Mitt Romney lost South Carolina's GOP primary in part thanks to attacks on his record as a venture capitalist with Bain Capital. He is now seen by many as being on the wrong side of capitalism.

Of course, the middle of a lingering recession brought on by the collapse of our financial industry is not a good time for any leader to be seen as being on the side of Wall Street. Romney responds that his critics have "demonized success" and that at Bain he provided jobs and boosted economic growth.

We do very much need more jobs here in Minnesota. Is Romney correct that to get those jobs we need venture capitalists?

It can't be denied that any new jobs will be created by growing companies -- either startups or expanding firms. If companies can't grow, neither can jobs. It's that simple.

From the 1970s through the 1990s, Minnesota saw steady economic growth.

For the last 12 years, our job creation has slipped. In 2010, the 100th-largest public company in Minnesota -- Uroplasty -- had annual revenue of less than $13 million. In 1995, there were 172 public companies in Minnesota that were larger than Uroplasty.

In 1995, 50 Minnesota companies booked sales between $100 million and $500 million. In 2010, we had only 20 such companies.

Many of the mid-sized companies of 1995 no longer exist. They moved, went out of business, were sold or went private. All that is to be expected. What didn't happen was the growth of new companies to replace them.

What is missing from our job-creation equation? Capital. Mitt Romney's value-added proposition. Minnesota used to be a national center of venture capital. No longer.

Adam Smith knew you can't have jobs without capital. It was the secret to the "wealth of nations," he wrote in 1776.

With what he called a "stock" -- buildings, machinery, raw materials, cash -- a promoter could set people to work using division of labor to mass-produce goods, lower costs, expand sales and make profits.

Without a "stock," however, no company could even get off the ground. Providing money to buy "stock" for a business became the work of "capitalists."

But wherever capital is invested, risk is created. Capitalists need inducements to hazard their money.

Legislators and courts therefore gave legal protection to two forms of financial investment -- equity, with its possibility of high returns; and debt, with the security of its priority claim on debtors' income and assets.

Thereupon, recruiting capital and supervising its use by companies became a special line of business. The growth of American wealth could not have been possible without the simultaneous growth of Wall Street.

But as we saw again in 2008, trading in financial assets can also lead to bubbles and crashes as the unsavory dynamic of speculation arises within the world of financial intermediation.

But nonspeculative investment of capital in companies and jobs is the cause of prosperity. Where there is wise use of capital, there is job growth.

Wall Street, in this way, is both Dr. Jekyll and Mr. Hyde. It all depends on how capital is used. Romney is right about capitalism in some cases and wrong in others. Investment banking done right is a great boon.

Minnesota needs to restore its traditional investment-banking capability, which was capitalism done right. John Whitehead of Goldman Sachs helped Ken and Bruce Dayton grow a great company.

Wheelock Whitney and Bobby Piper helped build others with capital from Dain Bosworth and Piper Jaffray. Medtronic, Supervalu, Best Buy, St Jude Medical and so many others are lasting testaments to the traditional, hands-on, value-creating investment banking that helped Minnesota prosper.

Since 1990, with globalization and the deregulation of national banks and financial markets -- and especially after the repeal of the Glass-Steagall Act in 1999 -- traditional investment banking took a back seat to "quick riches" capitalism.

Hedge funds seeking returns internationally, private-equity funds seeking to flip companies in buyouts and venture capitalists wanting to load companies up with debt to profit from leverage displaced the old-line investment banks.

Wall Street became less of a funder to business and more of a rent-seeker -- taking out profits by every means available. The proportion of profits that went to Wall Street rose sharply during the 1990s. Rather than adding value, Wall Street in recent years has simply extracted as much as possible.

This new form of finance more and more drew capital from Minnesota and made our investment-banking community obsolete.

Capital is like water: It is fluid, slippery, hard to contain. It has no loyalty to place but seeks out what is most attractive at the moment. It has become easier for capital to leave Minnesota than to stay. The source of funding for new companies and the growth of existing ones has substantially dried up.

We need to invent a new way to provide traditional investment banking if we are to grow jobs in Minnesota.

What we need is to fund a new kind of investment manager, a firm that will invest -- for the long haul -- in new and growing companies and help them with management wisdom.

This kind of investment management is really a partnership between the investor group and the company. It must be a win/win relationship where each can profit only if both do.

The model would be for investors -- individuals and family offices -- to pool their funds with a management team that would vet companies for marketing success, invest in them and take a position on the board to provide oversight.

Board members would be selected for their long-term interest in the company and specific areas of expertise, rather than the "old boys clubs" of overpaid executives sitting on each other's compensation committees.

Investor returns would not come from public offerings, as was once the case, but from selling to private-equity firms when the company has grown successful, or to a large company that wants to acquire a valuable, going concern with a niche product.

This will not result in quick and easy profits. But it will result in great value and more jobs.

We need to return to the roots of capitalism that allow society to benefit as a whole.

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Stephen B. Young, of St. Paul, is global executive director of the Caux Round Table, an international network of business leaders working to promote a moral capitalism. Ward Brehm is founder of the Brehm Group of Minneapolis.