A series of doom-laden stories, rich in self-serving hyperbole, have haunted the discourse of higher education since the Browne report. The latest terror to grip the sector is that this year¡¯s downturn in undergraduate numbers is the result of students being deterred in their droves by higher fees. That this panic is without foundation means nothing to the media and an assortment of senior academics. Let¡¯s be generous and say that they must have forgotten the lessons of basic statistics. They happily mistake correlation for causation and predict a trend towards the end of the university as we know it - from a single year¡¯s full data and very preliminary figures for 2014 admissions.

The reduction in the figures was entirely predictable from the smaller pool of potential applicants, which was partly due to a spike in applications the previous year. The fiasco of the government¡¯s attempt to manipulate numbers through the ill-fated AAB scheme also contributed to the reduction. These are tiny pinpricks, however: the consistent trend is to higher numbers and stronger demand. By any standards, today¡¯s students enjoy an outstandingly good deal.

But the numbers alarm is just one example. Elsewhere, Will Hutton, the principal of Hertford College, Oxford, has assured us - several times - that high fees and the prospect of scandalous debt are putting off prospective students from poor backgrounds and will damage attempts to widen participation. In Times Higher Education, humanities professors have tried their hand at amateur economics, lecturing us about what private enterprise is really like (nasty and brutish, apparently) and why the academy must at all costs be saved from its clutches.

We have been told repeatedly that students will be short-changed by ¡°market reforms¡± and ¡°increased competition¡±, and that they will get overcrowded lectures when inefficient courses are cut. We have also been informed that educational opportunity is being compromised by an unfeeling government. And recently, a group of self-styled defenders of the university has compared our universities with another ¡°widely admired and worth protecting¡± institution - that pinnacle of professionalism and good judgement, the BBC. Perhaps blinded by vested interest, they reach the illogical conclusion that higher education will survive only if it enjoys less government regulation and less market freedom at the same time.

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Moral panics are obviously not unique to higher education. Matt Ridley, writing in Wired magazine, has charted the recent history of apocalyptic visions of the natural world, from Rachel Carson¡¯s Silent Spring in 1962 through to climate catastrophes, dire warnings of population explosions, global famines, plagues, water wars, oil exhaustion, mineral shortages, thinning ozone, acid rain, nuclear winters, Y2K bugs, mad cow epidemics and killer bees.

None of these disastrous predictions has quite come true. We have removed many of the risks through innovative technological solutions, while others have turned out to be fantasies. This has not deterred the dealers in catastrophe. As sure as day follows night, another gloomy prediction will soon come along and people will be enjoined into mass panic about it.

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As with the environment, so with higher education: despite no evidence anywhere in the world to show that fees deter students, that competition leads to scholarly misery, that reduced public funding damages attainment (quite the contrary, in fact), or that more students leads to worse outcomes, people will continue to find fresh ways of predicting the downfall of higher education. Adam Smith succinctly understood this paradox. ¡°The learned ignore the evidence of their senses to preserve the coherence of the ideas of their imagination,¡± he said. Pessimism and fear of change seem to be ingrained in the academic mindset.

I do not take lightly the many threats to the academy that the interfering policies of governments pose. I despair equally of the cynics who lament the decline of standards caused (as they assert) through wider participation in higher education. My own outlook differs from that of people who seek to generate fear through predicting calamity. The academy will outlive the naysayers, the student experience will improve and we can continue to broaden access to higher education.

We will be able do this most effectively if we use original thinking and imaginative responses to outside pressures. This implies that higher education needs to take charge of its own destiny. What are the hopes of that, what are the reasons for optimism, and what place does competition have in realising a better future for universities?

Let us first be clear that wanting more competition does not imply having a higher education system that is not in part supported by public funds. We need competition to stimulate creative thinking and enhance diversity, whoever is paying. If anyone doubts that, or falls for the notion that competition is at odds with bettering the lot of humanity, let them consider the academy¡¯s remarkable love affair with the competitive spirit. I have worked in several public and private sector jobs as well as universities, and I have experienced none that is anywhere near as cut-throat as the academy in its ruthless pursuit of superiority.

We sometimes forget how unevenly scholarly productivity is distributed among academics. Typical estimates from North American, Australian and UK studies of productivity show that in research-focused universities, about half of the publications are produced by about 15 per cent of the total number of staff; in newer, teaching-focused institutions, half of the publications come from 10 per cent of staff. Is this good or bad? Well, whatever it is, it seems to work. People in teams cooperate in order to compete with other teams. There are winners and losers but the combined outcome is more scholarship than an equitable distribution of research time and money would provide. The positive impact of the much-maligned research assessment exercise on productivity was testimony to the academy¡¯s enthusiasm for rivalry. It is inconceivable that the increased quantity of research has had no impact on enhancing the human condition, just as it is undeniable that planned economies have proven worse at alleviating poverty than free ones.

