The collapse of eastern Europe has shown state-run industry to be a failure, is it the same for state-run universities? THES looks at the competition. The private University of Witten-Herdecke is a modernist architectural vision in white concrete and tinted glass - a fitting home for a university which some consider an idealistic model for the future of German higher education and others think is a carbuncle on the country's fiercely state-dominated university landscape.

Private higher education has yet to make its mark in Germany. The 62 recognised private institutions, mostly religious colleges, educate just 1.7 per cent of students.

But because of chronic overcrowding in the state system, a new breed of economics-based private colleges are becoming increasingly popular.

Witten-Herdecke is one of these but, unlike the others, it is the only one to have been granted a "university" title and, so far, its students have not even had to pay fees.

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More irksome for Germany's strong band of critics of private higher education, Witten-Herdecke has the reformist aim of providing a better alternative to state universities. In the 1970s, a group of medical academics dissatisfied with state training decided to reform the system from without.

"German universities are set in concrete," said Konrad Schily, Witten-Herdecke's founding president.

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They are managed by the state so changes take a very long time, he added.

Witten-Herdecke University, founded in 1981, is situated in the heart of western Germany's industrial Ruhr region. Today it offers degrees not only in medicine, but also in dentistry, natural sciences and economics. Its 600 students are eligible for state support grants just like students in the state system. But their university experience, said Dr Schily, is fundamentally different.

The university relies on its own selection process, rather than the central university admissions system. Once accepted, students study in small groups on courses with a strong practical emphasis. For example, medical students have immediate contact with patients from the start of their training, and economics students work with mentor companies parallel with their studies.

Another difference is that students in all subjects compulsorily take a course in "fundamental studies", learning basic concepts of philosophy and theoretical systems that the university considers a prerequisite for university study.

Dr Schily is not only convinced that Witten-Herdecke's educational philosophy is the right one but also that the state higher education system is fundamentally flawed.

In a recent academic supplement of the political weekly Das Parlament, he argued that the collapse of eastern Europe has shown state-run industry to be a failure, so it should also be recognised for state-run universities.

Universities should be run on free-market principles as independent firms with control over their own goals and budgets, he wrote. This will enable them to respond efficiently to Germany's changing economic needs and will result in the diversification of universities and therefore offer students more choice.

His view is not popular in education circles. Critics claim private universities put financial priorities above academic interests and are restricted to the privileged who can pay fees.

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So it was fuel to their fire when Witten-Herdecke last year reported a DM5 million (Pounds 2 million) budget deficit for 1994/95. It was unable to balance the DM-million-a-year budget. Two-thirds of its income came from grants from industry and foundations, and one third from its own income generation.

The state of North Rhine-Westphalia stepped in, offering to subsidise the university's total annual income by 25 per cent. It also gave the university the go-ahead to charge tuition fees.

This was a surprise because NRW is controlled by the Social Democratic Party, which is opposed to fees. Anke Brunn, education minister and chair of the SPD education commission, has attacked proposals to charge fees in state universities claiming they are "a social numerus clausus"'.

She claimed Witten-Herdecke was an exception because it provided "an interesting model of study reform". But the decision aroused suspicions that even the SPD accepted that Witten-Herdecke might hold the key to reform.

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Dr Schily played down the decision to charge fees claiming it would only account for 10 per cent of university income in future. "We believe charging fees, if only in symbolic amounts, ensures the student takes on more responsibility," he said.

But how did students who began courses on a no-fee basis and now have to dig into their pockets see it? "Of course we are all angry about it," said Daniel Kohler, a 25-year-old economics student. "But most people recognise that we are getting a better education here. Finance is a problem and we accept that we have to participate. There are people who will not be able to afford to pay but students are working out a loans system based on solidarity."

He said he would still have chosen the university even if he had known about the extra cost, believing he will have superior employment chances on graduating.

Liane Kalkutschke, a 33-year-old dental student from Magdeburg, said she will have difficulty paying fees: "I am from eastern Germany. We have no money." But she said she was prepared take out a loan to stay at Witten-Herdecke. She believed she is receiving a higher-quality, speedier training than in a state university and would have better career prospects.

Students who entered on the understanding that they would not have to pay more than at a state university, will be charged DM3,000 a year.

The charge will rise to DM5,000 per year by the year 2000. Other private economics-based universities in Germany charge an average DM8,000 to DM10,000 per year.

Another charge which critics lay at the door of private universities is that they lack accountability of financial affairs and academic standards. Dr Schily rejects it. "All these problems can be found in state universities as well. But they are not open about it."

Since 1987 the university has been a non-profit limited liability company. The board of directors includes six university scientists and six business personalities. There is also an executive board, senate and five faculties.

As well as its own internal quality auditing procedures, the university invites international peer groups of experts to carry out external reports.

These are not made public for competitive reasons, said Dr Schily. "We are aware that we are competing on an international stage."

Unlike the state universities, said Dr Schily, the private University of Witten-Herdecke "will live or die by its reputation". Students appear to approve: last year the university received 17 applications per place for medicine.

Much to the surprise of one German news magazine, the students are not preparing protest strikes. "This is about our education, not about politics," said student Daniel Kohler.

Unexpected support for fees came from the new education spokesman for Germany's Social Democratic Party who said he believed overcrowding "cannot be solved in future without this".

The Conference of University Rectors is due to take a vote this summer on whether to introduce fees. It follows a suggestion by some rectors last autumn that students should pay DM1,000 per semester.

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But Ms Brunn, who as well as NRW minister is chairman of the SPD education commission assured universities: "There will be no student fees on the Rhine and Ruhr."