I'm partial to this argument, but it only works if you allow for technical education that does provide people with the STEM (or other) skills needed for the workforce. I think higher education in the US is actually very broken.
The best example I can think of that embodies that division of purpose is the UK, where you have Oxbridge and other elite institutions which function in the sense you are referring to, but you also have the Polytechnics that train people for practical careers.
In Slovenia we used to "solve" this by having two levels of university education, one was more practical and another was more theoretical.
There were a lot of execution problems with the system, so they went ahead and ruined it further with the bologna reform. Now we still have two types of university educations (on the bachelor's level), except they're both very practical and the only difference there is that the one stemming from the old theoretical tier makes it harder to get into master's programs.
Which then in turn ruins the master's because it needs to be dumbed down to enable people taking the "easier" tier to follow along and graduate.
As a result, even the PhD isn't what it used to be anymore ... at least on my faculty (CS).
The best example I can think of that embodies that division of purpose is the UK, where you have Oxbridge and other elite institutions which function in the sense you are referring to, but you also have the Polytechnics that train people for practical careers.