The Political Economy of Innovation Development Iurii Bazhal The Political Economy of Innovation Development Breaking the Vicious Cycle of Economic Theory Iurii Bazhal National University of Kyiv-Mohyla Academy Kiev, Ukraine ISBN 978-3-319-54851-7 DOI 10.1007/978-3-319-54852-4 ISBN 978-3-319-54852-4 (eBook) Library of Congress Control Number: 2017939600 © The Editor(s) (if applicable) and The Author(s) 2017 This work is subject to copyright All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations Cover image: Modern building window © saulgranda/Getty Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland CONTENTS Introduction Innovations: A known Unknown Phenomenon of Economy 2.1 Apparent Phenomenon of Innovations 2.2 Mainstream of Macroeconomics: Without “Innovations” 2.3 Innovations: The Known Unknown Factor of Economic Development 2.4 Innovations in the Main Neoclassical Models of Growth 2.5 “Total Factor Productivity” and “Creative Destruction” Versus Innovations References Key Features of Schumpeter’s Theory of Economic Development 3.1 Missed Pillar of Schumpeter’s Theory: Tugan-Baranovsky Concept 3.2 Schumpeter’s Invention: Innovation as Main Factor of Development 3.3 Neo-Schumpeterian Heterodox Theory of Economic Development References “Vicious Cycle” of Political Economy Without “Innovations” 4.1 Political Economy as Theory of the Wealth of Nations 15 15 20 24 26 32 36 41 41 49 54 60 65 65 v vi CONTENTS 4.2 Key Factors of Economic Development as Sources of Added Value 4.3 The Necrophilia Syndrome of Political Economy: Innovations-Healing References Innovation Development Versus Re-industrialization 5.1 Terminology Influences Economic Policy 5.2 Innovations in “Post-industrial Society” Conception 5.3 Innovations in Evolutionary Economics References 71 78 83 87 87 91 94 96 Evaluating Innovations Impact on Economy 6.1 Quantitative Assessment of Innovations Efficiency 6.2 Sample of Estimating Structural Technological Dynamics References 101 101 107 114 Human Capital and Innovation Development 7.1 Innovation Development and Increasing Wages 7.2 Productivity and Wages: Neoclassical Canon 7.3 Exogenous Increase of Wages: Evidences from Analogies 7.4 Why Wages Are So Different in Transition Economies? References 117 117 118 120 124 129 Index 131 LIST Fig 4.1 Fig 4.2 Fig 6.1 OF FIGURES Key factors of economic development according to different basic economic theories Historical chronology of interrelations the technological paradigms, dates of the worldwide economic crises, and creating main economic conceptions regarding the decline and revival capitalism Comparison of indicators of GDP per capita and the number of the US PTO utility patents granted per million populations in 2010 for 75 countries 73 81 105 vii LIST Table 4.1 Table 6.1 Table 6.2 Table 6.3 Table 6.4 Table 7.1 Table 7.2 OF TABLES The dynamics of the GDP per capita of selected countries in Eastern Europe 1990–2008 compared to the average of 12 countries in Western Europe Number of invention patents granted by the US PTO to the citizens of the states which demonstrated dynamic development for 1995–2010 Structural dynamics of the industry of Ukraine by levels of technologies in 2001–2008 Structural dynamics of Ukrainian industry by technological paradigms in 2001–2008 Structure of Ukrainian industrial export in 2008 by type of branches on the basis of the different technological paradigms Dynamics of real GDP, GDP per capita, and average wages in the years of market transformation in selected countries Annual absolute increasing of the average monthly wages in selected countries 68 106 111 112 113 126 127 ix CHAPTER Introduction Abstract 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 Keywords Schumpeter’s theory of economic development Á Schumpeter innovations as fundamental category Á The gap between neoclassic theory and innovation activities Á Political Economy of innovation development Á Structure of the book The subject of this book can be attributed to one of the fundamental phenomena of our existence, true nature of which is not always immediately understandable to science, and it takes a long time to elucidate this matter A classic example is discussions about structure of our Solar System Approximately it took 150 years for scientists to abandon © The Author(s) 2017 I Bazhal, The Political Economy of Innovation Development, DOI 10.1007/978-3-319-54852-4_1 INTRODUCTION Claudius Ptolemy’s geocentric planetary system, which was the canonical position for more than 1,300 years, in favour of the heliocentric system of Nicolaus Copernicus In our view, today a similar situation exists regarding The Theory of Economic Development elaborated by Joseph Schumpeter, in which Schumpeter propounds the idea that the primary driver of economic growth is the phenomenon