I DIVIDE my academic life between two universities, Oxford and Stanford.

In 2006, Stanford announced a fund-raising 'challenge' with a target of US$4.3 billion (S$5.9 billion at today's exchange rate).

Earlier this week, Oxford launched a campaign to raise at least £1.25 billion (S$3.4 billion), the largest ever by a European university.

Behind Oxford's bid to play in the US-style university funding super league there hovers a larger question: Will Europe, the cradle of the modern university, have any truly world-class research universities in 10 years' time? That is itself part of a still bigger conundrum: How can Europe hold its own in an increasingly non-European world?

Europe is now represented in the top 10 of the Times Higher Education Supplement ranking of universities by four institutions, all British: Oxford, Cambridge, Imperial College, London, and University College, London. In the rival rankings produced by China's Shanghai Jiao Tong University, only Oxford and Cambridge make the top 10. The other eight are American.

Oxford cites as the context of its campaign 'uncertain state funding and growing global competition'. I see that fierce competition for the best academics and students every week, whether I'm in Oxford or Stanford. This is as much a global market as that for computers, oil or financial services. Oxford is hanging in there - but, frankly, only just.

For the best and brightest academics worldwide, honeystone quadrangles, civilised college dinners and an incomparably rich intellectual tradition will go only so far to compensate for lower salaries, higher house prices and heavier teaching burdens than they would find at, say, Stanford. Money is by no means the only key asset in this globalised higher education market, but it certainly helps.

Public funding of higher education in Britain has risen under New Labour, but it can't do the whole job for a bigger university sector. In any case, financial and intellectual independence march together, as Oxford's campaign brochure notes in a paragraph pithily entitled 'Freedom'.

Defeatists look at Harvard's US$35 billion endowment and say 'we can't possibly match that'. But Harvard is in a league of its own. Stanford has just over US$17 billion, Princeton nearly US$15 billion. If you add up the endowments of the Oxford colleges, the university and its associated trusts and funds, and capitalise the average annual transfer from the profitable Oxford University Press, you would get a figure of around US$11 billion.

And that figure ignores the fact that the land holdings of some Oxford endowments are valued at 15th- or 16th-century prices - a surreal wrinkle worthy of that Oxford classic, Alice In Wonderland. Add a successful campaign that nets US$2.5 billion, and Oxford would run Princeton close.

Yet endowments - together with public and private research funding and commercial partnerships and spin-offs - are just part of the story. America's top universities also have more fee income.

Although Oxford can be pricey for students from outside the European Union, its fees for British undergraduates are capped by the government at just over ?3,000 a year. Even allowing for government funding flows that help support its college-based tutorial system, Oxford reckons it subsidises the cost of educating a British undergraduate to the tune of ?7,000 to ?8,000 a year.

If it were really to 'go American', Oxford would have to quadruple (at least) its fees. And then, to maintain 'means-blind' admission, it could provide generous bursaries from an expanded endowment for poorer students.

That may well be Oxford's direction of travel over the next decade, but it won't happen fast, completely or without some complex arguments and negotiations - for Oxford is in Europe, not America.

Its scholars and students do not merely operate in a European context which is both liberal and broadly social democratic; they are themselves part of it, sharing many of the values. They recognise that even to go some of the way down the Stanford road throws up difficult issues of access, equity and social justice.

I can't begin to cover all those issues, but here's a taste from the British example. The capped fee level of ?3,000, and the student loan system that accompanies it, will be the subject of a government review that should start next year but may not report until after the next election. (Neither Labour nor the Conservatives want this to become an election hot potato.) The government links the fee-loan issue to improved access for applicants from state - as opposed to private - schools and less advantaged backgrounds.

Oxford is scrupulously meritocratic at the point of admission - far more so than some leading US universities, which give privileged access to the dimmer kids of generous alumni, hence Yalie George W. Bush. But too many such students are deterred from applying to Oxford by unfamiliarity, downbeat teachers and the university's hard-to-shake-off image of gilded, champagne- swigging privilege.

If - to mix our metaphors in the way no undergraduate should - this hot potato lands in the court of Conservative David Cameron, if and when he becomes Britain's 26th Oxford-educated prime minister, it would be doubly explosive.

But beyond the image problems, there are real policy dilemmas. If the fee cap were to be lifted, would government raise student loans to match? That would mean both more graduate debt and more public expenditure. Or would government foot the bill directly - taking money from hospitals, state schools and social spending? Or would it ask universities to make up the difference themselves?

If Oxford's campaign is successful it could probably fund this from its endowment, giving bursaries to less well-off students, as Harvard and Stanford do. But Oxford and Cambridge are the only two major universities in Europe which could even dream of doing such a thing.

The endowments of Imperial and University colleges in London - let alone other leading British institutions - are nowhere close. So if the fee cap were lifted, and those universities charged higher fees - which their outstanding academic records would certainly enable them to do - who would make up the difference for students from poorer homes? Or would these non- Oxbridge elite universities become finishing schools for well-heeled and (increasingly) foreign students?

I don't know the answers. I haven't even spelt out half the questions. But I do know this is the debate Britain, and Europe as a whole, must have.

The fundamental question - call it the Oxford Question - is this: Can Europe have social justice in higher education and world-class research universities? Or must it choose?

The writer is professor of European Studies at Oxford University and a senior fellow at the Hoover Institution, Stanford University.

This article was first published in The Straits Times on May 31, 2008.