I would love to see sources on these statistics since I've never heard anything remotely like it before. I do believe there is a strong element in our schools design to create workers and promote the state, but your statistics don't sound even remotely believable.
Comparing literacy today with literacy of generations ago is difficult. One has to consider -- deskilling notwithstanding -- that our literacy expectations are higher than they were in my grandparents' time.
Don't have a source in hand, but I can some good examples from when I worked in adult literacy twenty years ago and was studying current data of the time. A circa 1890 census showed ten percent of adults (I don't know the age parameters) in Hamilton, Ontario, could only indicate their name by making an X. Realistically, if you asked adults in the same region to do the same thing today, the success rate would be closer a one-hundred percent.
Take a different spin on this. In 1990 Statistics Canada (whose information gatherings standards are world class) study determined ten percent of of 9600 Canadian adults (ages 16-69, in their preferred language of English or French) could not read the instructions on a gov't for upon which they had to simply add their signature to obtain a social insurance card.
Translation: Just about everyone can sign their name. A significant proportion of adults (say, 10%) may be signing important documents without actually understanding them. Now, there are other factors to consider in this. Government documents traditionally crept up to higher levels of reading over the years. The form I mentioned above was at about a high school reading level. I 1930s era gov't pamphlet on Infantile Paralysis (polio) tested at grade six, using the same instrument.
More of us are reading better than we were a hundred years ago, but we need to read more materials that are more complex to get by.
Further inquires into our national statistics demonstrated lower literacy among the older population. So when analyzing literacy needs and attainment levels of students today, we need to make sure we haven't lumped in data from people who were already illiterate or about to be illiterate two generations ago. We have these headlines here that are highly misleading: Four million illiterate Canadians. (Schools doing a terrible job). Then you discover that many of those four million left school decades ago, like my grandparents had, in the sixth grade.
Speaking of today, yes, no doubt about it, we find lower literacy in the economically poorer school districts. Middle to upper-middle income public schools, and private schools, register higher scores. Surprise, surprise -- the latter tend to have more homogeneous student bodies, less special ed, less ESL, and boom the averages go up.
The lack of reading abilities of students, I can tell from years in the classroom, is not a reflection of our ability to teach reading. We have methodology and technology coming out the wazoo. It might an indication of how equitably those resources are dispersed. Parental literacy plays a huge role in the literacy of young learners today.