No school, hard knocks: developing-world students hit hard

Hello and welcome to The Intelligence on Economist Radio. I'm your host, Jason Palmer. Every weekday, we provide a fresh perspective on the events shaping your world. For years, investors have questioned chief executives' salaries, yet pay just kept rising faster than the markets, faster even than their companies' returns. But things have been changing, and the pandemic's squeeze might at last drive some pay cuts. And in Colombia's port city of Cartagena, there's another COVID-driven reckoning. The overtourism that brought all-night parties and overflowing sewers has paused, and city leaders want to use the opportunity to fashion a more genteel—and legal—tourism industry. First up, though— Over the past week, a battle over pandemic-era education has flared up in America.

What we want to do is we want to get our schools open.

We want to get them open quickly, beautifully in the fall. The White House has criticized reopening guidelines put out by America's Centers for Disease Control, saying they were too stringent. The CDC's director, Robert Redfield, told our sister podcast Economist Asks that the agency is focused on the safety of pupils and teachers, and that it views reopening schools as more than a matter of just education. It's not opening schools versus public health.

It's public health versus public health. You know, in our country, 7.1 million students in K-12 get their mental health services in school. Many people get their breakfast and lunch through schools. Obviously, the socialization that's important in allowing people to have that face-to-face learning. So, to me, that's where we need to get. Now, the question is, how do you get there safely?

It's a question being asked across the world, where more than 1.5 billion children have been affected by school closures. But the knock-on effects of interrupted education are being felt hardest in the developing world, effects that could far outlast the pandemic itself.

So I was looking to report on what's happening to schoolchildren in developing countries like Bangladesh while schools are closed, and I didn't have to look very far.

Susanna Savage writes for The Economist, primarily from Bangladesh.

I spoke to a couple of friends in Dhaka, one who often works with me as a translator, and all we needed to do was walk out into the street and there were endless children working there, far more than you'd normally see. And one of them was a little girl called Suhani, who's 9 years old. She told me that every day she wakes up before dawn, before the sun rises, and she goes to a market to pick up flowers that have been left on the floor. And then she and her little sister, they weave them into necklaces, which she sells to drivers stuck in the endless traffic that is along Dhaka's roads. She does that until the sun sets. Until recently, she told me, she and her sister used to spend their days in a crowded classroom in Nimtoli slum. But when the lockdown started, when the spread of COVID-19 began in Bangladesh, their mother, who's a single parent, lost her job as a maid, and she hasn't been able to find work since. And so, Sohani is the main breadwinner now. Even if schools open, therefore, she won't be going back.

And Sohani's experience is not at all an unusual one.

No, Sahani's experience isn't unusual at all. This is happening all over the world, not just in Bangladesh. I spoke to Stephanie Shumsky of Pact, an aid organization that works in the mines in the Democratic Republic of the Congo, and she said that they're seeing increasing numbers of children who have been taken to the mines because their parents are having to work more and they have to take their children with them, and then obviously the children end up working. I spoke to the International Labor Organization country office in Jordan, and they said that they're seeing an increasing number of Syrian refugee children working on farms to support their families. So in the last few years, there's been a big increase in the number of children in education and a real decrease in the number of children working. And distressingly, COVID seems to be undoing this trend. It will take years to see just how bad this is going to be, but a recent estimate from Save the Children suggests that 10 million children in poorer countries may never return to school after this. So their education is over forever.

And that's because they have been compelled to go to work and will stay in work, do you think?

I mean, it's partly that work is one side of this, but there's also several others. It's not always even as nice as braiding flowers into necklaces. Not that that is nice for Suhani, but we've seen some children, for example, in DRC and Central African Republic, have been recruited into armed groups during school closures. Child marriage has also crept up during lockdowns. And this is partly, again, to do with poverty, that when you marry off a daughter, that becomes one less mouth to feed. And it's also to do with parents worrying about what's happening to their daughters while they're at work all day. And in that vein, there's also been a big uptick in teen pregnancies in a lot of parts of the world too, often resulting from abuse that happens during lockdowns.

And what sort of alternatives to the standard schoolroom education is possible in the developing world?