known as innovations This phenomenon we all can observe every day Information on this subject is constantly provided by companies, universities, government bodies, the media, books, etc., whereas in fact it remains ignored by fundamental economic science Using the above-mentioned historical example, an allegory may be offered: everybody sees and feels the Sun (innovations), but the dominant fundamental economic theory (mainstream) does not present it properly in structure of its scientific categories It may well be that the reader’s first reaction to this statement is quite critical: “That’s not true!”, “That’s impossible!” However, the book was written precisely to prove the soundness of our conclusion and draw the attention of theoreticians and practitioners to the actual existence of the mentioned paradox, and what is more, to demonstrate the risks and negative consequences of this controversy for economic theory and economic policy It has been over 100 years since Joseph Schumpeter put forward a new theory of economic development However, as noted earlier, the mainstream of economic theory still does not view innovations as the isolated decisive factor of growth These phenomena are recognized as separate ingredients of the traditional aggregate production factors (in production function): capital (K), labour (L), total factor productivity (TFP) But Schumpeter proved scientifically that innovations are emerging as key determinants of economic development that are isolated from the existing factors of K, L, and TFP In this book we would like to draw the reader’s attention to the existing conceptually state of things when the modern mainstream of economic theory in fact does not consider Schumpeter’s theory of economic development as a systematic science doctrine That is why a separate chapter of our book is dedicated to laying out the specifics of this doctrine The present book represents the proofs showing that the main modern University textbooks in Political Economy, Macroeconomics, and Economics contain virtually no detailed systematic exposition of Schumpeter’s theory of economic development in which the category of innovations is put as a separate key factor of economic growth On the 120 HUMAN CAPITAL AND INNOVATION DEVELOPMENT term co-existence in Europe of high wages for low-skilled workers and the low level of their employment rate with no signs of recession remains without clear theoretical answer (Solow 2008) Several groups of scientists were attracted to explain this phenomenon They studied historical, legal, institutional factors, as well as aspects of competitiveness (Gautier and Schmitt 2010) Another relevant fact: when the International Labour Organization (ILO) started a new series of analytical reports on remuneration policies in the world, the “Report on global wages 2008/09: Minimum wages and collective agreements: towards the politics of accord” was the first (ILO 2008) The theoretical value of such research was determined by the fact that the minimum wage, according to the first neoclassical postulate presented above, can act as a measure of the marginal product of labour Therefore, it represents, on the one hand, a certain optimum (equilibrium level) of the remuneration level, which regulates employment and the labour market, and on the other hand, it reflects the appropriate level of labour productivity (marginal product) According to the classical approach, as wages increase in the state of long-run equilibrium, the labour demand decreases and unemployment increases, that is, when remuneration exceeds its equilibrium value, unemployment increases Thus, from the standpoint of neoclassical approach, an exogenous increase in the minimum wage leads at first to unemployment growth, a corresponding reduction of the national product against the potential one Then, the macroeconomic equilibrium must be restored through reduction of wages However, for many countries, statistical studies demonstrate the existence of an inverse relationship between unemployment and remuneration levels (Blanchflower and Oswald 1990), that is, when wage growth is consistent with a reduction in unemployment (employment growth) 7.3 EXOGENOUS INCREASE OF WAGES: EVIDENCES ANALOGIES FROM The modern concept of building a system of national accounts, upon which methods of value calculation of such indicators as GDP are based, actually confirms the “Smith’s dogma” that the value of the national product can be considered as the sum of income of people, who own the resources involved in the production Given such definition of the value, it can be increased by means of any additional revenues or increasing 7.3 EXOGENOUS INCREASE OF WAGES: EVIDENCES FROM ANALOGIES 121 existing revenues In the GDP structure, calculated by income, there are two