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This book finds that the R&D and technological innovation of a country is not a result, but a factor, of sustained economic growth. Bazhal develops Schumpeter's theory to argue that genuine economic growth - especially in transitioning and developing countries - is only possible with innovation. With a particular focus on the work of Ukrainian economists, Tugan-Batanobvsky and Vernadsky, the text seeks to move the discipline forward and explain why innovation has become a primary factor of economic development in recent decades and why its role will become even more dominant in the future.
Chapters interrogate whether modern economic theory can explain how we ensure the effective functioning of the market economy. The book shows that explanations of economists and politicians regarding the nature of the current economic and financial crisis, and the causes of huge gaps in levels of wealth in market economies, demonstrates that there are not enough satisfactory answers to this question.



1. Introduction

The chapter presents the key conceptual contents of the book that reveals the category of Schumpeterian innovations as an isolated factor of economic development which creates a new added value and may become like “stem cell” of the new mainstream theory of economic development. The neoclassical approach does not distinguish innovation in this role and it leads to formation gap between the fundamental economic theory and the real innovation processes in modern economy. The analysis of the threats and negative consequences of the existence of this gap for economic theory and practice as well as positive impacts of its elimination is contained. The readers can have a fresh look on some known problems and recognize new approaches.
Iurii Bazhal

2. Innovations: A known Unknown Phenomenon of Economy

This chapter considers the existence of conceptual collision when the mainstream of economic theory takes no notice of Schumpeter’s theory of economic development as the systematic doctrine. This raises serious theoretical and practical problems because the innovation development has become a key priority of successful economic policy. This chapter reveals the conceptual nature phenomenon of innovations as central category of Schumpeter’s theory, which is positioned as independent factor creating new added value. Category of innovation may become like a stem cell of the new Political Economy of innovation development. It is shown that methodological underestimation of innovation as fundamental category of economic theory led to the inadmissible gap between the neoclassical mainstream theories and the real innovation processes of modern economic life.
Iurii Bazhal

3. Key Features of Schumpeter’s Theory of Economic Development

The chapter reveals genesis and essence of Schumpeter’s theory of economic development; analyses its core methodological findings and gives theoretical grounds for proposition that only innovation development can be able to increase national added value; it highlights the conclusion that an economy based on reproduction and development of traditional production structure is unable to obtain substantial increase in national wealth. This chapter also analyses a less-known conceptual background of the Schumpeter’s innovation theory related to M.I. Tugan-Baranovsky’s ideas on the business cycle theory, as well as the Neo-Schumpeterian theory of technological paradigm, which has created a conceptual basis for a new methodological vision of the cyclical nature of economic development and the anti-crisis state policy.
Iurii Bazhal

4. “Vicious Cycle” of Political Economy Without “Innovations”

This chapter analyses the role and place of Schumpeter’s innovations in the categorial system of the economic theory; it is substantiated of its importance in order to recognize the subject of Political Economy as the doctrine on the Wealth of Nations. It is shown that over time the country’s absolute economic wealth was lost as the main subject in Economics. The chapter shows that phenomenon of innovation did not acquire the status of a key scientific category in the formation of new theories and remained as the visible invisible factor of development. The technological innovations not only changed the course of economic history; they also have been changing mainstream economic theories.
Iurii Bazhal

5. Innovation Development Versus Re-industrialization

The chapter investigates the methodological background of modern attempts to establish the names for current and future type of our socio-economic system. It is shown that unexpectedly many experts came back to the old used terminology and have offered to define new phenomena to use category of “industrialization” in different combinations, but not using category of “innovation”. The chapter analyses such controversy and considers nessecity the recognition of Schumpeterian conception as the new mainstream of economic theory. The traditional economic programmes pay attention on the competitive advantages of available resources with proposals of their further modernization. Modern Schumpeterian programmes must be to elaborate the innovation model focusing on the creation of new knowledge resources for gaining new competitive advantages.
Iurii Bazhal

6. Evaluating Innovations Impact on Economy

The chapter provides quantitative testing of the credibility of Schumpeterian hypothesis about the innovative nature of economic development. The rating method of “Global Competitiveness Report” was used to evaluate innovations impact on welfare of different countries. The results are that all rich countries had active innovation processes, and the dynamic catch-up countries demonstrate a strong interest in the implementation of innovation technologies. The chapter also analyses the structural technological development of Ukrainian industry, where structure of industrial sectors was classified according to both technology levels and technological paradigms. It could be an effective analytical method to evaluate the production facilities of the economic activity in the context of technological determinism of the innovation theory of economic development.
Iurii Bazhal

7. Human Capital and Innovation Development

The category of Schumpeter innovations can give an understanding of the contemporary “paradox” of the productivity slowdown that has emerged simultaneously with a fundamental change of innovation technologies and increasing accumulation of human capital. The chapter analyses this problem for transitive countries regarding the big differentiation of its labour cost. It is difficult to explain this phenomenon by the cardinal changes in the physical labour productivity for existing comparable productions, but it can be done taking into account the difference in the wages policy and the innovation changing of technological structure of production. The analysis shows the transitive countries that had undertaken considerable gradual increasing of labour cost and simultaneous stimulating of the innovation activities then ensure a high dynamics of real GDP.
Iurii Bazhal


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