Competition is Beneficial
The case for competition in higher education is not ideological, but rooted in the economics of information.
Fifty years ago, richer countries generally had small university systems offering degrees in a limited range of subjects. In that world it was possible, as a polite myth, to assume that all universities were equally good and hence to fund them broadly equally. Today there are more universities, more students and much greater diversity of subjects. As a result, the characteristics and the costs of different degrees at different institutions vary widely, so that institutions need to be funded differentially—a problem too complex for any central planner. A mass system in an increasingly complex world needs a funding mechanism that allows institutions to charge differential fees to reflect different costs and objectives. Central planning is no longer feasible.
Central planning is also no longer desirable. It is a standard proposition in welfare economics that competition benefits consumers when consumers are well informed (Barr 2004b:Ch. 4). Students (in sharp contrast with schoolchildren or people with complex medical problems) are potentially well-informed consumers, and thus able to make choices that conform with their interests and those of the economy. Though that proposition is robust, there is an important exception: people from disadvantaged backgrounds might not be fully informed, emphasising the need for action to promote access. It should be noted that the same analytical approach can lead to very different conclusions for school education (Barr 2004b:Chs 13, 14).