Bloomberg presented his first school reorganization plan in a dramatic Martin Luther King Day speech in 2003, seven months after taking control of the schools. The city's 32 community school boards would be shut down, the mayor announced, and replaced with "one unified, focused, streamlined chain of command," running directly from city hall to the chancellor's office, then through ten powerful regional superintendents reporting directly to the chancellor, and finally down to each school's principal. From now on, the mayor said, "the chancellor will dictate the curriculum and pedagogical methods" in all but 200 schools.

"Dictate" is exactly what Klein did for the next three years. The city's principals were deemed so deficient in pedagogical understanding that Klein and his lieutenants would tell them how to arrange the chairs, the desks, the rugs, and even the bulletin boards in their classrooms. But Klein's directions on more important matters did not inspire confidence: for example, he imposed a reading program that progressive educators favor called Balanced Literacy (a euphemism for the "whole language" instructional approach), despite the lack of evidence that it works for disadvantaged children.

Sometime after the mayor's reelection, Bloomberg and Klein launched another radical restructuring of the system. The administration maintained its public posture that the first reorganization was working perfectly. But Klein's planners at the Tweed Courthouse were quietly preparing the ground for a 180-degree change. Klein hired three new deputy chancellors with reputations as strategic thinkers and a bent for systems management; all were Ivy League law school graduates who, like Klein, had clerked at the Supreme Court, though they had little or no education background. Klein also brought in a host of management consultants, including Sir Michael Barber, a former education advisor to British prime minister Tony Blair and now a partner at the consulting firm McKinsey and Company, where he specializes in "performance management systems." As one former DOE official put it, the new brain trust "stopped talking about education. It was all about systems and incentives."

Klein soon become convinced that the best way to drive improvement in test scores was to create financial and other incentives for each of the important actors in the system—principals, teachers, even students—to work harder and more effectively. In fact, with the encouragement of Alvarez and Marsal, a high-priced consulting firm hired by the DOE, Klein created a new office in the Department of Education: the "Market Maker." From operating like a regulated, command-and-control economy, the system would go almost overnight to something that, on paper at least, would work like Adam Smith's invisible hand. It was all theoretical, of course. There were no precedents to consult and no research to back it up, because no one had ever tried to simulate a market system within a big-city school district—certainly not so swiftly.

But Sir Barber was telling Klein that the only way to make a radical transition in a big system like New York's was to push through changes quickly before the special interests mobilized—somewhat like the "shock therapy" that some Western economists once advocated for former Soviet bloc countries transitioning from state socialism to free markets.

Bloomberg administered the first big shock in last January's State of the City speech. Market-based accountability, he explained, would rest on four pillars. The city's 1,450 principals would throw off the shackles of central bureaucracy and become independent CEOs, running their schools as small enterprises. Principals would be rewarded or fired based on a sophisticated new data system that tracked their students' progress on test scores as they advanced through the grades. Tenure rules would be reformed, making it possible to apply market discipline to the teaching labor force. And school-funding formulas would be equalized: each student in the school system would be funded with the same base dollar amount, with schools getting higher funding levels for immigrants still learning English and for special-education students.

Each of these reform proposals contains considerable potential for good. Giving principals more autonomy is certainly preferable to dictatorship. More data on student performance are always welcome and will, if trustworthy, lead to more accurate performance evaluations of principals. Reforming tenure is worth exploring, since the rules for weeding out bad teachers are broken. Finally, equalizing funding for students, an idea first proposed by the Fordham Foundation last year, is not only a matter of elementary fairness; it can also provide needed aid for poorly performing schools, and it ensures that competition among schools takes place on a level playing field.

Unfortunately, the latest reorganization plan is already falling apart. The administration has applied reasonable-sounding reforms with little appreciation for the culture of the schools. One glaring example is the equitable-funding plan. The administration decided to count teacher salaries against each school's new budget under the proposed funding formula. Since teacher salaries are based largely on seniority, this would penalize stable schools with long-serving staffs.

The Bloomberg administration must have known that the UFT would have to protect its senior teachers. Along with a coalition of activist groups that opposed the entire reorganization, the union began organizing a massive City Hall protest rally. The mayor initially hung tough: he called his own mini-rally, attended by 100 supporters, attacked the "special interests" blocking progress in the schools, and likened the UFT to the National Rifle Association.

But the next morning, the mayor was breakfasting with union president Randi Weingarten. After a weeklong negotiation, the administration took both the new funding proposal and the tenure initiative off the table for the next two years—by which time Bloomberg will be packing to leave City Hall. The mayor may have been right about the "special interests," but his retreat had plenty to do with politics and his own interests. A big fight with the teachers would have damaged his reputation as the "education mayor" and threatened his potential White House run.

One of the two remaining parts of the second reorganization, the principals' empowerment initiative, gives educators only an illusion of the free market that they would need to manage schools as businesses. This became clear on a recent spring afternoon at the Grand Hyatt New York. In an event organized by Klein's Market Maker office, all the city's principals were invited to the luxury hotel for a celebration of their impending liberation from central bureaucratic control. Ushered into the hotel's huge ballroom to the beat of a live jazz band, the principals were treated to a video starring New York City public school alums Henry Kissinger, Spike Lee, and Joan Rivers, plus a half-dozen of the most adorable, well-spoken children presently attending city schools. The alums and the kids recounted charming stories about their schools' dedicated principals, and Spike Lee narrated a separate segment explaining the principals' new roles in the reorganization. After the video, Klein told the principals that they were about to become results-oriented CEOs with the managerial and pedagogical skills to drive the next phase of Bloomberg's turnaround of the schools.

The soon-to-be-empowered principals then got to wander through the hotel's exhibition halls, transformed into a supermarket of education service providers. The educators got a taste of the services that they would soon be able to buy for their schools to replace those currently supplied by the central bureaucracy. In turn, the 14 providers competed against one another to sign up the principals, now in control of their own budgets, as customers.

To his credit, Klein approved the inclusion of several providers with substantive academic programs. One of these was the Success for All Foundation, which features the scientifically tested reading program that Klein unwisely dumped from dozens of schools in his first year in office. But it soon became clear that the program didn't have much of a chance to sell its goods in Klein's new supermarket. When I visited the hall in which SFA staffers were making their presentation, it was practically empty. Nervous principals, shell-shocked by this latest reorganization, decided to play it safe and go with one of the providers that knew its way around the DOE headquarters, rather than with an out-of-town organization like Success for All. Several sources also confirmed that providers had offered jobs to some of the supervisors departing the school system—on condition that they sign up as customers the principals whom they used to supervise.

What's left of the mayor's new reorganization plan is the sophisticated data management system, developed by Columbia Law School professor James Liebman. It promises to go further in charting how much students in the city's schools are learning than any tool available in any school system in the country. Kudos are certainly in order for Bloomberg, Klein, and Liebman. But after the past five years' experience with the education department's public-relations machine, there must be guarantees that all these data will be completely transparent, available to all, and free of manipulation.

When the state legislature begins debating the reauthorization of mayoral control next year, one question that it will surely have to consider is whether mayoral control can deliver true accountability. The only way to ensure this is to create an independent agency with the authority to mine all the education department's data about test scores and graduation rates, to do research about which programs are working, and then to make all that information available to the public on a regular, timely basis. No sane person would want to go back to anything like the discredited Board of Ed. But without a guarantee that an independent research agency will be created and properly funded, extending mayoral control would be an invitation for the next politically ambitious mayor to keep undermining the credibility of the public education system that is so essential to our democracy.