I believe that one of the most pressing issues facing our country is the failure of public schools to keep up with the demands of our modern economy. Education is becoming more and more important -- both for individuals and for our entire nation -- in an increasingly competitive world. A high school diploma is no longer enough, since traditional high-paying blue collar jobs are disappearing. Consider that from 1975 to 1999, the income of Americans with only a high school diploma was flat, whereas paychecks for people with college and advanced degrees soared. Yet, despite a doubling of inflation-adjusted spending per pupil over the last 30 years, academic outcomes are flat.

And for low-income and minority students, our public schools are failing to an especially alarming degree. Consider that on a national fourth-grade reading test, 60% of black children had not even partially mastered grade-level skills vs. only 25% for whites, and the gap only widens over time. For example, black and Hispanic high school seniors on average read and do math only as well as white eighth-graders.

So what does this have to do with investing? Broadly speaking, our overall economy, productivity, competitiveness, and standard of living depend on our people. It's not just an individual who suffers from dropping out of high school or graduating with an inferior education -- our nation does, too, because we not only lose much of the potential of that person but also lose again since numerous studies have shown that high school dropouts are far more likely to go on welfare, commit crimes, serve prison time, etc.

More narrowly, my ideas for reforming public school systems contain lessons for investors, since they can be applied to any large system, whether public or private, nonprofit or for-profit. Allow me to explain.

Through various organizations I've been involved with over the years, I've studied a wide range of schools -- public, private, charter, parochial, etc. Among those that serve the most difficult students in the toughest neighborhoods, there are schools that are achieving educational miracles, and their secrets of success are quite similar (for a great book on this topic, I recommend No Excuses: Closing the Racial Gap in Learning). So what are their secrets and how might they be applied to the public education system?

Before I answer that question, I want to highlight another interesting model: the reform of the New York City police department over the past decade or so. I recognize that this might be a controversial example for some, given the horrifying stories of Amadou Diallo and Abner Louima, but the fact is that the NYPD, as a crime-fighting force, has transformed itself -- and this transformation is a major reason why New York City has gone from the murder capital of the country to being one of the safest cities in America. At the peak in 1990, 2,245 murders took place in the city; last year, the number had plunged 75% to only 571, the lowest level in 41 years. New York City's murder rate of 6.9 per 100,000 people is the lowest of any large U.S. city. As a Big Apple resident myself, this is indeed cause for celebration.

As recently as 1994, the NYPD was a politicized, patronage- and corruption-filled, unaccountable bureaucracy, with an enormous budget, tens of thousands of employees, and a powerful union representing them. What bureaucracy do these exact words describe today? Why, the public school system in most large cities. If the NYPD could be reformed so dramatically, I am convinced that public school or corporate bureaucracies can be as well. But how?

Empowering key people
The first step to reforming any large, dysfunctional organization -- note that this also applies equally to companies (think about this the next time you're evaluating a corporate turnaround effort) -- is identifying and empowering the key people. By this, I don't mean the senior executives; I mean the people on the front lines closest to the customers. In a police department, these are the patrol officers and precinct commanders; in a school system, the teachers and principals.

Under the old NYPD, centralized task forces had been created to address major problem areas (for example, drugs), which was a disastrous policy because the local officers and precinct commanders couldn't tackle the most important issues plaguing their neighborhood. So, one of the first reforms the NYPD implemented was to get rid of these task forces and push not only responsibility but also the tools for fighting crime down to the local level.

Public school bureaucracies today suffer from nearly identical issues. Principals and teachers have only limited control over their schools, lacking full control over budgets, hiring, disciplinary procedures, testing, etc. In contrast, principals of successful schools almost always have a great deal of autonomy, most importantly in the areas of spending and hiring or firing staff.

How many companies can you think of in which line managers have limited power over their budget and staff? How have their stocks done?

The right strategy and tools
Once the key people are empowered, they need to have the right strategy to follow and effective tools to implement it. In the old NYPD, crime fighting consisted mainly of responding to 911 calls, in part because there was the general attitude that crime was the inevitable consequence of poverty and injustice, so there was little that police could do to stop it. The results of such a passive, reactive approach were fatal -- quite literally in many cases. What good is it to a neighborhood -- not to mention the victim -- if the police arrive after the crime has taken place?

As part of the NYPD reform effort, fighting crime was made the top priority and a range of proactive techniques were adopted. One of the most powerful was based on James Q. Wilson's "Broken Windows" theory, which argues that it's critical to fight even the small signs of disorder by, for example, repairing broken windows, towing abandoned cars, cracking down on loud boom boxes and "squeegee men," etc. The reason is twofold: First, an environment of disorder and chaos invites more serious crimes. Second, it turns out that the small number of violent predators who commit the most serious crimes also commit a disproportionate number of minor crimes as well. Thus, by cracking down on minor crimes, cops tend to catch a lot of people who have jumped bail, are violating parole or carrying guns, etc.

