It was designed to let schools offer a variety of kinds of education and then let the "consumers" (students and their parents) choose between them.
But in practice, under the 1989 Tomorrow's Schools system, families have chosen based mainly on the wealth of their communities - their decile ratings.
Schools in the poorest three deciles have shrunk slightly, from 187,379 students in 1996 to 179,559, while school rolls in the richest three deciles have ballooned from 199,341 to 296,650.
Both state funding and principals' salaries are based mainly on student numbers, so the result has been more funding and higher principals' salaries for the rich schools and lower funding and lower principals' salaries for the poor schools.
Rich schools have used the extra funding to expand and modernise their facilities and hire good teachers.
But poor schools, with declining rolls, have struggled to maintain their facilities and have lost good teachers, making it harder to provide a good education to the poorest kids who are still stuck in them.
Bali Haque, who chaired an independent taskforce to review the system, wants to break the cycle by bringing local schools back together again.
He proposes about 20 regional "hubs" to "assume all the legal responsibilities and liabilities currently held by school boards of trustees".
He also recommends funding schools based on their actual numbers of disadvantaged students, rather than deciles, and doubling disadvantage-based grants from 3 per cent to 6 per cent of total funding.
"Disadvantage" would be measured by an "equity index". This is still being developed, but work for the previous National Government included factors such as the mother's age when a child was born, parental income and benefit history and the father's offending history.
Principals' salaries would be based not only on school rolls but also on "school complexity and challenges" - apparent code for their proportion of disadvantaged students.
Haque would also set "an upper limit on the donations state schools can ask of parents". No limit is specified but it's a fair bet that it would be only a small fraction of the $1275 that Auckland Grammar asks parents to pay.
A Weekend Herald survey of board chairs of 30 schools starting with the letter 'M' has found 14 generally supporting the proposals, 12 generally opposed and four with mixed views.
Small schools and big schools, rich and poor, urban and rural, are all split with some for and some against the plan.
We found two distinct groups of schools generally supporting Haque's proposals: low-decile schools; and a diverse group of schools keen to hand over some of their boards' responsibilities to outside experts.
In the first group, Māngere Central School chairwoman Toni Helleur says her board has struggled with both property and student suspensions.
"Some of the stuff goes over my head a bit and we're just going with the flow, hoping we're doing the right thing," she says.
The board fell out with its property manager.
"The quote that he originally quoted for the work was incorrect. We found that we had to add a few more things in than he proposed, and we ended up having to go over our budget for the last two years."
Helleur, a massage therapist who also works out of the Māngere Town Centre with vulnerable youth and the homeless, felt uneasy dealing with suspensions.
"We do need more help," she says. "We are kicking kids out that we shouldn't need to, and it's damaging."
Porirua's Mana College chair Robert Stratford, a former teacher, says the country can't afford to let schools compete for students, creating "winners and losers".
Two Māngere schools which responded to this survey too late to be counted illustrate the way competition works.
Māngere Bridge School chairwoman Donna James says she can count her students who have gone on to decile-1 Māngere College on the fingers of one hand, even though it is the school they are zoned for.
"The majority go to [decile-3] Onehunga High School," James says. Her son goes to Mt Roskill Grammar.
She welcomes a proposal for hubs to appoint principals for five-year terms so that good principals could be moved to struggling schools that need them most - a move designed to make schools more equal.
"If they start bringing in these principals from the likes of Auckland Grammar and Mt Roskill Grammar and put them in those lower schools that are perceived not to be that good, it could be a complete turnaround and parents might start sending their kids in-zone."
Māngere College chairwoman Sio Alatini says most of the Māngere students who go elsewhere are "the capable ones".
"They could be getting a good-quality education within their local school, and when you are doing that you are helping your local area economically, socially and culturally," she says.
Beyond this low-decile group, a number of other schools also welcome what Motueka High School chairwoman Rowena Cudby described as a pendulum swing back from totally self-governing schools - "as long as the pendulum doesn't swing too far".
"There is a lot of time spent on financial management, property, health and safety - that's an area I think it would be really great to have more support in," she says.
Mt Hutt College chairman James McKenzie, who also manages the Mt Hutt skifield, says schools are duplicating their efforts.
"I see all the time we keep reinventing the wheel. Someone else just down the road has exactly the same problem," he says.
Most board members, for example, have to learn from scratch if they appoint a new principal.
