As the world zips along, inventing and embracing everything from iPods to nanotechnology, California schools remain mired in an older, slower culture better suited to rotary phones and record players, state Superintendent of Public Instruction Jack O'Connell said Tuesday in his annual State of the Schools address.

"While these amazing technological advances have taken place, what has been the greatest change in our classrooms to help students prepare?" O'Connell asked. "We've moved from blackboards to whiteboards!"

The schools chief acknowledged exaggerating to make the points that California has failed to adequately prepare many of its 6.3 million students for the demands of a technological world and that it has allowed a high school education to become virtually useless as a foundation for employment -- even for such seemingly nonacademic careers as auto mechanic.

"To understand how today's cars work, you need technical computer skills," he said. "Like it or not, the world is now demanding that we educate all students to higher levels."

O'Connell's hourlong address was uncharacteristically hard on the schools -- though appreciative of teachers, who form a good chunk of his political base -- and urgent in its tone.

It is immoral, he said, to grant a diploma to students who have not passed the exit exam, a controversial test of basic English and math skills required to graduate for the first time this year. Letting such students graduate would leave them "defenseless and unable to survive in the world of tomorrow," O'Connell said. (A lawsuit to halt the exam is expected to be filed today in San Francisco Superior Court on behalf of more than 70,000 seniors, about 15 percent of the Class of 2006, who must still pass the test.)

It is unacceptable that black and Latino students score disproportionately low on state achievement tests, O'Connell said, noting that among fifth-graders, just 27 percent of Latinos and 30 percent of blacks scored at grade level in English, compared with 66 percent of whites.

Closing that achievement gap is an "economic imperative," he said, citing a study by Eric Hanushek of the Hoover Institution that says the U.S. economy lost $2.5 trillion between 1990 and 2003 as a result of the gap. Closing it would add $980 billion more each year to the economy, he said.

"This is the first time I've heard (O'Connell) say the gap is huge and that we're serving our white kids well, but we have a long way to go with black and brown children," said Russlynn Ali, executive director of Education Trust-West, a nonprofit that hopes to raise the performance of African American and Latino students.

But Ali said there was a lack of specifics in O'Connell's speech. She speculated that he may have retreated after several proposals he outlined in earlier State of the Schools speeches failed to become law, such as requiring all high school students to complete UC-eligible courses and giving the state approval power over high school textbooks.

O'Connell, who is running largely unopposed for re-election, used his address Tuesday to push for increased investment in programs to attract more teachers and raise their qualifications. He said he will sponsor legislation to provide $53 million for "teacher coaches" at the neediest schools, and he asked the governor to restore regional teacher recruitment centers dismantled recently due to budget cuts.

O'Connell also spoke in favor of Proposition 82, the universal preschool initiative on the state ballot, and said he is working with private foundations to answer the persistent mystery of how much money schools really need to become great.

He called for redesigning the typical corridor-and-classroom school into energy-efficient "flexible spaces," transforming large schools into smaller ones, and emphasizing career preparation in secondary school, which drew praise from Silicon Valley leaders.

"(O'Connell) understands that technology is evolving rapidly, that international competition is intensifying and that we need to dramatically overhaul and strengthen our educational system to meet these challenges," said Jim Hawley, California Director of TechNet, a bipartisan network of CEOs.

E-mail Nanette Asimov at nasimov@sfchronicle.com.

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