A similar approach could work wonders in public schools. First, we must rid ourselves of the idea that the public schools cannot be held accountable for the failure of their students because the blame lies with broken families and other external factors. This is nonsense -- a recent study actually showed that today's public school students are better prepared than a generation ago -- but even if there's some truth to it, plenty of examples demonstrate that even the most troubled children can be put on the path to success by the right school.

These successful schools apply the "Broken Windows" theory with vigor, because they understand that learning cannot take place amid behavioral chaos. At such schools, there is a coordinated effort by the entire staff to monitor student behavior extremely closely and intervene quickly and decisively when there's a problem.

After the right people are empowered and are using effective techniques, it's critical to measure the outcomes. Under the old NYPD, crime was measured, but not in a way that lent itself to effective crime fighting. It isn't very helpful to know that 2,245 murders took place in the city, or even in which precincts they took place, because crime tends to be extremely localized -- one corner or building might have heavy drug activity and be a virtual free-fire zone, while another building or corner less than a block away might be quite safe. Thus, a new system called CompStat (computerized statistics) was introduced that, among other things, graphically identified crime "hot spots," giving police the information necessary to develop action plans.

In today's public school systems, while students are often tested regularly (depending on the state), resulting in plenty of data, it's usually neither granular enough nor widely disseminated enough to have an impact. For example, it is easy to see how effective a teacher is: Simply test the children at the beginning of the year and then test them at the end of it and measure the improvement. Sure, there can occasionally be some extraneous variables, but if the great majority of children in a class are testing at significantly higher levels at the end of the year, odds are pretty good that you've got an excellent teacher, right? You won't be surprised, I'm sure, to hear that successful schools almost always rigorously track student achievement by teacher.

Another problem is that data is not disseminated properly. For example, I wanted to know what the test scores were for a particular school in New York City and, while the data is available on the Department of Education's website, I couldn't find it without a great deal of help. Why isn't such data easy to find and, in fact, proactively given to, for example, the parents of every student and prospective student of every school?

Once measurement systems are in place, the final critical step is accountability. Simply put, there must be consequences for failure -- or even mediocrity. This doesn't necessarily mean firing people -- sometimes additional training or perhaps a transfer to another position within the organization will do the trick. But some people, for example, are just not cut out to be precinct commanders or school principals, and it's a terrible disservice to them and to society to leave them in positions at which they are failing.

Under the new system, NYPD precinct commanders were expected to cut crime -- and if they didn't, they would be replaced with someone who would. So what happened? In the first few years after launching reforms at the NYPD, roughly two-thirds of precinct commanders had been replaced and a new generation of up-and-comers got the chance to shine -- and shine they did as crime began to fall... and fall... and fall.

Imagine a similar approach being adopted in a school system. Principals would be given far greater power and autonomy, but would then be responsible for delivering better test results, lower dropout rates, etc. (A similar system might also be put in place for teachers.) And principals who failed wouldn't be transferred to another school to fail again; instead, they could go back to being teachers or assistant principals until they were ready to try being principals again, or -- egads -- find a new line of work.

Successful schools monitor and evaluate their teachers carefully and intervene quickly if there's a problem. The preferred approach is to help a struggling teacher improve, but some teachers simply don't measure up to the schools' high standards, and they aren't invited back.

Why can't every public school in America have similar accountability for its teachers and principal? This idea strikes me as abundantly obvious, yet it's actually quite controversial. Only in the public sector does it sound radical to suggest that performance should be measured and some people might have to find other work if they don't perform. This is nonsense. If I hire a salesman and provide adequate training and resources, yet he fails to sell, would anyone think I'm being unfair if I moved him to another job or even fired him?

I have spent nearly half of my career in the nonprofit world, and even though I'm currently on the other side of the fence, I remain involved with a number of nonprofits. Overall, my observation is that the most important elements of creating an effective organization, or turning around a broken one, are virtually identical, whether the organization is for-profit, non-profit, or governmental. All organizations ultimately depend on people, and in every case I've seen, it's critical to empower them, give them the right strategies and tools to succeed, measure the results, and then hold them accountable, both by rewarding success and taking steps to address failure.

Whitney Tilson is a longtime guest columnist for The Motley Fool. He appreciates your feedback. To read his previous columns for the Fool, as well as other writings, click here. The Motley Fool is investors writing for investors.