doused in cold water. It is no wonder that most academics who remember the 1960s do so with some affection: we were not affluent, but we were not much worse off than doctors and solicitors, and much on a level with civil servants and MPs. Universities ran on small budgets, but government assistance was predictable, if not generous. Anyone who talked of quinquennial grant settlements today would be derided as a wild utopian; you are lucky if you can see five months ahead.

What is maddening is that the future shape of British ÖйúAƬ has in fact been determined, and the decisions about its funding have been taken. With the characteristic British passion for doing slowly and painfully what we might do more easily, we refuse to notice the fact, and successive governments do nothing to make it easier for us to live with the new realities.

Of course, the important decisions have been taken piecemeal and not by governments - the whole western world has decided against a regime of high taxation and high public spending; the income gap between the elite that Robert Reich baptised as "information analysts" and ordinary production workers has widened enormously; and the need of so many women to return to work in their thirties and forties has created an entire new class of mature students.

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The shape of the future can be seen on the other side of the Atlantic, where what was once a ÖйúAƬ system dominated by white 18-year-old men now processes some 14 million students, most of them part-time, a majority of them women. Only a minority are "traditional" post-secondary students.

Of course, Britain is not obliged to copy every American response to the new pressures on ÖйúAƬ; but these are pressures we have to meet. The chaotic fashion in which American institutions always adapt to new demands ensures that a lot of what goes on is pretty dreadful; two-thirds of all students are in programmes in "business studies", and many of these are closer to remedial reading and writing courses than to a Harvard MBA; there are too many impoverished community colleges that do nothing for the employment prospects of their students; and there's some outright fraud by fly-by-night private colleges that exist only to steal the federal loans that their students take out to pay their fees.

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But the US has more than 3,000 institutions of ÖйúAƬ; the federal government has minimal responsibility for ÖйúAƬ; and states vary dramatically in what they provide and how. If Britain cannot manage to adapt more coherently and with fewer casualties, it really is a disgrace.

What is needed? Three things, unpalatable to large parts of the academy, but inescapable. The first is that means-tested grants plus loans have to be the major source of funding for students - not only for maintenance but for everything. In a rational universe, people know that whether you get a grant now and pay higher taxes later, or receive a loan now, and pay lower taxes later plus whatever income-related repayment the loan requires, is an accounting and not a moral issue. Given the current antipathy to a high-taxation economy, means-tested grants and loans with means-tested, tax-based system of repayments are the only way to fund students.

There is no reason why parents who can afford the fees at expensive private schools should get a gift from the taxpayers of the fees for medical school for their children, and every reason why governments should pay modestly for hard-up students and especially for hard-up mature students.

Socially speaking, it is rational to invest in improving your human capital, which is what ÖйúAƬ does, and, individually speaking, it is rational to invest in improving your earning potential. To the extent that we want benefits that do not appear in the national income accounts, that can be coped with by forgoing repayment or offering more generous grants to targeted groups or for targeted courses.

The second is that top-up fees (no doubt by some other name) are inevitable. No rational student will pay as much for a course that adds only marginally to their future prospects as for a course that makes all the difference. If the government wants there to be any universities in this country as good as even second-rank American universities, it must allow universities to charge what the market will bear.

As a starter, the leading dozen British universities must be allowed to privatise themselves. In science, where large capital expenditures are the order of the day, the government must concentrate its own investment in successful departments and leave commercial research to go wherever it chooses. This would not produce an Ivy League, but some version of the Ivy League plus Michigan, Berkeley, and the best liberal arts colleges.

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There is too much anxiety about the impact of higher fees on working-class students. Harvard, Yale, Princeton, Stanford, Chicago, and their liberal arts college peers such as Williams, Amherst, Swarthmore and Bryn Mawr do a very good job of making an expensive education available to clever young people from hard-up families by giving back something like 40 per cent of their income from tuition in the shape of scholarships. Given time and some government help, British universities could build up scholarship funds to do the same. Although this needs private money, it needs government assistance to get it started, and something like ten years to get British graduates used to such American habits as annual giving, and to get employers to encourage charitable giving by their employees.

The third implication is an end to national pay scales, which are more honoured in the breach at the top of the scale, and to light-weight talk of parity of esteem. In abolishing the binary system, the government put a hierarchical system in its place. Everyone knows it, but it is felt to be indecent to say so.

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Parity of academic esteem is not to be had and should not be sought after. Other sorts of esteem have nothing to do with academic excellence. In moral terms, in social usefulness, or even in economic terms, the best English department in the country may well do less good than a mediocre accounting department - the latter may rescue students from unemployment and drudgery while the former plunges them into endless wrangles about aesthetic ideology.

In that case we should hold the bad accountants in high esteem. But it doesn't alter the fact that there's a wide measure of consensus about which are the best English departments in the country, and indeed the best accountants, too.

Good departments will be the most expensive - their faculty will want more sabbaticals, will know they could earn twice as much if they went to Yale, and will want to rocket up the promotions ladder. They will also live under a lot of pressure and put each other under a lot of pressure. The best departments may be less nice to work in than less distinguished departments; but the freedom to charge fees and to set pay and conditions in a way universities currently cannot would allow the more and less ambitious (or gifted, or driven) to sort themselves out.

Will this produce an academic paradise? Not in the least. Would it be an improvement on the present system? Yes. It would do nothing to help low-paid manual and clerical workers, and would not reduce the conflicts over rents, fees and charges that all universities encounter, but it would at least allow each institution to manage its own affairs. Some would make a hash of it but most would do perfectly well.

Would it result in more students or fewer closings or openings? It's impossible to say. We do not know what the real demand for ÖйúAƬ is, whether from students looking to earn more or from employers wanting to employ better-qualified workers. But making the most directly interested parties bear more of the cost would give us some clues.

Alan Ryan is warden, New College Oxford, and has recently returned to the UK after nine years in the US at Princeton University.

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