This report argues that the academic performance of American students has not declined, but that schools and students are confronting new and higher demands. The fundamental challenge facing American primary and secondary education is how to increase productivity--how to make better use of its resources. In this document, the Consortium on Productivity in the Schools analyzes the relationship among various parts of the American educational system; identifies how other industries or sectors have increased their productivity; and recommends ways to change resource allocation to increase student learning. Part 1 looks at patterns in student performance, real expenditures for the average pupil, and social factors external to the school and concludes that productivity in education has held steady over the past 20 years, rather than declined. However, a priority must be placed on becoming more productive. When the education system is compared to other industries, its central problems involve difficulties with productivity-improving change. Part 2 describes eight subsystems of the education system that should perform the following functions: governance, management, finance, teaching and learning, adaptation and innovation, hiring and purchasing, outplacement, and maintenance. Part 3 analyzes how to improve the productivity of the education system and defines the roles of each of the eight interacting subsystems. The fourth part offers the following recommendations: (1) renegotiate the governance and management contract; (2) extend accountability of schools for student learning to accountability of major functions of the system; (3) use the education financing system to improve educational productivity; (4) create the conditions that let schools learn; (5) set up quality controls for innovations and develop mechanisms for legitimating better practices; and (6) make a contract among all citizens for the next generation. Biographies of consortium members and a list of advisory board members are included. (Contains 34 references.) (LMI)