So what fails first, the crappy parents or the crappy school system

Inferior genetics. I don't see why society even bothers with kids like the ones shown in this movie. It is a complete waste of time.

That's not what they're saying. I'm descended from Italian immigrants who didn't speak English at all when they came here. It's modern societal problem.

In urban areas, there aren't many jobs for uneducated, blue-collar workers. But there are a lot of drug users. And it's so painfully easy to make money selling drugs, it's a self-perpetuating cycle. Either make minimum wage at a fast food place, which will barely allow you to live on the crappy food you sell, or sell drugs and live pretty well. Plus, males get pulled into this lifestyle young, like the kids in this school.
And it comes with a mindset. They get women pregnant, the kids grow up in this same environment, usually with a mother who has to work so much she's never around, no father, or the mother gets by by selling drugs too.

So it's not so much the fault of the parents, as the fact that there's no structure. There's no religion, no father, no extended family, and the community is based on drugs and violence. That's why its so easy to recruit them into the life. It takes the place of the family structure.

And then the prison system just adds to it.

In the old days, say when the mob ran new York city, they ran crime like a business. It was violent, yes. But there was a genuine effort to keep civilians out of it. They tried to look at the long game. They couldn't keep operating if the community and police completely turned against them. When things like heroin came in...the profit margins were so big that people would do anything to get into the business, and things started to collapse, even then. But when the mob was destroyed by RICO and the federal government, any oversight was completely eradicated. In its place, rose warring gangs of immigrants and minorities who could all make a lot of money with very little to no structure. They don't think about the future, because they make more money in a week than an average person could make in a year. And they keep killing each other because they can all keep replenishing their ranks and making more money so easily and quickly. There will always be crime. But when there was an organization overseeing it, the crime ran more smoothly.