The education budget per student in Israel is among the highest in the world, but the students' achievements are low compared to other countries - as does the teachers' pay. The Education Ministry is responsible for this situation due to faulty and wasteful management. Teachers' wages are low because the tremendous sums in the system are spread among many employees.

In the 2004-05 school year there were 2.3 teaching positions per Jewish sector high school class, compared to 1.8 positions per class in 1969-70, reflecting an increase of 27 percent. A similar situation reigns in elementary schools in the Jewish sector, which saw a 15-percent increase in teaching positions during this period. It is doubtful that the quality of education rose commensurately. If instead of increasing the number of education workers, teachers' wages had been raised, the average professional quality of the teachers would probably have been higher, and the quality of education would have improved in turn.

The government does not have much success with management. Government companies are privatized, and it is doubtful that anyone would want the government to manage his local grocery store. The solution is to provide educational services via extra-governmental bodies and to leave the Education Ministry with the budgeting and the supervision.

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The education system would be organized like the health maintenance organizations (HMO). A few licensed education organizations would be established. These organizations would set up national education networks and would be managed independently, competing with one another. The big local authorities would host schools run by a few of the networks and parents would choose a school just as they choose an HMO. In smaller communities, the local authority would choose which network would operate the local school. Children would be able to switch between networks, with certain restrictions.

The government would provide an "education basket" per student, taking into consideration age and special needs, such as learning disabilities, health problems and socio-economic background or language difficulties. The Education Ministry would determine the budget for each child.

The ministry would also set the core curriculum and enforce it, and would supervise the quality of education and the level of achievement. The ministry would be authorized to transfer the management of a failing school to a different network and even cancel a failing network's license.

Competition among organizations would contribute to improved education. The organizations could determine their own employees' wages and pay graduated wages based on teacher quality, and thus attract talented people to this profession. This reform would be implemented in stages: the education organizations would be established and function alongside existing schools, such that their functioning could be monitored and the scope of their licenses extended based on their success.

The writer is a professor of finance at the Stern School of Business at New York University.