The sign at London's Green Park Underground station commands "Keep right". At King's Cross it says "Keep left". Neither has any apparent effect upon the seething mass of peak-hour commuters. They're utterly pragmatic, scrambling for the quickest route, with the words "sorry" - or "idiot" - ready when the inevitable collisions occur.

We're like that in universities at the moment. We know approximately where we need to go. But traditional order is breaking down and even the signage is confusing. Our courtesy is also tested. If you are not careful, you can be pinged by the funding police for over-recruiting and undercompleting at the same moment - like simultaneously receiving tickets for speeding and driving too slowly.

The chilly financial climate is creating more collisions between the micro-economies within universities. At one moment, we are master entrepreneurs, tapping new veins of international student ore in Upper Malevistan. The next, we are marching in the lock-step of undergraduate provision to UK and European Union undergraduates. The new mantra is flexibility, but it often looks like confusion. It is little wonder that boards of governors and corporate partners are bewildered.

While our universities struggle - some seizing moments of competitive advantage, while others band together for protection - we can overlook something very important: our students are watching us.

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Universities have a unique attribute. Against the advocacy of politics and the commercial self-interest of business, they are a neutral space that exists for dispassionate pursuit of the truth. It is, largely, why academic freedom exists, and why it is so important.

Our argument must be logical and methodologically self-conscious. It is based on evidence, not faith, ideology or pre-commitment. That's why the current debate about the evidence for global warming is so important. There has to be a neutral space where evidence can be trusted, hypotheses fearlessly tested and conclusions be seen to be valid. That space, in the European tradition, is uniquely the universities', backed in some mysterious way by the undifferentiated "public".

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The above few paragraphs may sound like the nonsense of a fully funded yesteryear. But I'm not sure that we have any better articulation of universities' uniqueness. Other bodies do teaching, or research, but it is their combination within this space that is unique, and has proved so enduring.

Within that neutral space, universities do not just invent and disseminate new knowledge. Our greatest educational benefit may, indeed, come through the way we model and shape behaviours. Universities are ideal places to practise what we preach. Most vitally, we model forms of argument, for instance learning to distinguish evidence-based reasoning from advocacy and promotion. So our students are watching, and listening, when partisan, "me-first" arguments come out of the mouths of university leaders.

Hopefully, we model social tolerance and ethical responses. Students are watching how we do, or don't, build inclusive classroom experiences, or model ethical behaviours in our business schools. Increasingly, we model greener ways of interacting with our environment. Unfortunately, many in society see us modelling overly liberal approaches to freedom of speech and human rights that provide a cloak to terrorists among the student body.

And we model widely diverse forms of organisation, in keeping with our various micro-economies. Some operate well, in defiance of textbook exemplars, but others operate incredibly badly. Our students observe that, too.

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My feeling is that we are not currently modelling these many behaviours all that well, and student respect is dropping. Why? Because we have moved to consider students as external consumers to be "satisfied", rather than as joint internal participants in the modelling game, and thereby to be intellectually embraced.

Take the international students, who now approach (by one measure) 20 per cent of the national student body, and who in some institutions are the majority. Our international students are watching, too. For a start, they don't like being modelled as "export industry". That's not very personally embracing.

Given the premium they pay, they are interested in how we model equal treatment. The focus on Lord Browne's domestic fee-cap review deflects attention from the issue of what cap there should be for overseas students. They know - and I was once one of them - that they are often cross-subsidising the studies of the domestic student at the next desk or the costs of research. Once aid, they are now modelled as trade.

In one area our students increasingly tell us that we, in British universities, have modelled very badly - the moral response to the banking crisis and the resulting public funding cuts. At this historic moment, as the struggle for world power between national governments and multinational entities intensifies, can we not be better thought-leaders and provide better ethical models of behaviour for those in our charge? How much, for instance, are our students modelling responses to the rampant capital-market speculation that is helping to drive Greece to the wall?

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Amanda Goodall ("Raise your game", 18 February) comments that "it is depressing when we hear that universities will have to pay for the mess caused by the City".

Rather, it is not "universities", but individual staff and students who will pay most for this mess. Staff with their jobs, students with their fees. And disproportionately, let's remember, it will be international students who fund these black holes.

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