Competition is natural to academics. Incentives matter to them. Other examples include the sector¡¯s fascination with league tables, its single-minded determination to attract fee-paying international students and its robust response to National Student Survey results. These have improved higher education, and they point the way to an unrealised potential. There is no better evidence that competition is alive and drives innovation in universities.

What we have at present, however, is an anomalous kind of competition. With a few exceptions that are merely tinkering around the edges - BPP and Pearson, for example - the system is standardised. Each institution strives to be good at nearly everything. (As we have recently seen in the case of international students, some fall short of this goal but blame it on everyone except themselves.) The supply of places for domestic students is artificially restricted and prices are controlled. It is about as much a free market as tractor production was in the Soviet Union circa 1950. The coalition¡¯s reforms will hardly ripple the surface of this placid pond.

A planned higher education system does not exist to allocate resources efficiently. Central planning is about politicians¡¯ desire for control. The status quo is aided and abetted by universities¡¯ craving for a quiet life and protection from non-university competition. The English academy, like the UK public transport system, is a classic case of state-sponsored monopoly power leading to less choice, more waste, and more expense for consumers and non-consumers alike. You may think that higher education is far too important to be left principally to one producer. Owing to collusion between universities and government, however, that is almost exactly what we have now.

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Neither businesses nor universities like markets and the competition they bring. Market forces create failing enterprises as well as successful ones, elevate the consumer to a powerful position, reduce profits and tend to keep suppliers honest. In a Mephistophelian pact, vice-chancellors have traded independence and autonomy for secure public money and protection from consumer power. Universities do not really compete for clients; instead, they expend effort trying to keep their paymasters happy. The outcome has been a remarkable uniformity in what might have been a truly varied system that could be meeting multiple needs.

It seems to be an unsustainable deal. The effect of the coalition¡¯s watering down of Browne¡¯s central proposals for removing the caps on student recruitment and fees has been to produce the worst of all possible worlds, distorting competition through restricting supply and setting maximum prices. The benefit of a market as a form of exchange is that it allows competing alternatives to exhibit their capabilities. The only winners in the current arrangements are the established institutions.

We certainly have unmet demand for undergraduate places. But now we have more providers and the same supply of places. That is in no one¡¯s interest. Neither is the fact that all students pay almost the same prices, supported by a loan system so generous that it may eventually bankrupt the Treasury.

What might improve the situation? Adjustments that increase the academy¡¯s range of incentives by liberating it from its oppressive dependence on government would start to make a difference.

The first necessity is to recognise that price sends a signal about quality. When nearly every student has to pay the same, it is impossible for them to judge the offer and they have to fall back on producer-led criteria such as entry grades. Universities should be able to do what Browne recommended and charge what they like - or, more accurately, what they believe the market will tolerate. Unless all the evidence from around the world is wrong, counter-intuitive as it may appear, deregulated fees will have no effect on wider access.

The second requirement is to remove the cap on supply. Australia has lately decided that there will no longer be any restriction on the number of undergraduates that universities can recruit; and the sky has not fallen in, in spite of the predictions of vice-chancellors and others that standards will be eroded and quality diluted. As I have argued before, doing this would be a far better way to widen participation than the Byzantine rules and accompanying bureaucracy that struggle to fulfil the same purpose in England.

Deregulating price and relaxing controls on supply would create the beginnings of a proper market. It is immaterial that it would be supported partly by public money. As we have seen in the case of the English NHS, supply-side reforms that promote competition reduce the waste of resources and enhance outcomes. What matters is that anyone should be able to set up a higher education programme, for profit or not for profit, and expect to receive the same level of support. Then we should be ready to accept that some institutions might be unsuccessful; the present system, whereby no university can fail, is not a recipe for consistently high quality. No wonder the academy¡¯s chief executives like it, though: not only is entry to the business difficult for new players but, like bankers, they can take risks secure in the knowledge that taxpayers¡¯ money will bail them out if things go wrong.

And while we are making changes, let¡¯s dismantle the red tape surrounding the government¡¯s naive view that more information about university quality will lead to more informed student choices. The Higher Education Funding Council for England¡¯s 2010 report, Understanding the Information Needs of Users of Public Information about Higher Education, showed that prospective students do not choose which course to do based on ¡°key information¡±; instead, they rely on their friends, their own estimates of what exam grades they¡¯ll achieve, where they live, where they want to live, social networking sites, parental views and schoolteachers¡¯ ideas. They have plenty of access to information. They already use it wisely to choose courses that interest them rather than ones that conform to the government¡¯s definition of quality.

The changes that followed the Browne report have started a process that now needs to be taken further. The current arrangements are complex, baffling and wasteful. The amazing thing is that they still manage to deliver a high-quality student experience - although since, like most centrally planned systems, they do this at great cost and to the detriment of diversity, they cannot be expected to do so for ever.

On the debit side also, they have left the academy in thrall to the wilfulness of governments and they have stifled innovation. It is certainly worthwhile to do a degree now. If we have the interests of future undergraduates at heart, however, we should unshackle higher education so that it can exercise its inventive spirit, admit more students and provide all of them with better value.

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