"Getting people in [from a hub] who are regularly making appointments and asking the right questions and looking at the cultural fit, that is something that you get good at over time."
Dunedin's Mornington School chairman Glenn Moors, who runs a marine supplies company, says some parents are put off standing for school boards by the compliance responsibilities.
"Health and safety is a big one," he says. "If we have a big incident, where is the fault there with the new Health and Safety at Work Act?" he says.
"For some people it's their first experience with those acts and looking at things at that level, which can be quite terrifying."
Small schools can be particularly at risk. Marco School on the Forgotten World Highway between Taumarunui and Stratford, with only 13 students, had to make "a sizeable payout" when the board fell out with its principal last year.
"We did nothing without getting advice from the NZSTA [School Trustees Association], and in hindsight some of that advice we got was wrong," says board chairman Walter Pease, a farmer who says, "I had four kids at the school so I got the chairman's job."
"I would definitely like to see some way of not necessarily moving a principal on, but of keeping them in some sort of rotation, because a small school with a sole-charge principal, if they are there for a long time, some of the kids get on with some teachers and some don't."
Other board chairs, such as Massey High School's John Garelja, say the proposal is "crazy".
"I think it's centralised control again," he says.
"We appointed a new principal. We knew our area pretty well," he added. "Under a Government-controlled scheme there is no way they would know what the community wanted."
The strongest opponents are a small group of conservative Auckland secondary schools. Macleans College principal Steve Hargreaves told parents last month: "The changes would destroy the school system in New Zealand as we know it."
Macleans College board chairman Richard Wilkie, a senior police officer, says it would be undemocratic to remove power from boards which are "elected by the community for the community".
Macleans, which has the country's highest number of international students (338 last year), worries that a hub might take some of the revenue it gets from those students.
It also offers Cambridge exams, which help to attract the foreign students.
"If we were told that Cambridge is out, and if we were to change everything on the operational side, that would devastate us," says Wilkie.
Boards in some small schools are among the most passionate defenders of self-management.
"We are a third-generation family at school," says Rob Fitzgerald of Maihiihi School 21km east of Ōtorohanga, with 105 students.
"Depending on where the people of the hub come from, they may not have that understanding or passion for a small school."
John McElwee, who chairs the board at Manakau School near Levin, says he knows all the parents of the school's 115 children.
"Even the new parents that come along, I make a point of asking them to a barbecue," he says.
"We are there with the parents every day picking up kids and we know what's going on in the playground.
"A hub is not going to know. How is it going to handle the kids like a child that has lost its father - how are they going to support that family?"
Some low-decile, predominantly Māori schools such as Hamilton's Maeroa Intermediate fear hub bureaucrats won't understand their communities.
"You'd end up with a system run by educators for the benefit of educators," says board chairman Lance Wyatt, an operations manager in a packaging business.
Dennis Emery, a former chief executive of Te Rūnanga o Raukawa who now chairs a Māori secondary school in Palmerston North, Manukura, says he has not trusted education authorities since an Education Minister, Trevor Mallard, told him to "take your uncle and piss off".
He and his "uncle", Sir Mason Durie, started Manukura in 2005 anyway, with 10 students.
"We were not allowed to employ any teachers, we had to go on correspondence," Emery says.
The school was finally registered under another minister, Hekia Parata, and last year the current Government gave it $20 million to expand to 300 students on a new site.
But relationships with bureaucrats are still testy.
"They tend to kind of dismiss you," Emery says. "I can't see the hub being any different."
Catholic and other state-integrated schools are unsure how they would fit into the Haque plan.
Appointing a principal at Auckland's Marcellin College, for example, already involves the Auckland Catholic Schools Office and the Marist Brothers as well as parent representatives.
Finally, some high-decile schools feel that they are running well and see no need for change.
Jason Walker, who chairs Dunedin's Macandrew Bay School, says having to work with a hub "would be a waste of money for our school".
"From my personal view as an accountant, that's a huge cost centre to put on 125 schools. All of them don't need it," he says.
Richard Herlund, who runs a construction company and chairs Mackenzie College in Fairlie, fears that a hub might grab "a little nest egg" that his college has saved up for capital works and five school houses which help to attract teachers.
Chris French, who runs French Electrical and chairs South Auckland's Mission Heights Primary School, says setting up hubs would mean "spending more money".
"I can see that it's going to help the schools that are not well managed and don't have a competent board," he says.
"But for the ones that do, there are not really any advantages."