Universities around the world are increasingly enjoined to behave like businesses, and this trend is certain to continue. For one thing, public funding for further and ÖйúAƬ will continue to fall, as a proportion of total funding and in terms of funding per student. As demand for tertiary education rises and its value is increasingly recognised, the community's willingness to pay appears, paradoxically, to fall.

Already, in New Zealand at least, less than half of universities' current income comes from the government grant. Much of the balance is raised from student fees. As fees rise, students will see themselves more as customers buying a service. They will become demanding and litigious if they feel they are not getting value for money. Universities will have to ensure, like businesses, that they are satisfactorily meeting the needs of their customers.

They will also be under pressure to develop new income streams - from research, through public funding agencies and the private sector, and from commercially based activities. The greater risk of loss as well as gain will reinforce the demand for accountability. Universities will need to demonstrate that they are run efficiently, through greater emphasis on monitoring, strategic planning, quality assurance, staff training and internal and external audit.

In this environment, universities will find themselves acting more like private-sector corporations in the marketplace. This will stimulate product differentiation and specialisation, concern for market share, competition for funding and for customers, more attention to product development and to customised products. There will be constant mergers and takeovers, and new entrants seeking new market opportunities.

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What should be the attitude of the universities to these developments? They should not all be seen as necessarily threatening. The greater responsiveness to student needs, encouragement of innovation and pressure for a more efficient use of existing resources are developments to be welcomed.

There are, however, many unattractive implications. If universities are to operate simply as market suppliers, there is no room for taking a longer-term, wider, community-based view of the national interest or acting (as is provided in the New Zealand legislation) as "critic and conscience of society". No student customer is going to say "here is my $10,000 (Pounds 3,570) for this year's courses and here is a couple of hundred extra so that you can act as critic and conscience of society".

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Nor should we be too blinded by the obvious virtues of the market in stimulating innovation and efficiency by encouraging an immediate responsiveness to customers' needs. It is arguable that universities exist not just to meet customers' needs but to provide an element of continuity, stability and permanence in society - the antithesis of making an immediate and short-term response to every fluctuation in marketplace demand.

One of the strengths of the market is that it allows for failure. Indeed, it is the prospect of failure that encourages innovation and efficiency. At any given moment in a properly functioning market some providers will be failing. This is not necessarily a good idea when the "product" is not baked beans but a possibly once-in-a-lifetime chance of ÖйúAƬ.

Where the customer is king, their demands may be just as oppressive as those of government. Students who see themselves as buying their ÖйúAƬ will believe that they are buying a qualification - a piece of property - and any failure to deliver it will be regarded as a failure on the part of the provider. Universities that have to act as slaves to the market to survive will have lost a bit of their academic independence.

In New Zealand, the disadvantages of market provision may be exacerbated - paradoxically - by greater government intervention. This is because the government, at least by implication, recognises some of the deficiencies of the market as a supply mechanism for ÖйúAƬ and wants to reassure the public that market provision is reliable and quality will be maintained.

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New Zealand universities will accordingly be placed under a statutory board that will approve or not approve the processes by which university courses and programmes are validated. Because market provision carries with it a greater degree of risk in financial terms, the government proposes, as "sole owner" of the universities, the right to protect its investment by appointing all the members of the board of directors who will in effect run the universities. These two measures would place New Zealand universities in an invidious position in terms of international perception. It would be a heavy price to pay for the supposed advantages of market freedom.

Where is education in all of this? Greater administrative efficiency may benefit the purse (either public or private) but may not do much for the mind, particularly when efficiency savings are siphoned off for other purposes and do not appear directly to benefit tertiary education. Doing more with less is always an attractive proposition for politicians but the more output-oriented, accountant-driven, customer-focused, productivity-fixated we become, the greater the danger of losing sight of educational goals.

It is hard to evaluate some of these developments. Is a change in the staff:student ratio from 1:12 to 1:18, as has happened in most New Zealand universities, a good or a bad thing? Are more graduates on less funding evidence of a welcome increase in productivity or of a threatened fall in standards? Does a shift in the source of funding from the public to the private purse mean an increased incentive to meet customer needs or an abdication of community responsibility?

The trick is to strike a balance, neither resisting all change nor embracing change for change's sake. We should never lose sight of the fundamental purpose and role of universities. For example, take the interest in open or flexible learning. This is often presented as a novel thought but is in fact a very old concept. When I was an Oxford don we used a very old technology - students were sent away with a weekly reading list. This was open and flexible learning. New technology gives us the opportunity of applying this old and valuable technique to a new generation of students, making it possible to meet our fundamental purposes, and - in the new jargon - to maximise customer satisfaction at the same time.

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The business of universities is to respond intelligently to change and to shape change to meet our purposes. Universities are surely better equipped than most for this.

Bryan Gould is vice-chancellor of the University of Waikato, New Zealand.

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