Similarly, in Britain, with a much wider range of options, virtually all universities chose the maximum option. Fee increases would be inevitable anyway, but the government has made doubly certain of this by simultaneously cutting university funding (on top of earlier cuts by Labor). University of Melbourne vice-chancellor Glyn Davis has noted that, just to recoup these cuts, fees will need to be raised by 40 to 60 per cent. But the increases will be much larger if the visions of the ‘‘reformers’’ are realised. The fundamental question here is: what kind of university system do we want? The changes announced in the budget will push Australia in the direction of the US. Pyne has promoted the US as the world-leading model, asking why Australia does not have a university like Harvard? The US university system does indeed lead the world in terms of scientific research, as can be seen from its dominance of the Nobel prizes, and has done so ever since World War II. But it is a different story when it comes to the more basic function of undergraduate education. The US was once a world leader in this field as well, but it has failed badly in recent decades.

Thirty years ago, the proportion of young Americans completing college - around 30 per cent - was easily the highest in the world. Today, the US proportion is almost unchanged, and has been overtaken by many other countries, including Australia. The US education system is now much like its health system. It does a great job for the 1 per cent who go to the Ivy League schools (and whose parents are mostly in or close to the top 1 per cent of the income distribution), does an adequate but expensive job for the next 20 per cent or so, and leaves everyone else in the lurch. The Ivy League universities (and other elite schools like MIT, Stanford, Chicago, Caltech and the famous liberal arts colleges) have around 5000 undergraduate students apiece and, in most cases, this number has remained unchanged for generations. In fact, Harvard reached its peak undergraduate enrolment in the years after World War II, graduating 2000 students in 1950. Taken together, the elite private universities have a total enrolment of around 100,000 students, about 1 per cent of the eligible age cohort. Adjusting for population size, an Australian equivalent of the entire US elite sector might take in around 7500 students a year. So, the idea of an Australian Harvard is nonsensical, at least in terms of undergraduate education. The private sector dominates the top tier of US education, and also the bottom. For-profit institutions like the University of Phoenix are much admired by Australian advocates of deregulation, long after they have been discredited in the US as being little better than scams, aimed at extracting public grant money from poor students. After a string of complaints of fraud, US authorities are moving to shut down some of the worst offenders. Leaving these extremes aside, the task of educating young Americans falls to the state universities. As with the elite private universities, the top tier of ‘flagship’ state universities (such as the University of California system) have barely changed their enrolments in decades. The flagship campuses have responded to cuts in state funding by increasing tuition fees and are increasingly out of reach for middle-class and poorer Americans.

Typical tuition fees are $US10-15000 a year, or around 20 per cent of the median income for an average household. Because the system is state-based, charges for ‘out-of-state’ students are even higher. Despite the cost, admission to these institutions has become steadily more competitive, as the economic necessity of getting a university education has become more and more pressing. The situation is far worse for the lower-tier state universities and the two-year community colleges (roughly equivalent to our TAFE sector), which are in a dire state, depending on poorly paid and overworked adjunct staff for much of their teaching. In many of these institutions, graduation rates are below 25 per cent, implying that most students drop out. The same processes will work themselves out in Australia if the proposed deregulation takes place. Far from increasing access to high quality education, the deregulated system will give the elite ‘sandstone’ universities, and those that aspire to be elite, including the universities of technology, the opportunity and incentive to reduce student numbers and raise entry standards, thereby increasing the perceived quality of their product. Meanwhile, regional and outer-suburban universities will struggle to raise fees by as much as their well-established rivals, and may not even make enough to compensate for the withdrawal of public funding. So, the existing differences in status within the system (substantial, but still relatively modest by world standards) will inevitably widen.

John Quiggin is Australian Laureate Fellow in Economics at the University of Queensland.