This essay is based on a roundtable of higher education leaders and policy officials convened in June 2002 as part of a larger research effort undertaken by the Alliance for International Higher Education Policy Studies (AIHEPS), an international collaboration for comparative research on higher education policy. The roundtable focused on AIHEPS research that examined the policy environments in two states, New Jersey and New Mexico. Through an extensive series of interviews with state policy officials and with data collection and analyses from many sources, AIHEPS researchers examined the relationship between the higher education policy environment and the grades these states attained on the report card measures of "Measuring Up 2000." The roundtable examined this research and identified key questions a state should ask as it seeks to improve the performance of its higher education institutions in advancing public priorities. The roundtable also proposed recommendations to help a state that wishes to improve its performance in achieving public purposes through its system of higher education. The insights of the AIHEPS project argue against the view that "market forces" in themselves will ensure that higher education institutions work effectively to fulfill a state's public objectives. States have an obligation not only to fund their systems of higher education adequately, but also to provide an explicit policy framework that informs and guides the actions of individual colleges and universities. Appendixes discuss the importance of mission differentiation, achieving the public agenda for higher education, and the role of the federal government. (SLD)