Well, obviously they're trying to do remote learning the same as in rich countries, but it's just much, much harder. They start off from a much more difficult position. They lack the infrastructure to roll out distance learning programs because these rely on students having an internet connection as well as generous data allowance. To give an example of this, in Papua, the easternmost province of Indonesia, only 30% of children can get online. So there are lots and lots of challenges, but governments are trying.

How do you mean? What sort of efforts are underway?

So, for example, where they've not got internet, countries have turned to television and to radio. That seems to be quite common. But even when they're doing this, the responses have been quite bungled. In Bangladesh, the main remote learning is through programming on state-run television.

Hello everyone, assalamu alaikum. This is Sadia Shams with you, and today we are taking your class, and the subject is English grammar and composition, and we will read today—

But I spoke to Safakul Islam, who's head of the education program at BRAC, which is a Bangladesh-based NGO, and they've done a survey that's found that only 44% of children there have access to a television. In many countries, governments have been really slow to help kids learn from home. In Ghana, the government did nothing on distance learning until the 15th of June, 3 months after schools closed. As of July, many of African countries had no distance learning programs at all.

I mean, it's a pretty sobering picture. Are there any countries that you looked into that have figured this out, that have done a good job of this?

Some have done better than others, it has to be said. So for example, I spoke to a teacher called Femi in Nigeria, in Lagos, and he said that he'd been trained in how to teach online, but that most of his students didn't have computers and didn't have smartphones, and those who did couldn't afford data. Data, and he suggested that the Lagosian government should have made data free or should have done a deal with broadband companies to roll out free data for students. And that's exactly what countries in the Eastern Caribbean have done. They've gone into partnerships with private companies to organize free broadband for students, and they've even given out free devices for vulnerable students. Sierra Leone, which has a lot of experience dealing with remote learning as a result of the Ebola outbreak in 2014, They've rebooted their radio schooling.

What we did was we went across the country, checked out on transmission, started training teachers such that by the time school closed, the radio teaching was already happening.

And that's been very successful. They've also done a lot to prepare for schools reopening, which is equally important.

But I suppose even the success stories here still fall short of the sort of standard educational experience for these kids. What do you think the long-term consequences of all of this will be?

The long-term consequences will be absolutely huge. Individually for the children, it means not only do they lose out on a huge chunk of their education, or for some of them, they lose out on all of their education, which will seriously impact their lives as individuals, and it will impact their earning ability in the future. But it's not just the individual children who will suffer, it's the whole country. The World Bank projects that there'll be $10 trillion lost through lost earnings over the next few decades. So a lot of the experts I spoke to, they said that it's really worth investing in education even as countries are strapped for cash amid lockdowns, because this is an investment that will definitely pay off in the long run.

Susanna, thanks very much for your time.

You're very welcome, Jason.

For more on America's schools and its fight against COVID-19, Listen to the full interview with CDC Director Robert Redfield on this week's episode of Economist Asks, available wherever you get your podcasts. As the pandemic has pushed companies to bankruptcy, staff have been laid off, creditors and suppliers are struggling to get paid. But things haven't been quite so bad for some of these firms' chief executives. Take Chesapeake Energy. The pioneering fracking firm Chesapeake Energy could seek bankruptcy protection as soon as Thursday. Last month, before filing for bankruptcy, it offered its top bosses, including chief executive Doug Lawler, combined bonuses of $25 million. He's not the only one. Jill Soltau, the boss of retailer J.C. Penney, will get a $4.5 million bonus this year, even though the company folded in May. The coronavirus recession is shining a spotlight on a problem that's been around for years: excessive, extravagant, exorbitant executive pay.

For several decades, American CEO pay has been rising quite strongly on the back of a philosophy known as pay for performance. And the mantra of corporate America was basically that bosses deserve generous rewards because these are linked to their company's financial performance.

Vijay Vethiswaran is our U.S. business editor.

What's happened now, though, is that because over time these have dramatically grown, questions have been raised about whether this pay is really aligned with the company performance. We've been seeing a much stronger spotlight on CEO pay. Today, the COVID-19 crisis has accentuated this and created a bit of a storm in boardrooms across America where they're dealing with excessive CEO pay at a time where companies are laying off a big share of their staff or cutting back on staff perks and benefits. and they're being forced to cut CEO pay in a somewhat embarrassed way.

So how is it that it got so high in the first place though?

