The transformation of Australian universities from public institutions to transnational business enterprises has met little effective resistance. Yet, it is argued, this transformation undermines the founding principles of Australian democracy. This democracy emerged in opposition to the classical form of liberalism that the neo-liberals have revived. The logical unfolding of social liberalism in Australia underpinned the development of both the system of wage fixing and the idea of public education as conditions for democracy. It is argued that the lack of resistance to the destruction of democracy, as it was originally understood in Australia, by successive neo-liberal governments has been due largely to the decadent state of Australian universities.