BUSINESSES have been disappointingly slow to invest since the financial crisis. Global capital expenditure by non-financial firms is expected to fall by 1% this year, according to Standard & Poor’s, a rating agency, and by a further 4% in 2016. If those predictions are right, that will be four straight years of decline (see chart) despite the adoption of very low interest rates throughout the developed world, a policy seemingly designed to encourage companies to borrow and invest.

Admittedly, the latest decline is highly concentrated in the energy and industrial-materials sectors, which have been hit by falling commodity prices. Excluding them, capex will rise by 8% this year. But that is of only limited comfort; investment in energy and materials has been hugely important in recent years, comprising 39% of all capex in 2014.

Falling commodity prices reflect worries about the outlook for the global economy. Those worries help explain not only why interest rates are so low, but also why companies are reluctant to invest. Why expand capacity if extra demand is unlikely to materialise?

On top of those cyclical reasons for weak investment, some think a structural factor may be at work. Businesses, the theory goes, have become too focused on the need to meet short-term profit targets and not enough on long-term returns. They have been encouraged to do so by shareholders, who demand that cash is returned to them in the form of buy-backs and who turn over their portfolios much more quickly than in the past. The average holding period for shares in America and Britain has dropped from six years in 1950 to less than six months today.

Hillary Clinton recently described this problem as “quarterly capitalism”, a term used by Andrew Haldane, now the Bank of England’s chief economist, in a paper written (along with Richard Davies, a former journalist at this newspaper) back in 2011. He found statistically significant evidence of short-termism in the pricing of companies’ equities, with investors applying excessive discount rates to their estimates of future cashflows. In simple terms, modern investors would fail the “marshmallow test”, seeking instant gratification instead of waiting for greater rewards. Another paper which Mr Haldane helped write suggested that shareholders’ flightiness affects corporate decisions: publicly quoted companies tend to invest less than private companies with similar profits and turnover.

Mr Haldane sketches a number of approaches to the problem, including changing bosses’ pay, giving greater voting rights to long-term shareholders and amending company law. An alternative idea comes from Paul Woolley, a former fund manager who is now an academic at the London School of Economics. He wants to see a change in the contracts between investors and fund managers.

This is a classic example of the principal-agent problem, in Mr Woolley’s view. Clients employ fund managers to look after their investments, but they cannot be sure of the manager’s skill.

All they have to guide them is past performance, which may be attributable to luck. To monitor this risk, they therefore compare fund managers’ performance with a benchmark, such as the S&P 500 index. The result is that “active” managers (as opposed to passive funds that simply track the index) have to be wary of straying too far from the benchmark. This can lead to mispricing as stocks that have performed well (and are thus potentially overvalued) tend to get chased higher by fund managers—the momentum effect.

Instead, Mr Woolley thinks that clients should use a benchmark based on the return on cash, or an economic measure such as inflation or the growth of GDP. They should employ managers who look for cheap assets using a value approach (but not hedge funds, which charge high fees and tend not to be patient capital). Value strategies have been shown to outperform over the long term. So the performance of managers should be assessed over a period of five years or more. The main measure of risk should not be the volatility of the portfolio’s value but of its cash flows (dividends and interest payments). Clients should also check that their portfolios are not being traded excessively (eg, more than 100% in a year).

A world in which fund managers were patient would give business executives the breathing space to invest for the long term. Or that is the hope. Whether there are enough long-term equity investors to tip the balance in a world where pension funds and insurance companies are switching to bonds is another matter.