The pay for performance mantra that's driven up US CEO pay really has a couple of components. One is that if shareholders benefit, it's only right that the CEO should benefit. That seems logical. And the second thing is that the idea that there's a robust and functioning market for top executive talent and that companies have grown more complex over time, that thanks to globalization and new technologies, multinational companies are much more complicated now, and the bosses that run them should be paid more. And so do the numbers bear that out?

Do the returns to shareholders look like they support the idea of paying exorbitant sums to the chief execs? No, it doesn't.

It was always a little suspicious, given particularly the role that American CEOs, who tend to tower over their boardrooms, have in setting their own pay or in working with cozy boards and compensation committees that set their pay. There was always a question of, hang on a minute, do they have a bit of their fingers on the scale to make these pay packets bigger than they should be, the evidence is coming in that suggests that shareholders have not benefited to the order of the kind of numbers that we're seeing here. An example, MSCI, which is a prominent research firm, has published an analysis of CEO compensation that takes in all forms of compensation, not just salary, but stock options and so on over a 10-year period where they looked at company returns total returns to shareholders and compared them with CEO compensation over that time. And in over 3/5 of the companies, they found no correlation whatsoever. And they concluded that pay for performance may be broken. Now, there's a more recent analysis commissioned by CalPERS, which is a big Californian public pension fund. And they looked at the last 5 years of realized CEO pay at big American companies, and they found similar kinds of problems. For example, They found that CEOs who were in the top quartile of pay made 12 times what those in the bottom quartile did, but their results were only twice as good. And the conclusion that one can draw from this is that there isn't a very strong correlation between CEO pay and company performance in America. In fact, the system is broken.

But as you say, bosses sort of tower over their boards, and I suppose it's not in their interest to reveal that the correlation between pay and performance is so loose.

No, certainly not. Most American CEOs vigorously defend the pay system, and certainly the ones I've talked with are quite confident in their own superhuman powers to deliver returns, but also that they deserve the money, that this is a global talent market. But there's another aspect to this, and that is that there's a small circle, a coterie of pay consultants and compensation advisors that work with the compensation committees of the boards at these companies that typically help advise companies on how to set pay. And the role that they've played is that they've ended up giving cover to these compensation committees as they recommend ever higher compensation for the CEOs, including something pernicious known as the ratchet effect. Many companies ask for median or higher pay because they like to think that, you know, all CEOs can't possibly be above the median, but every company thinks its own CEO is above average, right? No company wants a below-average CEO. CEO, and so they give the mandate to come up with a pay packet that's above the median. The consultants obliged, and over time what you find is a ratcheting effect where even the non-performers and the lousy performers kind of get dragged up.

It's like how everybody thinks they're a better than average driver, which can't actually be true. Exactly. But surely these corporate boards are not blind to these kinds of biases, these kinds of effects.

So we have seen improvements over the last 10 to 20 years. We're seeing more independent compensation committees, for example. And we're seeing some compensation consultants recommend below median pay, for example, for brand new CEOs. But broadly speaking, when you look at the executive pay trends, for example, on one recent assessment, executive pay amongst the big 400 companies in the US, the average CEO pay rose 14% last year and has risen 13-fold since 1978, far outpacing the performance of the S&P stock market index. So when you see the trends, you have to ask the question, how much are boards really concerned about this? The answer is they're not concerned about the pay, but they are concerned about something else, and that is shareholders. We're seeing big pension funds, but also some of the advisory groups, they're called proxy advisors, that give recommendations that often sway the way that mutual funds and other funds vote. They're increasingly putting out warnings to boards saying You need to rein in CEO pay excesses. And even the giants that are not normally activist funds— think of BlackRock, one of the world's biggest asset owners— they're increasingly voting against compensation board committee members, individual directors who propose egregious pay packets. And so I think we're actually seeing what used to be done in the shadows— it was a dark art, according to one expert I spoke with— is now coming a little bit more out of the shadows. And in particular, because owners of companies manifested through mutual funds, shareholder groups, and some of the activist investors are actually rattling the cages of the board members saying, if you continue to support these egregious pay packets, we're going to vote you out. Now, that's something a board director listens to. And we are beginning to see changes.

So do you think, all told then, that the reckoning about CEO pay really is coming this time?

You know, we've had false dawns before, but I think the combination of the evidence mounting showing that pay for performance doesn't work, and the very fiery spotlight from the COVID crisis exposing the excesses of CEO pay, I think they come together to create a real wake-up call for America's boards.

