Share of financial sector in gross domestic product 1860 to 2006 (Photo credit: Wikipedia)

This is an excellent, MUST READ article from leading macro-economist, Gavyn Davies, writing in his FT blog. Check it out!

via High profits to keep equity bubble at bay – FT.com.

As usual, Gavyn Davies used his experience and judgement to cut through complexity and highlight emerging trends.

I particularly liked the focus on four fundamental economic trends, namely:

1. Decline in unionisation in the major developed economies
2. Rise of “financialisation”, which has increased the incentives on management to maximize the return on capital for themselves and shareholders
3. Technology revolution, and
4. Globalization.

These four pivotal trends devalue the importance of labor, so that jobs have become increasingly commoditized.

This leads me to some important open questions:

Given the four economic trends in major business namely, declining unionization, rising financialization, technology revolution and globalization, how should Western Governments respond to:

1. Take a strategic approach to economic growth, building upon strengths and cutting out public sector waste?
2. Ensure effective taxation of profits?
3. Increase the skill-base of the nation?
4. Deploy the adult population effectively?
5. Deploy Scandanavian style social policies?

Any thoughts?

Related articles

• US default by any other name | Gavyn Davies – FT
• Never underestimate the Fed’s dovishness | Gavyn Davies – FT
• Why world trade growth has lost its mojo | Gavyn Davies – FT
• Summer(s) time at the Fed | Gavyn Davies – FT
• India’s new Raj(an) | Gavyn Davies – FT
• Dr Alf’s Two Cents: The real underpinning for equities | Gavyn Davies
• What will happen to markets when QE ends? | FT – Gavyn Davies
• The case for cautious optimism on the British economy – Gavyn Davies – FT.com
• Macroeconomics: Somehow the Bullshit Artists Have Won–A Question for Gavyn Davies Department
• Reality check on the likelihood of a US default – John Gelmini