Public bodies are no different from the rest of us. What they need and what they would like are not necessarily one and the same thing. Politicians, too, share the usual human failings. There is a difference, sometimes, between what they say and what they mean.

The SNP government has said repeatedly that Scotland's future depends on economic growth, and that growth will depend, in large part, on the quality of our education system. Only this week Alex Salmond could be heard explaining the paramount importance of "research, innovation and academic capital". Since he was speaking within the precincts of the University of Glasgow, his words had a certain resonance.

Logically, after all, what the First Minister meant was that it is hugely important to invest, and invest heavily, in higher education. Tradition, native genius and muddling through will only get you so far, if they get you anywhere. The modern global education market is fiercely competitive. The benchmark is set by an American college elite with billions at its disposal. That, like it or not - and few now have much choice in the matter - is reality.

Mr Salmond spoke on Tuesday. On Wednesday, Finance Secretary John Swinney commended proposals for the first SNP budget to parliament. Universities Scotland, representing the principals, had lodged a bid for a £168m increase in funding, after inflation, over the three years of the government's spending review. Mr Swinney offered them, they say, £30m in real terms. For university invigilators, it counted as cheating on a crucial test.

Yet who, aside from the institutions themselves, had subjected that £168m bid to a stern examination? The universities never expected to be handed the full amount. By their own estimation, £30m is catastrophic simply because they need £40m to stand still for three years. They would have dearly liked more than four times that amount, but their reasons bear some study.

First, they wanted money for capital investment. The government says it has delivered, to the tune of £100m over and above the budget commitment. Secondly, the universities wanted to expand, mainly by increasing the research effort, by creating more graduate and postgraduate places, and through "international recruitment". As the principals claim, none of that now looks likely: Mr Swinney's £30m will barely cover wages and pensions.

But the third fact, the factor causing real distress within the universities, the thing they fear most, is a problem that is not, strictly speaking, of the Finance Secretary's making. How will Scotland cope - compete, if you prefer - with the money flooding into higher education in England? Tuition fees of £3000, an abhorrence to the SNP, are already having their effect south of the border. What happens to Scottish seats of learning if - more likely when - English fees cease to be capped? Some university leaders are blunt. Either students pay or government pays. But Mr Swinney can't or won't pay and Mr Salmond's government will have no truck with fees.

Idealistic, to be sure, but as far as the principals are concerned the SNP is dodging a question that has loomed over Scottish higher education for some time. International competition is one thing; competition within the United Kingdom is quite another.

The government could quibble, of course. After all, didn't the universities assert that they would match £168m from government through their own fund-raising and commercial efforts? This suggests a certain confidence in the idea that there is £168m out there waiting to be won. And doesn't £100m for capital spending, in addition to Mr Swinney's £30m, make a bit of a dent in the shortfall identified by the principals?

You could equally well ask if it is the purpose of our universities to turn themselves into student mills, into fee-generating machines more concerned with "revenue streams" than with education for its own sake. You could also ask whether a country of barely five million inhabitants needs 13 universities. Then you could ask a blunt, basic question. Fees: right or wrong?

On occasion, some of our principals give the impression that they find the very inquiry fatuous. At other times, despite their "outreach" efforts and socially-aware admissions policies, they treat the issue as someone else's problem. The morality of fees, far less their impact on society, apparently lies beyond the scope of principals trying desperately to balance the books and "compete". The question remains, however.

Yet if the principals provide no answer, nor do the politicians. The SNP has taken a principled stand over fees, yet failed to accept that such principles do not come cheap. In cash terms, without allowing for inflation, the universities priced their needs at £340m. The government's £100m capital allocation is, in fact, £50m more than the principals requested, but the remaining hole in university and college finances is a large one.

Higher education can claim, equally, to do its bit, and then some. Universities Scotland likes to describe the sector as a "motor of the Scottish economy" and few - certainly not Mr Salmond - dispute the fact. Universities and colleges account for 9% of the country's service sector exports (better than the banks, as the academics like to point out). Those same seats of learning excel in research, achieving a quality above the UK average. Some 56% of their income comes from the public purse, but in 1982 the figure was 83%. Yet funding is still below the OECD average.

Judging by his speeches, the First Minister envisages a Scotland in which, one day, being below any sort of average will become a distant memory. Yet as far as the universities are concerned, he can dream on. It won't happen. It can't happen. Unless and until public funding is comparable with the potential revenue from tuition fees, higher education in Scotland faces decline, certainly relative decline and perhaps decline in absolute terms.

It is easy to deplore fees. I do. It is easier still to name all the politicians, Labour politicians above all, who reached university thanks to the grant system, and who never had to worry about the tuition tax they elected to impose on others. But what are the alternatives?

First, perhaps, you could question the pell-mell expansion of the university sector. Increase student numbers by all means, as an economic necessity and a social obligation. But does Scotland really require 21 distinct institutions, with 13 universities among them?

Then ask seriously about stable funding. The only plausible alternative to fees and finance ministers grumbling over Westminster stinginess lies in endowed universities. That, though, would cost. It would, may forgotten professors of literature forgive me, cost big. It would require sustained, substantial investment in addition to existing needs for at least a decade. As Mr Salmond would doubtless argue, it is the sort of aspiration you can entertain when you have oil money to call your own.

True enough, but not the whole truth. If Mr Salmond meant what he said in Glasgow, if Universities Scotland is correct, if English institutions are about to grow fat, there is no choice in the matter. Interrogate the principals, ask them how the drive to attract students from overseas and England aids Scotland, question them about their purpose and aspirations. But recognise the challenge. It is real and it is permanent. And it will cost.