The age of entitlement economics is over - the sector must compete

Radical changes to our concept of higher education are inevitable and necessary. The current financial struggles of most universities mark the demise of the old entitlement economics of higher education and of the delivery models that succeeded in that world. But what no one can forecast is what the future system will look like, or more importantly, how it will be brought about.

Since the formation of the University Grants Committee some 90 years ago, the UK system has been shaped by a collusion of institutional self-interest and government funding. Universities were pretty much able to define and deliver higher education as they saw fit. Even the supposed shocks of the 1960s and 1990s, and the influx of new universities, were in practice largely an expansion of the same state-sponsored, supplier-led regime.

Not any more. The Government no longer sees sustaining successful universities as an end in itself. Ministers made this clear in the higher education framework paper, Higher Ambitions: "We shall expect to tie public funding more closely to the delivery of key public policy benefits." Universities are now regarded as one group among many others able to support policy objectives, and increasingly find themselves competing with alternative providers for public funding of teaching, research and knowledge transfer.

What about student-led change? Will we see something similar in higher education to the revolution in the music industry, where networks of subversive users used technology to create an alternative system for meeting their needs, which the mainstream industry has been forced to follow and legitimise? Certainly the growth in high-quality open-source content creates the potential for a user-designed higher education system, and services are already emerging to facilitate and even accredit this modern form of do-it-yourself education.

However, there is - and will remain - more to higher education than access to educational content. Other vital dimensions include the formative experience of learning with peers, the interaction between academic scholarship and "real world" challenges, and the cachet attached to qualifications from well-regarded institutions. These things cannot be provided through DIY learning models.

Could we envisage a system designed by and for employers? The view of higher education as a grounding for professional employment has become the new orthodoxy, shared by the Government, employers, institutions and students. More than a third of higher education students now follow vocationally related programmes, and all the indications are that this will increase.

But despite their criticisms of current provision, most employers still regard themselves as customers of the outputs of the higher education system, not as funders, and even less as co-providers. As one very large employer put it to us, "we are in the business of business, not of education".

So, we see the Government, students and employers all looking for different experiences and outcomes from higher education, and recognising that universities are no longer the only - or necessarily the most responsive - option. Universities must stop simply asserting their special place in the new world order of higher education and demonstrate it in the terms expected by their customers and paymasters. They must be willing to discard the anachronistic shibboleths that constrain innovation and modernisation.

Encouragingly, we are starting to see successful examples of the possibilities for creative iconoclasm. One example is the establishment of university-based "learning hotels", opening up the community of scholars by inviting academics and practitioners from a range of disciplines to work together on complex problems. Linked with experiments in flexible career paths that encourage academics to combine teaching and research with professional practice, the university becomes a creative meeting place for the interchange of people and ideas.

Other new possibilities are being created through "on-demand" learning models, giving students the freedom to design their own pathways through learning, studying where, when and how it suits them.

The emergence of private-sector specialist providers for different elements of the higher education service chain opens up the prospect of "umbrella" organisations, embracing consortiums of public and private entities that offer more choice and flexibility than self-contained individual providers.

None of these innovations will singularly define the future shape of the system. Some may not work at all. But they serve to remind us that responding to new situations is often about letting go of outmoded assumptions and practices.