Despite increasing profits private investment remained weak in Europe as firms directed their profits to financial speculation (Tori and Onaran, 2017). Not only high dividend payments but also increasing financial revenues of firms due to their surging financial activities crowd out private investment in physical machinery and equipment. Perversely, financial activities do not automatically provide more funds for productive activity. According to econometric estimations by Tori and Onaran (2017) using firm balance sheet data in Europe the rate of investment by the NFCs would have been 27% higher without the rise in interest and dividend payments, and 10% higher without the crowding-out effect of increasing financial incomes. A properly designed public investment and industrial policy also needs to be complemented by a corporate governance reform to reinstate the missing link between private investments and profits. Under the guidance of a macroeconomic policy framework focused on full employment and equality, which helps to define and improve the vector of choices of firms, shareholders themselves could see the long-term stability of the corporation as their main goal once again
