FOR AMERICA's public schools, the last decade has been the worst of times and the best of times. Never before have the public schools been subjected to such savage criticism for failing to meet the nation's educational needs; yet never before have governments been so aggressively dedicated to studying the schools' problems and finding the resources for solving them.

During the 1980s, a growing sense of crisis fueled a powerful movement for educational change, and the nation's political institutions responded with aggressive reforms that included tougher requirements, more rigorous testing and strengthened teacher certification and training. As the decade came to an end, creative experiments of various forms -- from school-based management to magnet schools -- were being launched around the nation.

We think these reforms are destined to fail. The fundamental causes of poor academic performance are not to be found in the schools, but rather in the institutions by which schools have traditionally been governed. Reformers fail by automatically relying on these institutions to solve the problem -- when the institutions are the problem.

The key to better schools, therefore, is institutional reform. What we propose is a new system of public education that eliminates most political and bureaucratic control over the schools and relies instead on indirect control through markets and parental choice. These new institutions naturally function to promote and nurture the kinds of effective schools that reformers have wanted all along.

Generally speaking, effective schools -- public or private -- are those that have strong leadership, clear and ambitious goals, strong academic programs, teacher professionalism, shared influence and staff harmony.

How do these kinds of schools develop and take root? Our own perspective dovetails with a central theme of educational analysis and criticism: the dysfunctions of bureaucracy, the value of autonomy, and the inherent tension between the two in American public education. Bureaucracy imposes goals, structures and requirements. It tells principals and teachers what to do and how to do it -- denying them the discretion they need to exercise their expertise and professional judgment and the flexibility they need to develop and operate as teams. The key to effective education rests with unleashing the productive potential already present in the schools and their personnel. As our study of 500 public and private American high schools documents, the freer schools are from external control the more likely they are to have effective organizations.

People who make decisions about education would behave differently if their institutions were different. The most relevant and telling comparison is to markets, since it is through democratic control and markets that American society makes most of its choices on matters of public importance, including education. Public schools are subject to direct control through politics. But not all schools are controlled in this way. Private schools -- representing about a fourth of all schools -- are subject to indirect control through markets.

Our analysis suggests that the difference is considerable and that it arises from the most fundamental properties that distinguish the two systems. A market system is not built to enable the imposition of higher-order values on the schools, nor is it driven by a democratic struggle to exercise public authority. Instead, the authority to make educational choices is radically decentralized to those most immediately involved. Schools compete for the support of parents and students, and parents and students are free to choose among schools. The system is built on decentralization, competition and choice.

Given the bottom-heavy technology of education, schools that seek to please their clients tend to favor decentralized forms of organization that take full advantage of strong leadership, teacher professionalism, discretionary judgment, informal cooperation and teams. They must also ensure that they provide the kinds of services parents and students want and that they have the capacity to cater to and adjust to their clients' specialized needs and interests.

Schools that operate in an environment of competition and choice thus have strong incentives to move toward the kinds of "effective-school" organizations that academics and reformers would like to impose on the public schools. Of course, not all schools in the market will respond equally well to these incentives. But those that falter will find it more difficult to attract support, and they will tend to be weeded out in favor of schools that are better organized. This process of natural selection complements the incentives of the marketplace in propelling and supporting a population of autonomous, effectively organized schools.

Our guiding principle in the design of a choice system is this: Public authority must be put to use in creating a system that is almost entirely beyond the reach of public authority. Because states have primary responsibility for American public education, we think the best way to achieve significant, enduring reform is for states to take the initiative in withdrawing authority from existing institutions and vesting it directly in the schools, parents and students. This restructuring cannot be construed as an exercise in delegation. As long as authority remains "available" at higher levels within state government, it will eventually be used to control the schools. As far as possible, all higher-level authority must be eliminated.

What we propose, more specifically, is that state leaders create a new system of public education with the following properties:

The state will be responsible for setting criteria that define what constitutes a "public school" under the new system. These criteria should be minimal, roughly corresponding to the criteria many states now use in accrediting private schools -- graduation requirements, health and safety requirements and teacher certification requirements. Any group or organization that applies to the state and meets these minimal criteria must then be chartered as a public school and granted the right to accept students and receive public money.

Existing private schools will be among those eligible to participate. Their participation should be encouraged, because they constitute a ready supply of often-effective schools. Our own preference would be to include religious schools too, as long as their sectarian functions can be kept clearly separate from their educational functions. Any private schools that do participate will thereby become public schools, as such schools are defined under the new system.

School districts can continue running their present schools, assuming those schools meet state criteria. But districts will have authority over only their own schools and not over any of the others that may be chartered by the state.

The state will set up a Choice Office in each district, which, among other things, will maintain a record of all school-age children and the level of funding -- the "scholarship" amounts -- associated with each child. This office will directly compensate schools based on the specific children they enroll. Public money will flow from funding sources (federal, state and district governments) to the Choice Office and then to schools. At no point will it go to parents or students.

As it does now, the state will have the right to specify how much, or by what formula, each district must contribute for each child. Our preference is for an equalization approach that requires wealthier districts to contribute more per child than poor districts do and that guarantees an adequate financial foundation to students in all districts. The state's contribution can then be calibrated to bring total spending per child up to whatever dollar amount seems desirable; under an equalization scheme, that would mean a larger state contribution in poor districts than in wealthy ones.