components that directly add value to the national product against the amount of income received by owners of production factors in the process of GDP creation, namely indirect taxes (VAT, excise, others) and the value of depreciation Having a purely administrative (that is non-market) nature, they increase the value of the national product of the country, adding a certain amount to the total market value of factor income, received in the national production This additional artificial value increases both income of budget and working capital of businesses From the situation above, which is recognized by the neoclassical theory as absolutely “canonical”, the question arises, whether it is possible to increase the value of domestic product too by increasing the income of owners of the production factors, including wages In other words, can the producer increase the price of the production (and therefore, the value level of labour productivity) proportionally (or more) to the increase in the value of production factors? Neoclassical theory has a negative attitude to the very methodological relevance of such a statement because the fact that product prices (and hence the largest total value of the national product) are formed by the competitive market mechanism is considered as the undisputed orthodox postulate Initiative (exogenous) pricing by a monopolist or the state is considered harmful to the national economy because it destroys its state of Pareto efficiency, meaning that in case of intervention in the given market pricing mechanism, the total amount of national product cannot be greater than potential GDP However, this immaculate formal conclusion of the neoclassical analysis is not always confirmed in practice It is possible to cite as an example three very significant economic effects that contribute to increasing in the value of domestic product above the level that forms the equilibrium prices in the national competitive markets Those effects are dynamics of global energy prices, dynamics of company shares on the stock markets, and the level of world prices for products and resources that serve as an exogenous factor of internal pricing All these phenomena condition the change in the value of the national product exogenously in terms of the neoclassical market pricing mechanisms All mentioned phenomena display the availability of a possible mechanism for increasing the value of the national product through the exogenous increase in the value of production factors and through emerging Schumpeterian innovations The latter directly applies to the possible 122 HUMAN CAPITAL AND INNOVATION DEVELOPMENT impact of an exogenous increase in the value of human capital on the increase in the value of the national product Dynamics of hydrocarbon fuel prices is the most obvious example of the mechanism mentioned above of impact of this exogenous growth Over the previous decade, prices for oil and natural gas increased rapidly, unexpectedly, and beyond all understandable proportions, including those regarding economic theory In 1998, the world price for oil was US$10, and in July 2008 it reached US$140 During this period, the world economy grew steadily, and in case of almost all countries, which are major consumers of oil, we can speak of considerable prosperity and welfare of citizens On the contrary, the rapid fall in oil prices after this peak was accompanied not by growth, but rather by a record decrease in production in many developed countries This takes into account real indicators, without the impact of inflation processes, associated with the growth of oil prices It should be noted that in developed countries, despite the significant rise in energy prices, inflation remained low It was certainly influenced by the imperfect competition in world energy markets, as well as credit and banking policy of developed countries, aimed at revitalizing the market condition and compensating costs of producers from this However, this example demonstrates the possibility of an exogenous increase in the prices of production factors, not associated with any significant changes in the macroeconomic equilibrium proportions of many countries Another phenomenon, exogenous in respect to the equilibrium model of a competitive market, is a change in the prices of the shares of enterprises It can be considered a certain characteristic of the influence of the innovations value of the human capital factor on the value of the corresponding production output In this context, the increase in the price of capital cannot but be accompanied by increasing the value of the corresponding production (if it were not so, the share prices would eventually stop growing) The dynamics of stock markets in recent decades cannot be brought in line with changes in the parameters