Intersting piece, but the debate seems to mix two issues - the effectiveness of formal education, and the organizational form of formal educational institutions.
The effectiveness of formal education depends not just on the contents and format of education but, more importantly, on the student environment and how that environment relates to the contents and format of formal education. Research shows that difference in scholastic performance comes mainly from the students' environment (family and neighborhoos) rather than from the contents or format of the instruction. This was demonstrated by longitudinal studies of scholastic performance at the beginning and end of consecutive school years, which allowed to separate the effect of the instruction (or rather instruction and environemnt) conceptualized as the difference between the beginning and the end of one academic year, from that of the environment alone exerted throughout summer vacation and measured by the difference between the end of one academic year and the beginning of the subsequent academic year.
The organizational form of educational institutions is a special case of what the economist Oliver Williamson dubbed "markets vs. hierarchies." The argument goes that vertical integration (or consolidation of small units into a vertical hierarchy) creates economic efficiency by reducing transaction costs. The critics point that the economic efficiency claim is dubiuous because hierarchies produce transaction costs on their own - and their main "benefit" is power or their ability to monopolize the market, which the small units lack.
Since education is labor intensive and thus requires relatively little overhead (investment in technology) - the claim that large schools offer any economic efficiency is dubious even on theoretical grounds. If anything, large units have greater transaction cost because they require larger administrative staff. However, large units have a greater monopoly/monopsony power. They monopolize educational services and monopsonize teaching labor market in an area and thus give the the school administration gerater power over both the pupils (and their parents) and the teachers.
Monopoly is not necessarily bad - for example if it can force science curriculum over creationism and kindred flat earth "science" favored by many local communities in this backward country - but it has very little to do with the quality of education. Extracurricular activities and diversity can be achived by cooperation arrangements among smaller units. However, the monopoly/monopsony power of a large unit can increase teacher workolad and thus has a detrimental effect on the quality of supervision and instruction.
The bottom line is that school size per se is more about power than quality of education. No school, small or large, can undo the effect of adverse social environment. It is the adverse environment itself that must be changed. The school reform is often a red herring to avoid talking about more radical social changes to dismantle seggregation. However, larger school units wield more power over pupils and teachers which may or may not be a bad thing.
Wojtek