Free Marketeers.(rise of private universities in developing countries)(Cover story)

Byline: Mac Margolis

Some of the 20th century's greatest scholars got their start at India's venerable state universities. But if Anil Agarwal has his way, those august institutions will soon get a run for their money. The 53-year-old metals and mining magnate plans to create Vedanta University in sleepy Orissa state, with 100,000 students and 40,000 faculty that he claims will raise standards throughout Asia. True, only a fraction of the $3.5 billion needed has been raised. But the fact that the project exists at all is emblematic of a new trend: the privatization of higher education in the developing world.

Independent universities are nothing new in the West. But since colonial times, higher ed in Latin America, Asia and Africa has been a virtual government monopoly. Tuition was heavily subsidized or free. This began to change late last century, however. The international financial crises, massive debt and the collapse of socialism pauperized governments from Albania to Argentina, leaving them unable to support public schools.

At the same time, emerging-market economies began to take off. Soon private players stepped in, drawn by surging demand and government deregulation. Of course, launching a private university is no simple matter, especially in developing states with accident-prone economies, poor populations and thickets of red tape. Yet many barriers are now falling. Brazil is booming. In India, 30 percent of students attend private schools, up from a handful two decades ago. In China, the number has doubled since 2003. Even in Russia, three out of four students attend private schools.

The change is being driven by a shift in the international economy. As the information age goes global, college degrees become ever more important; in Brazil--which typifies the trend--graduates now earn 2.7 times more than those with just high-school diplomas. And public institutions can't keep up with the demand. A third of students taking entrance exams in Beijing last year were unable to find places.

Moreover, quality is plunging. "The truth is that ...