of physical productivity of labour For example, the well-known Dow Jones index (Dow Jones Industrial Average) grew almost 100 times for the last 70 years Such a rapid increase in the cost of businesses was accompanied by no less noticeable increase of employees and their earnings in the countries, where these companies are located 7.3 EXOGENOUS INCREASE OF WAGES: EVIDENCES FROM ANALOGIES 123 The impact of world prices on the domestic markets is the third phenomenon It has a direct relation to the impact of human capital value on the volume of the national product This situation has been and still is common in countries with transition economies, when huge amounts of goods and services, pricing proportions for which were formed in the condition of the actual autarky, suddenly received possibilities of realization abroad at much higher prices However, while the fact of several-fold growth in the value of exports and corresponding shock from increasing incomes on the domestic market (and the corresponding increase in GDP and productivity) is somehow considered in terms of neoclassical theory as normal and understandable phenomenon, the significant increase in wages is considered a populist policy leading to inflation and the collapse of economies Why are not extra profits of commercial structures of transitive countries, resulting from sudden (shock) reorientation from domestic to foreign markets, considered catastrophic? Thus, the presented analogies and theoretical facts confirm the legitimacy of raising the question of implementation the policy of an exogenous increase in wages as an incentive and instrument of the radical increase in the welfare of the country Taking into account the warnings presented earlier, it is possible to offer two interrelated ways for influencing the alignment of disparities in wages that were stressed at the beginning of chapter The first is a radical change of minimum wage policy Maintaining the existing of impressive gap in Europe will only worsen the situation The second way is dynamic development of high-tech innovation industries that produce goods at prices that allow introducing the high level of labour compensation including rise of minimum wages Accordingly, these should increase the share of skilled labour in the country economics, which should condition the new requirements to R&D and education spheres The mechanism of market self-regulation in the conditions of increasing prices of resources involved in innovation processes is still poorly studied in the economic theory However, the number of positive facts about this phenomenon is increasing If we take into consideration the experience of transition countries we can see that the most successful were the states that have built the innovation and knowledge economies (Slovenia, Estonia, Czech Rep.) We can add here an example of adaptation of developed countries to the shock rise in oil prices in the late 1970s to early 1980s (Reaganomics, Thatcherism), and more recent examples 124 HUMAN CAPITAL AND INNOVATION DEVELOPMENT As it is well known, the oil shock, after a small decline GDP in economiesrecipients, led to the powerful increase in the welfare of these oil-dependent but developed economies The key to understand these processes is recognizing the fact that such countries are the innovation countries In such conditions, development of innovative small businesses gains particular importance They should ensure an effective restructuring of economy and increasing wages The innovation firms can produce new products that are perceived by the market (are purchased) and have the temporary monopolistic prices that absorbed the increased cost of the intellectual resource (human capital) Thus innovation products will provide compensation for more expensive involved resources through the creation of new added value of innovations and the corresponding increase in GDP and personal income In general sense if economy has the highly liquid innovation products, the resource price increase will not become an obstacle to economic growth, but will rather promote it Similar mechanisms of self-regulation are demonstrated by the cases of overcoming the economic crisis The main paradox of these processes as during the Great Depression and the mentioned recession in the 1970s, as it was currently, is a significant gradual increasing of the money supply, and therefore of the aggregate demand as a means of overcoming the crisis The paradox is that the aggregate demand was artificially increased, while production volume was reduced But in reality such measures were effective because they had prevented decreasing of GDP and created incentives for restructuring, emerging of new industries, innovations that have absorbed the excessive aggregate demand and ensured a new positive stage of economic growth 7.4 WHY WAGES ARE SO DIFFERENT ECONOMIES? IN TRANSITION Our analysis has showed the countries which provided considerable gradual growth of labour cost later have had high dynamics of real GDP per capita The countries where this process was never performed the crisis developments were rather long term and their results quite destructive Unfortunately Ukraine belongs to such last countries (World Bank 2004) Here we want to give evidence that the restriction of wages in Ukraine during transition period is one of the main circumstances that determined the current economic failure It is wonder that this 7.4 WHY WAGES ARE SO DIFFERENT IN TRANSITION ECONOMIES? 