In 1996, Jeff Sandefer saw a fatal mixture of moral decay and arrogance at Enron Corporation and publicly predicted the company's decline. He was right; Enron disintegrated within five years.

Now Sandefer senses the collapse of another hallowed institution, the U.S. system of higher education. He doesn't know when it will happen, but he sees the "beginning of the end of a thoroughly corrupt system."

Sandefer was the keynote speaker at a forum sponsored by the Atlas Economic Research Foundation in Guatemala City on April 5. Atlas, a nonprofit institute that nurtures free-market think tanks around the world, is turning its attention to universities as well. The goal of its "Teach Freedom" seminars is to explore how universities can support the principles of free markets, limited government, and the rule of law, but the forums cover many aspects of higher education.

The meeting revealed some bright spots such as Eastern Europe, where independent universities are being formed. The message about higher education in the United States was bleak, however, especially in Sandefer's eyes.

Sandefer has credibility as the founder of an unusual school, the Acton School of Business, located in Austin, Texas. Acton offers an intense one-year MBA program that has sent shock waves around the country. Ranked by the Princeton Review near the top of all U. S. business schools, Acton is built upon the idea that students are customers who hold the school accountable.

Students evaluate teachers every week, and the evaluations are publicly posted. Students evaluate their teachers at the end of the year, too. Faculty at the top can receive bonuses of up to $35,000, and the faculty member who receives the lowest evaluation won't teach the next year. At the same time, the students, who work an average of 100 hours a week, are graded on a forced curve (that is, the numbers of As and Bs are limited). Because they see their end-of-year rankings before giving teachers their final evaluations, they cannot use their evaluations to "buy" better grades.

All of the faculty are successful entrepreneurs and the program is based on the principle of "learning by doing." Students must sell door-to-door, design and operate an assembly line, plan a call center (such as an airline reservation system), and "stand in the shoes of an entrepreneur" in more than 300 real-world case-study discussions. Students also take a "Life of Meaning" course, which forces them to find a calling in life, a mission that allows their skills to be used in a way that, in Sandefer's words, "brings great joy" and serves others.

Most students can obtain a scholarship that covers the one-year tuition. If, when they are done, they decide that they have not sufficiently benefited from the experience, they don't have to pay it back. If they have benefited, they can pay 10 per cent of their annual salary until they reach the full amount owed.

All these innovations add up to a revolution in business education-education as a contract between school and student, with demands that each party must live up to.

When Sandefer casts his eye on higher education as most schools practice it, however, he sees something completely different, a "pedagogy of arrogance," which he summarizes as: "I'm the expert-I talk; you listen."

The producers of most higher education have "no interest in customer satisfaction," he said at the Atlas meeting. He compared universities to General Motors, now on the brink of collapse. Like GM, says Sandefer, higher education is "union-dominated, bureaucratic, out of touch with its customers, and out of touch with reality."

Sandefer ticked off a few rough statistics to support his point that the economics of higher education will ultimately bring it down. For example, $200 billon out of the $300 billion spent on undergraduate education is going to academic research, not teaching, and a lot of that research results in "narrow-focused research articles that few read."

Eighty per cent of higher-education resources are spent on tenure-track faculty, he said, but non-tenure-track faculty teach 70 to 80 per cent of the students. "If the tenure-track faculty went on strike, no one would notice."

At Acton, the focus is entirely on the student, creating what Sandefer believes is a "pedagogy of humility," rather than arrogance. The "teacher as expert" model is replaced by experienced entrepreneurs, who, through the case method and experiential learning, show that asking the right question is far more important than being the smartest person in the room.

Sandefer holds that the bureaucratic "pedagogy of arrogance" may soon collapse, much like the General Motors and even the former Soviet Union. Traditional universities are beginning to partner with for-profit companies to design and deliver "private label" education, using the prestige of their name brands to sell Internet courses designed by others. While in the short run this may boost enrollment and deliver degrees for a fraction of the $30,000 annual cost of a traditional university, in the long run it will cannibalize demand until there are few students left who are willing to pay to listen to tenured faculty lecture.

Sandefer sees the decline of traditional academia hastened by a coming disaggregation of traditional teaching into separate parts: curriculum design, delivery of tools and skills to the individual student, and coaching. He foresees a much more effective market-based system that helps students learn at a time, place, and pace of their own choosing.

One example of this disaggregation is Acton's new MBA writing program, which uses part-time writing coaches to work with students online. The experiment, borrowed from the Stanford Business School, frees Acton's teaching faculty from writing instruction and instead pairs students with an army of part-time editors, writers, and English teachers. They like the work so much they are willing to work for $10 an hour, especially because they can choose their own hours.

Another example of pedagogical humility is Acton's effort to develop a "grassroots" business education through online programs that can be distributed throughout the world-at a nominal cost. Acton is currently providing compelling videos of successful entrepreneurs talking about their experiences and has developed simulation games that are fun for children as young as seven years old, while still challenging the skills of an Acton-or Harvard-MBA.

Sandefer says he understands that the ivory towers of academia are built to withstand attacks from the outside. But he believes that continued bureaucratic rot from within, combined with innovation and disaggregation from the outside, may finally bring them down. The victors, he says, will be students, parents, and taxpayers.

Jane S. Shaw is president of the Pope Center for Higher Education Policy. She was previously an associate economics editor at Business Week and a senior fellow at PERC, the Property and Environment Research Center. She is the co-author of Facts, Not Fear: Teaching Children about the Environment (Regnery 1999).