It is qute costly as well, though. I have that kind of infrastructure at my place, maybe not so advanced, but better than most, and it does cost a lot to maintain. I don't know the exact numbers, but I heard what different components of that infrastructure cost. There is security, there are data centers, computer rooms, electricity, etc. Lots to pay for.
I personally don't agree that the state decides what a university degree is, nor do I believe that universities perpetuate the situation. They do "sell" it to the masses, but it is the masses that can choose NOT to buy it. Yet we keep buying it. To me, it is a simple supply-demand situation where people come and give you their money for a piece of paper you are happy to provide. A service economy, if you will.
The only fault of the state here is not doing anything about it. That said, they can't do much about it because of the 3 factors I described above. It is a vicious cycle. People also feel locked because university degrees do increase your marketability. That, and the fact that we always hope somebody else will do it for us.
The reality is that things will only change when people back their opposition to it with action - by not actually investing any more money into university education. While I am skeptical about it happening any time soon, I do think it is the kind of "peaceful" revolution we need. Forcing universities to change by simply not giving them your money. Brilliant!
I think if we compare the digital vs. analogue storage of information, multiple lecture halls vs. online/cloud-based lecture access, multiple small group space vs. third-party conferencing software the costs for the university would decrease significantly. There would not be a need for a computer lab, as the students already own computers or tablets with which they can access university digital resources. For scholarship students the university need only lease older tablets for the students to use.
University system was initially established by the Crown to provide a consistent supply of literati to the candidate pool for the budding bureaucracy. The university system was not intended to educate every subject in a kingdom. Somehow, the university system became the modern-day distortion of a daycare center for young adults. I think we differ in the opinion regarding the function of a university: I perceive it as an appendage to the state bureaucracy, you seem to perceive it as a general public good.
I think the current university system have become more of a mercantile industry (a service sector, as you put it) rather than semi-autonomous government bureaucracy. I have a very dim view of merchants, and their profit-driven purpose perpetuate dissemination of useless degrees at exorbitant price.
Like you, I perceive the solution to be government intervention. Returning the university system to its original purpose may provide a solution, but that would not be in accord to your desire for a universally educated citizenry.