125 factor practically has not been considered among experts The majority of them are sure that the government doesn’t increase wages as incentive to future economic growth But real practice of successful transition countries testified the contrary Everything mentioned above determines the actuality of some new theoretical understanding of correlation between wages and unemployment which formed lately in the context of some special economic growth policy – by methods of establishing the advanced rising of wages, namely by means of setting the minimal wages, levels of social protection, as well as planned social life standards The following analysis will be presented only for the transition period before the crisis started of 2008 to eliminate specific crisis factors The dynamics of the GDP per capita of selected countries in Eastern Europe 1990–2008 was demonstrated earlier in Table 3.1 Looking at these figures arises the question, why the economies of countries’ analogues for Ukraine reached the overall physical productivity, estimated by GDP per capita in international Gary-Khamis dollars 1990, significantly bigger in comparison with Ukraine? The detailed microeconomic analysis concerning the comparable products and subjective observation does not give us the convincing confirmation of this But if we look at the changes of macroeconomic outputs in the value indicators, such invisible differences appear as fact The illustrations of this are presented in Table 7.1, where we can see that administrative short-run gradual changes of the wages stipulate the further dynamics of the basic cost parameters of these countries So, if we compare the dynamics of real GDP and average wages, the tempo of the wages changing is much more than the rate of real GDP dynamics in all these countries Could we give explanation of this wages excess by the economic theory mainstream? No, because according to this theory such situation must cause huge inflation, unemployment, and recession As we can see in Table 7.1, such assumption has not been confirmed by practice Moreover, we can see the paradoxical situation If we compare the dynamics of wages and GDP per capita, measured by purchasing power parity (PPP) methodology in US dollars, we find a radically different picture The most successful countries (Poland, Hungary, Estonia) in this case have got the “correct” proportion between tempos of wages and GDP, but in Russia and Ukraine the “incorrect” such interrelations have remained 126 HUMAN CAPITAL AND INNOVATION DEVELOPMENT Table 7.1 Dynamics of real GDP, GDP per capita, and average wages in the years of market transformation in selected countries (in times) Poland Hungary Estonia Russia Ukraine Real GDP 2007/ 1989 GDP per capita, in PPP $, 2007/1991 Average monthly wages, in $, 2007/1993 The coefficients of an advancing wages to GDP (4:2) The coefficients of an advancing wages to GDP per capita (4:3) 1.69 1.36 1.46 0.96 0.67 8.71 6.41 5.14 4.47 2.91 4.42 3.41 5.00 8.38 7.44 2.6 2.5 3.4 8.7 11.1 0.5 0.5 1.0 1.9 2.6 Source: Calculated from World Development Report (World Bank Annual issues); Database Central Europe – http://www.databasece.com (Database Central Europe) The question arises: “How can it be?” A more detailed analysis shows that the positive trends were due to the administrative (exogenous) establishment of a higher level of minimum wages, and correspondingly it has influenced the average wages, at the early stage of the economic recovery At the beginning of reforms in the mentioned countries these bigger rates of wages were as policy tools, not as a result of previous growth For example, in 1993 the average wages were in Poland – $220, and in Hungary – $295 For comparison – in Ukraine this level was $36, in Russia – $63, and in Estonia – $83 Recall just two years before that (in 1991) Ukraine was ahead of Poland in terms of GDP per capita We can also draw attention to the fact that the recovering dynamic growth in Poland and Hungary began precisely from the mentioned levels of wages in 1993 Estonia and Lithuania had reached the same level of wages over three years by increasing wages three times! Note that the positive trend of their economies also started after that It is obvious that economy cannot get an increase of the physical productivity of existing production factors in three times during three years Ukraine started the positive growing with wages of $43 (1999), Russia started rise from $62 (1999) In 2000–2007 the rates of economic growth of the last two countries were about the same with other countries’ analogues, even higher than theirs, but unjustified lower levels of labour costs before that period and after have reproduced the growing gap in GDP per capita 7.4 WHY WAGES ARE SO DIFFERENT IN TRANSITION ECONOMIES? 