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Leaders
The Economist July 9th 2022
leaving their minds to atrophy. Globally, the harm that school closures have done to children has vastly outweighed any benefi ts they may have had for public health (see International section). The World Bank says the share of tenyearolds in middle and lowincome countries who cannot read and understand a simple story has risen from 57% in 2019 to roughly 70%. If they lack such elementary skills, they will struggle to earn a good living. The bank estimates that $21trn will be wiped off their lifetime earnings—equivalent to about 20% of the world’s annual gdp today. This should be seen for what it is: a global emergency. Nearly every problem that confronts humanity can be alleviated by good schooling. Bettereducated people are more likely to devise a cleaner energy source, a cure for malaria or a smarter town plan. Workers who can read and manipulate numbers are more productive. Bookish populations will fi nd it easier to adapt to climate change. They will also have fewer babies, and educate them better. If the damage the pandemic has done to education is not reversed, all these goals will be harder to reach. Politicians talk endlessly about the importance of schooling, but words are cheap and a fi tforpurpose education system is not. Spending has risen modestly in recent decades but fell in many countries during the pandemic. Scandalously, many gov ernments spend more on rich pupils than they do on poor ones. Moreover, too little development aid goes to education, and some is selfinterested. A chunk goes to donor countries’ own
universities, to fund scholarships for the relatively welltodo from poor places. Such exchanges are welcome, but funding primary schools in poor countries does more good. Many of the most critical changes are not things that money will buy. Testing is a mess, leading governments to overestimate levels of literacy. New teachers have been hired but not trained properly. Lessons in reading and maths are too often cut short to make room for instruction in whatever other subjects happen to be faddish, from the moral certainties of leftleaning Westerners to the thoughts of Xi Jinping. Teachers, who have come through the same education systems they are supposed to be improving, often struggle to teach. They would benefi t from clear lesson plans, as well as the freedom to pause and help children who have fallen behind. Politicians must stop pandering to teachers’ unions, many of which want schools to be run for the comfort of unsackable adults, rather than for the benefi t of pupils. At present a quarter of countries do not have any plans to help children claw back learning lost during the pandemic, according to a survey carried out earlier this year by unicef. Another quar ter have inadequate catchup strategies. The same energy that was once poured into building schools and fi lling up classrooms should now be used to improve the lessons that take place with in them. At stake is the future not only of the generation scarred by the pandemic, but of all the pupils who will come after them. No more children should stumble through their school days without learning to read or add up. n
Leveraged buy-out
Private pain The buy-out business may struggle in a changed economic climate
H
eld in february 2007, the 60thbirthday celebrations of skyhigh valuations look a lot less clever. Higher costs and slow Stephen Schwarzman, a privateequity magnate, captured ing economic growth will squeeze the profi ts of privateequity the spirit of an age. Nothing distils the hubris of Manhattan on owned fi rms. With share prices lower it becomes harder to sell the eve of a fi nancial crisis like Rod Stewart belting out “Maggie or fl oat fi rms at attractive valuations. In contrast with the last May” to a fi zzdrinking crowd in Hermès ties. Within two years boom, buyout funds have loaded up on tech fi rms that are fac Mr Schwarzman’s fi rm, Blackstone, had lost more than 80% of ing a bigger valuation hit than the market overall. It will take its market value. Yet the striking thing is that the privateequity months for funds to mark down their valuations and for inves industry, including Blackstone, soon bounced back to enjoy a tors to get a clear view of the damage, but it is possible that funds gargantuan boom. Today private equity is again on the ropes (see raised since 2018 will struggle to return any profi ts of note. The second part of the crunch relates to fu Business section). But shifting investment pat ture investments. The industry is sitting on terns and higher interest rates mean it is un Private-equity-backed buy-outs Global value, $bn $1.3trn of “dry powder” and investors are still likely to enjoy such a miraculous recovery. 200 increasing their allocations. Yet whether the As central banks raise interest rates and business model works in the new macroeco shrink their balancesheets, markets are reel 100 nomic environment is uncertain. Buyouts, ing. This year equities have suff ered the worst 0 which involve buying fi rms using debt, can selloff in a generation. Things are also messy 2016 17 18 19 20 21 22 generate returns in three ways: through rising in debt markets, particularly the risky “high valuations, high leverage or improving opera yield” corners where privateequity funds gath tional performance. Today two of the three levers are impaired. er ammunition for deals. Junkbond yields have reached 9%. All this raises questions about one of the biggest investing As interest rates rise, reversing a longterm downward trend, it fashions of the past two decades. Privateequity assets have seems unlikely that asset prices will bounce back. Meanwhile, more than tripled over the past decade to reach $4.6trn. Desper higher borrowing costs may be here to stay. Leverage is the life ate for higher returns as interest rates fell, almost all pension blood of buyouts: the calculations have fundamentally shifted. Privateequity managers will struggle to fi nd a playbook from funds, endowments, sovereignwealth investors and life insur ers piled into private assets. It is commonplace for a pension the industry’s 40year history. The fi rst cycle, in the 1980s, saw a band of pioneers capitalise on the ineffi ciencies of lumbering fund to have 10% of its holdings in this asset class. Now a crunch is coming, in two ways. First, the deals done at public corporations. The music stopped when credit markets,