Vijay, thank you very much for joining us.

Thank you.

For a lot more analysis like this, subscribe to The Economist. To find the best introductory offer wherever you are, just go to economist.com/intelligenceoffer. For decades, Colombia was home to a vicious conflict between government forces and guerrilla groups, principally the FARC.

The guerrilla army, classed as a terrorist group by the EU and US, has increasingly made drugs and kidnapping its business.

Plenty of civilians got caught up in the mess. That didn't do much for the tourism industry. But as those tensions eased in recent years, tourists Tourists rediscovered the country in enormous numbers. That is, until the pandemic ground things to a halt once again. Most tourist destinations are desperate to return to the way things used to be. For the Colombian city of Cartagena, it's a little more complicated.

Cartagena is called the pearl on Colombia's Caribbean coast.

Mariana Palau writes about Colombia for The Economist.

It's basically a port that was founded during the Spanish Empire. Now, you would think that this, you know, would be an incredible tourist hotspot because of its walls and because of its colonial architecture. But the truth is that it hasn't. And that's because Colombia has had a terrible reputation abroad. It's home to the longest-running armed conflict in the world, or was. But, you know, there were also a lot of drug lords bombing airplanes. Guerrilla groups kidnapping people, including foreigners. So people often stayed away from Colombia in general. Now, that really started to change recently, and that's mostly because the government started peace negotiations with the FARC, which was the largest guerrilla group in the country. And since those negotiations concluded, the country has really become safer and tourism has completely taken off.

No bad thing, right?

Well, you would think so, but the problem is Cartagena has actually attracted too many tourists. I'll give you an idea of how many. In 2019, 500,000 foreign tourists arrived in the city. That's 3 times the amount of foreign tourists arriving in the city in 2012. And there's many more domestic visitors. So the city right now is experiencing overtourism. And in fact, intensive tourism is threatening the preservation of the historic center of this colonial city. But the main problem seems to be the type of tourism that the city is attracting. So in the colonial city, a bunch of rooftop bars have set up, and Colombia does have a reputation for having some homegrown cocaine. And these two facts have attracted a lot of party animals from Europe and the United States. And this has led to things like pimps operating from nightclubs, and they offer underage girls as prostitutes to foreigners. It's also led to parties going on all night, blasting music until dawn, and that disturbs the locals. And, you know, much of this tourism industry operates illegally. I saw records that say that more than half of nightclubs have no fire safety certificate. A third of them did not pay taxes last year. Some even serve alcohol without a license.

And presumably all of this hard partying has been somewhat curtailed by the pandemic.

Yeah. So COVID-19 restrictions have wiped out tourism earnings. So, for example, restaurant tables have disappeared from public spaces. Bars are no longer operating from the city walls. The owners of nightclubs and bars, you know, they were once a really powerful lobby. They're going bust and hostels are shutting down too. And some politicians and residents are seeing this as a time to reshape the city's tourism industry. How so? What would they like to do? So for example, the mayor, William Dow, he was elected on an anti-corruption platform and he recognizes that overtourism is a problem. And I talked to one of his advisors and she says that the mayor's office wants a sustainable kind of tourism, not a predatory one. So some of the things that they want to do, for example, is offer more activities to tourists so that they don't just concentrate in the colonial center. So this includes, for example, birdwatching or water sports. There is a Panamanian firm that is building a water park near the city. Some people also wonder whether the city would thrive by attracting fewer richer visitors.

That sounds great in principle, but how exactly do you go about that and afford changing a whole city's tourism?

Well, the city does have the government's support. So, for example, Julian Guerrero, he's the deputy minister of tourism. He is suggesting making the timings of holidays more flexible. So that they can spread the influx of domestic tourists across the year. The city has also joined this program that was created by the Inter-American Development Bank. It's called the Living Heritage Program. And what it does is advise cities on how to make historic centers like Cartagena's places where people can live rather than just to merely visit. In that sense, the program spokespeople say that cities can preserve their culture and their history and attract galleries, street markets, startups. So that will also keep the economy going.

Mariana, thank you very much for joining us.

Thank you, Jason.

That's all for this episode of The Intelligence. If you like us, give us a rating on Apple Podcasts and see you back here tomorrow.