127 The accession to the European Union of Poland, Hungary, and Estonia did not stop the exogenous advancing growth of wages in these countries The annual growth indexes of real wages typically have been exceeding 10%, often reaching a rate of 30% Physically the factor of productivity has been lagging behind, but the GDP per capita that is measured in a value dimension increased with greater pace Table 7.2 shows the absolute levels of annual real wages growth in the selected countries There we can see also figures of wages after 2004 – the year when Poland, Hungary, and Estonia had joined the EU As a result, these countries maintained high-growth value parameters of human capital, which allowed Poland, Hungary, and Estonia to quickly approach the level of Portugal – the poorest countries of “old” Europe (EU-15) Poland during the years of market transformation has doubled its GDP per worker (in the PPP method, US$1,000): 1990 – 18.0; 2007 – 36.9; Portugal in 2007 – 41.0 Ukraine during this period was not moving: 1990 – 15.5; 2007 – 14.8 Theoretical justification of the irregular dynamics of the wages levels in the transitive economies was analysed in the scientific literature We may note a number of studies sponsored by the World Bank where the problem of value of work was viewed in the context of more general topics (Ukraine 2004; Perudgini et al 2008; Radosevyc 2006), as well as special works dedicated to the labour market (World Bank 2005) A detailed analysis of this situation in Ukraine can be seen in the publications of the monitoring group under the direction of Hartmuth Limann (Konings et.al 2003) The connection between the labour mobility and production dynamics is analysed in (Brown and Earl 2006), and the influence of the institutional Table 7.2 Annual absolute increasing (delta) of the average monthly wages in selected countries, US dollars Poland Hungary Estonia Russia Ukraine 2002 2003 2004 2005 2006 2007 19 114 55 28 13 43 136 115 39 16 61 108 94 57 24 109 74 62 65 46 62 20 114 93 49 175 193 236 133 62 The absolute increasing during period 2002–2007 Source: Calculated from Database Central Europe – http://www.databasece.com 469 645 676 415 210 128 HUMAN CAPITAL AND INNOVATION DEVELOPMENT factor on the relocation of human resources in the transitive economies is studied in (Tito and Terrell 2002) Influence of privatization on the parameters of the labour market of some transitive countries was studied in the Center of Economic Reforms and Transformations of the Herriot Watt University In these works the problem of considerable differentiation of labour cost in the transitive European countries is considered only from the neoclassic positions and is related to the level of labour productivity Theoretic assumptions on this question were generalized in work (Raiser 2007) where a canonical conclusion is drawn that further increase wages with the labour productivity growth rates exceeding the norm could exert a negative influence on the competitiveness and slow down the labour demand But at the same time nobody raises a question of a possible inverse influence of labour cost on price indices of labour productivity by means of increasing the respective national product output The researchers left untouched the facts shown above – of the abrupt increase of relative levels of wages in the European transitive countries, especially in the most successful ones, with the simultaneous not less dynamic increase of GDP per capita and employment It is difficult to consider the available indicators and proportion of Ukraine’s economic development as the mirror of natural existence In fact, there is every reason to believe that it is just because the Ukrainian economic policy was holding back a growth of minimum wages that conditioned the low levels of the value productivity and GDP per capita as well as a violation of the cost proportions of reproduction economy This condition today continues to generate growing backlog of prosperity in Ukraine against EU counterparts However, we must clearly realize that if policy could have been done as the simple administrative increasing