Lord Myners, the former City Minister, has condemned lobbying of the government by the financial services industry, which has made fund managers rich at the expense of companies.
Myners told a House of Commons committee he saw how the industry lobbied Gordon Brown's government for preferential treatment, which it received at the expense of private investors, the Times reports.
The peer, who was City Minister in Gordon Brown's government between October 2008 and May 2010, said the public company ownership model was "failing in its primary economic purpose".
He argued institutional investors are too big and passive in their involvement with companies, creating thousands of "ownerless corporations".
"I am less concerned about internationalisation of ownership[ than the agglomeration of ownership among a few very large investment institutions," he said.
He said business is being "destroyed by short-term gain", because big institutions would rather sell out of failing businesses than help them.
"Too many companies are publicly quoted and would be better off privately owned," he said.
He added recommendations from the Kay review of UK equity markets would not solve the problem, the Times reports.
The government was "persuaded that maximum charges on unit trusts should be lifted," he said, "yet 90% of unit trusts, over five years, underperformed the FTSE 100 index".
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