Top-up fees will only patch over the problems

Sometimes it is easier to see 10 years ahead than 10 days. And so it is with university funding. My call on next week's vote on top-up fees is no better than anyone else's. But I am very sure that in 10 years' time the present "one size fits all" system of university funding will have become a distant memory.

Sometimes it is easier to see 10 years ahead than 10 days. And so it is with university funding. My call on next week's vote on top-up fees is no better than anyone else's. But I am very sure that in 10 years' time the present "one size fits all" system of university funding will have become a distant memory.

Universities will charge different levels of fees, have different levels of service and a much wider variety of funding packages to attract the best students. Top-up fees funded by an additional tax on graduates may be part of these packages, or they may not. But they are not going to fix the problem.

You can see this by standing back from this present row and considering the huge structural changes that are now taking place in higher education around the world.

First, this is boom-time. It may not feel like it in the battered campuses of the poorer British universities, but if you measure the number of young people around the world entering some form of higher education, it is rising (on a quick back-of-an-envelope tally) by more than 5 per cent compound. This mainly is the result of three factors: a rising proportion of school leavers going to university in virtually all developed countries; sharply rising university populations in China and to a lesser extent India; and a surge in demand for postgraduate degrees.

Second, what have in the past been largely separate national industries are now becoming part of a global marketplace. The US and to a smaller degree the UK have been the main beneficiaries of this trend - a similar shift as has occurred in manufacturing and financial services. Until recently this mainly affected the postgraduate sector, but now the undergraduate business is going global too. For example, there are some 70,000 Chinese students - at various levels - in Britain, and the US has become an increasingly popular option for young British people for their first degree.

Distance learning and local franchising has also boomed. In Bangalore earlier this month I saw an advert for a University of Wales degree to be awarded to students at a local campus. UK universities may be struggling, but the brand evidently remains strong.

Third, the US is streaking ahead. It dominates research, scoring tops on measures such as Nobel prize winners, but it also dominates in market terms: it is the number one destination for the best students. This is the result of several factors, including obvious ones such as relatively strong funding, but also less obvious ones including the lure of being able to stay in the States and get a job after graduation. Above all, it dominates because it is most fiercely competitive university market in the world: competition for students, for faculty, for money, for research awards. The US economy has become a huge beneficiary of the country's lead in higher education.

These three seismic shifts in higher education will transform our own universities over the next decade. Unless we deliberately try to choke off demand, we will see an increase in student numbers. If British students are put off by having to fund a higher proportion of their undergraduate education, there is plenty of demand from abroad. The export market, so to speak, will pick up any decline in demand from the home market.

It would be odd if home students were deterred, for Britain has an unusually large gap, at least by European standards, between the earnings of graduates and high-school leavers. In purely economic terms, it makes more sense in Britain to stay on an get a degree than it would in, say, Germany.

I suspect, too, that demand for higher degrees will continue to rise, as the best jobs increasingly require it. We have a comparative advantage in being able to get people to a masters standard in only four years (three at Oxbridge), making a British degree a good deal by international standards.

Whether the target of this government to get 50 per cent of school-leavers into higher education will or should be attained is not clear. There must be some limit to the extent to which students can benefit from higher education. But my instinct is that the 50 per cent target is quite a sensible one. Better to have some wastage, with higher drop-out rates, than to deny anyone the fullest education that he or she can use. The main competitive advantage any developed country has is its brains. Not training them to the fullest possible extent must be nuts.

Globalisation will race on for another generation at least. China and India will see to that. The issue for us is how far to pitch our wares to these two giant markets. We seem to have made a collective decision to go hard for China but not so hard for India. In November, on a plane between Shanghai and Beijing, I sat next to the dean of a British art school, who said he had been touring round a dozen or more colleges, selecting the best Chinese students for his school. He is not alone.

By contrast, and notwithstanding the University of Wales's valiant efforts in Bangalore, the US, not Britain, seems to be the destination of choice of the brightest Indians. I'm not sure why: maybe the US offers better funding or better postgraduate job opportunities. All I can report is that a number of young people made this point.

What is not in dispute, though, is the growing demand for cross-border higher education at English-speaking universities. We will inevitably respond to this demand; the market will see to that. What we need to think about is how to balance foreign students with the UK student body, making sure that both benefit as they should. We need to ponder how to get the best students and whether to encourage them to stay after their courses. And we need to look at the brand leaders in the US to see how we might lift our own performance.

That leads to the final point. We are not going to be able to beat the top US colleges, but we can give them a better run for their money than we are doing now. We have a number of advantages. One is that a lot of students don't want to go to America for social and other reasons. Visa problems post-11 September have not helped. I cannot prove it, but I suspect a lot of young people are sent by their parents to British universities less because of their educational excellence and more to establish a base in the UK.

Besides offering the financial advantage of getting through courses a year faster, we can extend some of the deals that US universities use to pull in their best students: more loans and grants, on-campus jobs and so on.

All this is going to happen. My modest acquaintance with top UK academics suggests that they are extremely business-savvy people. There is a drive to do better, both in terms of improving the output and the input. "I'm really the chief executive of an international business," the art school dean on the Beijing plane told me, "except that I'm not paid a business salary."

That too will surely have to come. It is simply too dangerous to allow our best university talent to be tempted away to the US or other English-speaking countries. I suspect this means that universities will have to find ways of becoming more independent of government and more responsive to the market. More aspects of the US funding model will have to come in, though there is no need slavishly to follow it - and in any case there are many different US models.

And top-up fees? Well at the level proposed there simply is not enough revenue there to do more than patch things for a bit. In 10 years' time that will be even more evident than it is today.