Why Higher Ed Must Embrace Institutional Diversity To Stay Competitive

Once there was a university administrator who was convinced he knew exactly how and by whom innovation should be taught at his institution. Confident in his vision, he delegated the responsibility to a single department. Within a year, several frustrated scholars from other department had left for another university 185 kilometers away, where they founded a new department that went on to gain international recognition.

In another case, a research scientist asked her university to invest an additional $1 million in her laboratory. When the university refused, she and her team found a more receptive institution just a few metro stops away. The entire research group moved together.

These stories may sound anecdotal, but they capture a familiar truth about academic life: imperfect decision-making is inevitable. Universities are complex and often political organizations. What matters is not eliminating imperfection, but ensuring that no single institution, actor or ideology dominates.

In a diverse university ecosystem, different institutions, disciplines and perspectives complement one another. Their very differences make the system more resilient. Together, they turn imperfection into productive tension. Imperfection in decision-making can serve a source of innovation rather than frustration.

Such diversity fosters healthy competition that encourages academics and administrators to focus on bridging social capital (building connections across groups) rather than reinforcing bonding social capital (strengthening in-groups). The former requires more effort but is essential to avoid the dangers of group think, which is ever-present risk in academia, where intellectual consensus can easily harden into orthodoxy.

Unfortunately, groupthink extends beyond the walls of individual universities. It also shapes how policymakers and the public conceptualize higher education itself. Particularly the belief that it is almost entirely a public good.

The logic seems straightforward: if education benefits society, the state should fund it. Yet this assumption ignores both economics and reality. Higher education is not a pure public good. It is partly public and partly private. In other words, semi-public or semi-private good.  Recognizing this distinction is crucial if we want to design a funding model that supports a healthy and diverse university ecosystem.

A public good is something that one person can consume without reducing its availability to others like clean air or national defense. Higher education does not fit this definition. Every additional student increases costs for universities and taxpayers. The absence of tuition fees may appear egalitarian, but it conceals the real cost of education. The cost is not only financial, but also the opportunity cost of students’ time and effort.

Moreover, university education is a process of co-creation, where the motivation and commitment of learners, educators and other stakeholders interact in unpredictable ways. This process thrives best in systems that allow for experimentation, flexibility and a mix of public and private initiative.

LESSONS FROM ESTONIA & SWITZERLAND

Consider the contrasting cases of Estonia and Switzerland. In the Institute for Management Development (IMD) World Competitiveness Ranking 2025, Estonia now ranks 15th globally in education competitiveness. The result may look impressive in a Central and Eastern European context, but that is hardly the right benchmark for a country that prides itself on being one of the world’s most advanced digital ecosystems. In the IMD World Talent Ranking 2025, Estonia ranks 18th for talent development but only 64th for skilled labor, 54th for international experience and 53rd for top management competence.

Estonia performs well on inputs, such as total public spending on education as a percentage of Gross Domestic Product (GDP), ranking eighth among 69 economies included in the IMD Talent Ranking. This is ahead of Switzerland, which ranks 10th. But Estonia performs less well on outcomes: real-world skills, adaptability and innovation. Switzerland, meanwhile, ranks first in both IMD studies despite of the high cost of living.

What explains the gap? Switzerland benefits from a remarkably balanced higher education ecosystem, where public universities, universities of applied sciences and private institutions coexist and collaborate with ease. The result is a mix that pairs world class academic research with strong vocational training and clear entrepreneurial pathways. Switzerland shows how institutional diversity can become a competitive advantage. Its higher education system is anchored in close partnerships between public and private actors, producing a level of excellence and resilience that few countries can match.

FROM FUNDING DEBATES TO ECOSYSTEM THINKING

All such international comparisons are imperfect and open to endless methodological debate. Yet they highlight an important point: many countries are investing heavily in education but still struggle to translate knowledge into skills, experience and value that their societies need.

Too often, the public debate focuses narrowly on how much funding or how many study places higher education receives. The more meaningful question is whether graduates are equipped for the realities of a fast-changing world shaped by technological disruption, demographic shifts and geopolitical competition.

Meeting these challenges requires ecosystem diversity, not uniformity. A rapidly changing labor market cannot depend solely on the public sector. Private higher education institutions bring essential diversity, international networks and practical perspectives that strengthen entrepreneurship and innovation. Instead of treating them as competitors, governments and public universities should view them as partners in preparing societies for the future of work.

A modern education policy should therefore embrace diversity, equal treatment and experimentation. It should reward institutions — public or private — that produce results, foster innovation and bridge the gap between academic knowledge and practical skills. The goal is not to privatize education, but to recognize that different actors contribute in complementary ways to the same mission.

RETHINKING THE FUNDAMENTALS

The next great leap forward in higher education will not come from doing more of the same. It will come from rethinking the fundamentals: what kind of education system we want, who should fund it and how to make it resilient in the face of continuous change.

Recognizing that higher education is not a pure public good but rather a semi-public good is the first step towards a balanced and future-proof system which serves both individuals and society.

If our goal is to strengthen knowledge-based competitiveness, we must value all contributors, regardless of ownership or governance structure. Public and private institutions together form a single higher education ecosystem which thrives on collaboration, complementarity and the free flow of ideas and talent.

Imperfection will always be part of that ecosystem. The challenge is to make it less imperfect. In doing so, the education ecosystems will become more innovative, more inclusive and more capable of meeting the world’s evolving needs.

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Meelis Kitsing is the rector of Estonian Business School. Read Poets&Quants‘ interview with him from July 2025. 

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