This one reform could fix the biggest problem with American capitalism

American capitalism is the world's greatest wealth-creation engine, by far. It has an unmatched entrepreneurial streak, producing the world's greatest technologies and innovations. For all the justified hand-wringing about America's current economic sluggishness, the U.S. has still done a lot better out of the crisis than other major rich countries.

American capitalism does have one major problem, however: short-termism.

It's a cliché, but it's a cliché in large part because it's true. Companies are driven by the quarterly bottom line. CEOs are driven to boost short-term earnings at the expense of longer-term growth. And this is because investors demand a quick return, instead of investing in the long run. This absolutely stifles innovation.

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Clayton Christensen, perhaps the most revered innovation expert of our time, distinguishes three types of innovation. The most important by far is what he calls "empowering innovation." This is the innovation that creates whole new product categories and changes the world. Think of the Model T or the iPhone. The second most important are "sustaining innovations" — creations that "replace old products with new models."

The least important is what he calls "efficiency innovation." Efficiency innovation simply reduces the cost of existing products and services. (This type of innovation is still really hard and is essential to the proper functioning of a capitalist system.)

A well-functioning capitalist system is one that generates empowering innovations as well as efficiency innovations. But because of short-termism, the U.S. economy is increasingly short on empowering innovations. It's hard to revolutionize an industry when your job depends on next month's profits.

This played a large part in our "jobless recovery." Profits of major companies actually did pretty well through the crisis, and the reason why is important: Companies grew their profits not by growing sales, but by cutting costs. They got so good at "efficiency innovation" that, when a crisis happened, they became really good at cutting costs while still being able to produce the same amount of stuff. And yes, a lot of that cost-cutting is layoffs.

Part of the reason (call it "the right-winger's reason") for this phenomenon has been the increasing regulation of the economy. When incumbent companies don't have to compete as much because they are protected by regulation, they can just lay off people to increase their profits. Another reason (call it "the left-winger's version") has been the lack of aggregate demand in the macroeconomy. When there is less demand (and less expected future demand) for their goods and services, companies don't feel the need to invest in expanding, which ultimately leads to a self-fulfilling prophecy.

But the more profound reason is that, as Christensen notes, "empowering innovation" delivers results only over the long term, whereas efficiency innovation delivers quick, short-term results. And our managers have been trained to look for short-term results.

By whom? By shareholders. They're ultimately the ones who call the shots, and what they want is a short-term result. The average length of holding a stock has gone way down in recent decades.

Is there a solution? Actually, yes. And it's a very simple one: Make it mandatory for anyone who manages money for a third party to hold that money for at least 15 years. (A less coercive version of this would be to restrict the infamous "carried interest" tax loophole to funds that lock up money for 15 years.)

If you want to buy passive index funds, or if you want to manage your money yourself, you can do whatever you want. But if you want to hire someone else to manage your money, whether a mutual fund or a private equity fund or a hedge fund, you have to lock up your money for 15 years. (What if you have an emergency and want to withdraw your money before then? Then you pay a steep tax.)

At some point, we have to break the cycle of the quarter-to-quarter hamster wheel. If you're an asset manager and your fund has a 15-year lifetime, you're naturally going to be drawn more toward long-term investments. And asset managers have a great influence on companies.

But more important, this would, over time, change corporate culture in general. Once asset managers are concerned about what happens in 15 years, they'll ask for multiyear plans, not quarterly plans. Other investors will know their peers are drawn to multiyear plans, so they'll pay attention to multiyear plans. Company managers will know their bosses have to deliver over a multiyear plan, so they'll start to come up with multiyear plans.

Today we all live in the quarter-to-quarter plan. Nobody planned it that way, it just happened, and it is perpetuated because everybody else is on the same plan. It doesn't have to be this way.