While parents and students should be given as much flexibility as possible, we think it is unwise to allow them to supplement their scholarship amounts with personal funds. Such "add-ons" threaten to produce too many disparities and inequalities within the public system, and many citizens would regard them as unfair and burdensome.

Complete equalization, on the other hand, strikes us as too stifling and restrictive. A reasonable trade-off is to allow collective add-ons, much as the current system does. The citizens of each district can be given the freedom to decide whether they want to spend more per child than the state requires them to spend. They can then determine how important education is to them and how much they are willing to tax themselves for it. As a result, children from different districts may have different-sized scholarships.

Scholarships may also vary within any given district, and we strongly think that they should. Some students have very special educational needs -- arising from economic deprivation, physical handicaps, language difficulties, emotional problems, and other disadvantages -- that can be met effectively only through costly specialized programs. State and federal programs already appropriate public money to address these problems. Our suggestion is that these funds should take the form of add-ons to student scholarships. At-risk students would then be empowered with bigger scholarships than the others, making them attractive clients to all schools -- and stimulating the emergence of new specialty schools.

Each student will be free to attend any public school in the state, regardless of district, with the student's scholarship -- consisting of federal, state and local contributions -- flowing to the school of choice. In practice most students will probably choose schools in reasonable proximity to their homes. But districts will have no claim on their own residents.

To assist parents and students in choosing among schools, the state will provide a Parent Information Center within its local Choice Office. This center will collect comprehensive information on each school in the district, and its parent liaisons will meet personally with parents in helping them judge which schools best meet their children's needs.

The Parent Information Center will handle the applications process in a simple fashion. Once parents and students decide which schools they prefer, they will fill out applications to each, with parent liaisons available to give advice and assistance and to fill out the applications themselves (if necessary). All applications will be submitted to the Center, which in turn will send them out to the schools.

Schools will make their own admissions decisions, subject only to nondiscrimination requirements. This step is absolutely crucial. Schools must be able to define their own missions and build their own programs in their own ways, and they cannot do that if their student population is thrust on them by outsiders. They must be free to admit as many or as few students as they want, based on whatever criteria they think relevant -- intelligence, interest, motivation, behavior, special needs -- and they must be free to exercise their own, informal judgments about individual applicants.

Schools will set their own "tuitions." They may choose to do so explicitly, say, by publicly announcing the minimum scholarship they are willing to accept. They may also do it implicitly by allowing anyone to apply for admission and simply making selections, knowing in advance what each applicant's scholarship amount is. In either case, schools are free to admit students with different-sized scholarships, and they are free to keep the entire scholarship that accompanies each student they have admitted. That gives all schools incentives to attract students with special needs, since these children will have the largest scholarships. It also gives schools incentives to attract students from districts with high base-level scholarships. But no school need restrict itself to students with special needs, nor to students from a single district.

As long as they are not "arbitrary and capricious," schools must also be free to expel students or deny them readmission when, based on their own experience and standards, they believe the situation warrants it. This authority is essential if schools are to define and control their own organizations, and it gives students a strong incentive to live up to their side of the educational "contract."

The state will continue to certify teachers, but requirements will be minimal, corresponding to those that many states have historically applied to private schools. In our view, individuals should be certified to teach if they have a bachelor's degree and if their personal history reveals no obvious problems. Whether they are truly good teachers will be determined in practice, as schools decide whom to hire, observe their own teachers in action over an extended period of time, and make decisions about merit, promotion and dismissal.

The state will hold the schools accountable for meeting certain procedural requirements. It will ensure that schools continue to meet the criteria set out in their charters, that they adhere to nondiscrimination laws in admissions and other matters, and that they collect and make available to the public, through the Parent Information Center, information on their mission, their staff and course offerings, standardized test scores (which we would make optional), parent and student satisfaction, staff opinions, and anything else that would promote informed choice among parents and students.

The state will not hold the schools accountable for student achievement or other dimensions that call for assessments of the quality of school performance. When it comes to performance, schools will be held accountable from below, by parents and students who directly experience their services and are free to choose. The state will play a crucial supporting role here in monitoring the full and honest disclosure of information by the schools -- but it will be only a supporting role.

Our proposal calls for fundamental changes in the structure of American public education. Stereotypes aside, however, these changes have nothing to do with "privatizing" the nation's schools. The choice system we outline would be a truly public system -- and a democratic one.

We are proposing that the state put its democratic authority to use in creating a new institutional framework. The design and legitimation of this framework would be a democratic act of the most basic sort. It would be a social decision, made through the usual processes of democratic governance, by which the people and their representatives specify the structure of a new system of public education.

We do not expect everyone to accept the argument we have made here. In fact, we expect most of those who speak with authority on educational matters, leaders and academics within the educational community, to reject it. But we will regard our effort as a success if it directs attention to America's institutions of democratic control and provokes serious debate about their consequences for the nation's public schools. Whether or not our own conclusions are right, the fact is that these issues are truly fundamental to an understanding of schools, and they have so far played no part in the national debate. If educational reform is to have any chance at all of succeeding, that has to change.

John E. Chubb is a senior fellow in the government studies program at the Brookings Institution, and Terry M. Moe is a professor of political science at Stanford University. This article is adapted from their book, "Politics, Markets, and America's Schools."