Why are there not fewer, better funded PhDs? (In the UK) This may seem like a naive question, but its one I've had on my mind while working through readying my applications for a PhD in the UK. It seems bizarre to me that PhDs here are not funded by default - from my point of view, a PhD is effectively a job. It is a sort of long term graduate program for working in academia. From this point of view, it seems absurd that one could end up being in a situation where they might actually have to pay to pursue one. 

One possible answer is that universities are simply admitting more students than they are capable of funding. If that is the case, then why is it the case? Surely having fewer, better funded doctoral candidates would not only improve the lot of many "students" (employees, in my view), but it would also have beneficial impacts on the employment prospects in academia for PhD students after they finish, since there will be fewer people competing for the same number of openings.

What are the incentives and cultural motivations here that keep the system as it is? How different is it in other countries? (I have heard, but been unable to decisively verify, that many European unis treat PhDs as the jobs they are).
Universities themselves fund very few students. My faculty (which has 7 departments I can think of off the top of my head, and probably over 250 PhD supervisors) funds 2 students a year. These are used as strategic investments, either in a particular area the faculty wants to expand in, or more often as part of the start up package for a new academic.

So in answer "why not fewer, better funded PhDs", the answer is that any fewer would effectively be none.

In STEM subjects, a large number of PhDs are funded by external funding bodies, such as the government funded research councils. For example my department get 4 or 5 students a year from a Biology and Biotechnology Reserach Council (BBSRC) Doctoral Training Program (DTP). Importantly, government funded PhD studentships are only open to European (soon to be only British) citizens. Then there are CASE studentships that are financed jointly by government and industry. In both these cases the university has no say in how well resourced the studentship is; but they do earn the tuition fees that are paid by these outside agencies.

After our DTP and CASE studentships the most common way for a student to be financed is by a foreign government. These studentships generally are very well resourced because the university can more or less ask for as much as it likes. However payment of the student's stipend is down to that forigen government.

Finally if the student REALLY wants to do a PhD (so they can have a career that requires it one supposes), the university doesn't really care where the money comes from, as long as they get their £18k a year, they are happy and will tell supervisors to supervise them. Depending on the institution and the rank of the supervisor, various levels of compulsion might be applied to encouraging the supervisors to supervise a fee paying student. Supervisors are also often happy to take foreign students because the research funds they bring can see the rest of the a research group through a tough patch.