I was at a talk at the RSA last night called 23 Things They Didn't Tell You About Capitalism, given by Ha-Joo Chang and 'Thing 2' got me thinking. 'Thing 2' was that (and bear with me here) "companies should not be run in the interest of their owners". Now I think what Ha-Joon meant was that companies run in the interests of 'floating' shareholders who are after short term profits will under-invest in capital and in training.
Fair enough, I suppose, though it's a bit unfair to assume all shareholders are short-termist. It is perhaps more interesting to look at this from the other direction. The implication is that where owners are small in number and heavily-involved in their business they will be most likely to invest in their company. Owner-managers of SMEs are an example, then, of the kind of people who should be the most vigorous investors. In some cases they are, but there's a problem here: where do they get finance from?
With private equity or 'Angel Investor' type finance, companies have to give up control to others - others who might be after shorter term profits than the original owners, thereby eventually reducing investment.
So how do we get around this paradox? Clearly there is bank lending, though this can be hard to come by for smaller, newer companies, particularly for riskier investment. In practice bank loans are rarely used to fund growth anyway, unless they can be secured against a high-value piece of kit that could be resold. In addition, bank loans are arguably harder to come by post-recession.
Perhaps we need another option for finance: one that has a higher rate of return for investors than bank loans, but where companies are not forced to give up equity. Such funding models do exist: one is Mezzanine finance. Mezzanine finance is attractive to investors because it is less risky than equity finance (mezzanine investors are paid back before shareholders if a company goes under) and attractive to firms because it is generally paid back at the end of a term and crucially, leaves company owners as company owners.
This type of financing does exist, but it is not widely known about. As an additional type financing tool, however, this kind of approach could be just the thing for spurring on the investment necessary to rebalance the economy.