BBO - Many of the teachers that I had in school would run circles around some of the buffoons I've worked with in the private sector. The main difference is that most teachers that I know don't have the same entrepreneurial drive. They appreciate learning for the sake of it rather than the profit that can be made from it. We need both kinds of people, but one isn't "better" than the other.
It isn't the teachers who set policy on who advances or not, it's the administrators and school board. Often students are advanced against the advice of the teachers. You're barking up the wrong tree there.
In a true free-market sense, you get what you pay for. If the salaries suck, you won't attract the talent. Luckily, teaching is one of those professions that many highly qualified people do because they enjoy it, despite the low pay. In a lot of places bus drivers make more than teachers do. I'm not knocking bus drivers, only making a comparison.