The establishment of the welfare state is the mainstream in advanced Western countries after World War Ι. However, due to the economic problems caused by oil crisis and the challenges brought by globalization, the welfare states have been increasingly at risk and in crisis since 1970s. In response to the crisis, many countries have adjusted their financial operations, which therefore cause the transition of the type and role of the nation. In this transformation process, the competitive state system gradually replaces the welfare state system and becomes an important national type in modern Western countries. The change of state types - from welfare state to competitive state - also brings about different levels of impacts on the development of higher education. Higher education was one of the items in the welfare list in welfare state, but in competitive state, higher education becomes one of the major tools to enhance national competitiveness. By virtue of literature analysis, the aim of this study is on one hand to explore the national transformation process; on the other hand to analyze the impact of these two types of states on higher education. Broadly speaking, these effects are manifested in two levels: 1. the government's role in the field of higher education transforms from state-controlled to market-oriented; while the government's higher education policies emphasize strategy instead of intervention. 2. For higher education institutions, the pursuit of academic excellence lies in enhancing the international competitiveness, and the position of higher education institutions has been changed from the maximization of the welfare to the emphasis on the entrepreneurship and profitability. However, the problem of social fairness and justice in this transitional process is still a challenging task, which both government and institutions of higher education need to face with.