of wages, then this way could be very simple and successfully used by all countries The problem is more complex In order to implement the policy of increasing the value of human capital the government must ensure high competitiveness of the national economy and efficiency of market institutions to develop Schumpeter innovations This approach cannot be implemented without deep structural changes in the economy on base of progressive innovation technology But the facts show that the innovation structural change demands the economic incentives for “human capital” The exogenous increasing of minimum wages would be an effective policy tool of this REFERENCES 129 REFERENCES Blanchflower, D.G., and A.J Oswald (1990) The wage curve Scandinavian Journal of Economics 92: 215–35 Brown, D., and J Earl (2006) Job Reallocation and Productivity Growth in the Ukrainian Transition Comparative Economic Studies, Palgrave Macmillan; 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And what could be done to increase them? World Bank Working Paper No 47372 http://go.worldbank org/NC0EGSHXG0 Solow, R.M (2008) Low-wage work in Europe and America In: The Nobel Laureate Meetings at Lindau {http://www.lindau-nobel.de} Tito, B and Terrell, K (2002) Institutional Determinants of Labor Reallocation in Transition Journal of Economic Perspectives 16(1) winter: 51–76 Ukraine: Building Foundations for Sustainable Growth Country Economic Memorandum (2004) Washington: DC: World Bank World Bank (2004) Ukraine: Building Foundations for Sustainable Growth Country Economic Memorandum Washington DC: World Bank World Bank (2005) Enhancing Job Opportunities: Eastern Europe and the Former Soviet Union Washington, D.C: World Bank World Bank (Annual issues) World Development Report Washington D.C.: The World Bank INDEX A Acemoglu, Daron, 69 Added value creation new, reallocation of existing, Aggregate production function capital factor, labour factor, total factor productivity, 2, 24 Aghion, Philippe, 28, 29, 30, 90 Amato, Sergio, 45 Aslund, Anders, 23, 70 B Bacon, Francis, 74 Barro, Robert, 28, 32 Bell, Daniel, 91, 93 C Carayannis, Elias, 71, 93 Castells, Manuel, 56, 91 Chang, Ha-Joon, 70 Clark, John, 57 Classical Political Economy, 76 Classification by technological paradigms, 109 Complexity Economics, Confucius, 88 Copernicus, Nicolaus, Core innovators countries, 103, 104 Czech Rep., 123 D Diminishing return, 27, 28, 30, 74, 75 Division of labour, 34 Dosi, Giovanni, 56, 57, 91 Dow Jones index, 122 Drazen, Allan, 21 Dutch disease, 74 E Eastern Europe, 125 Economic crises economic nature, inner forces, Tugan-Baranovsky theory, 41–44 Economic development innovation model of, key factor of, 16 Statics and Dynamics modes, 5–6, 51, 94 © The Author(s) 2017 I Bazhal, The Political Economy of Innovation Development, DOI 10.1007/978-3-319-54852-4 131 132 INDEX Economic growth, 2, 4, 26–32, 49–55, 89–92 innovation model of, 95 Economic growth and business cycles, contradiction theories, Economics, 13, 29, 30, 48, 56, 66–69, 88, 89 evonomics, 66 handbooks, 3, 24 Economic theory crises of, 26 fundamental, “life cycle” of core theories, 6, 82 modern mainstream, 2, 20, 67 mysterious phenomena, new mainstream theories, 26 practical function of, 16 Economy in transition, 23 Estonia, 8, 70, 123, 125, 127 EU, 127, 128 European Commission, 16, 90, 91, 93 Evolutionary economics, 94 Evolutionary Political Economy, Exogenous increase of wages, 120, 123 F Ford, Henry, 34 Freeman, Christopher, 56, 57, 91 G Galbraith, John, 90, 91 Gap between fundamental theory and practice, 3, 4, 11, 20 Gary-Khamis dollars, 125 GDP per capita, 9, 67, 70, 78, 104, 105, 118, 124–128 General equilibrium approach, 5, 36, 50, 119, 120, 122 equilibrium prices, 121 Global Competitiveness Report, The, 102–104 Global Innovation Index, 102 Godin, Benoit, 17 Great Depression, 124 Griliches, Zvi, 32, 34 H Hansen, Alvin, 43, 44, 47 Hanusch, Horst, 91 High-tech sectors export, 113 Howitt, Peter, 28, 29, 30 Human capital, 28, 32, 33, 118, 122 Hungary, 125, 126, 127 I Industrial economy, 95 Industrialisation, 12, 87, 91–94 Industrial modernization, 11, 77, 89 Industrial policy, 89 Industrial society, 89 Industry 4.0, 25, 91 Inflation, 122, 123, 125 Information Economy, Innobarometer, 33, 102 Innovation management, 3, 20 Innovation marketing, Innovation policy, 89 Innovations assessment efficiency, 96 definitions, 17–19 impact on economy, 101 innovative entrepreneurship, 18, 20 key factor of economic growth, 21 new combinations, 5, 17, 18 new products, 96 INDEX phenomenon, 17, 25 specific category of economic theory, 2, 17, 22, 26, 88 technological, 5, technology, 5, 107 visible forms, 5, 18, 24 Innovation Union, 88 Innovators-entrepreneurs, 94 INSEAD, 16 Investment-innovation policy, 89 Israel, 8, 70, 104 Italy, 42, 104, 106 K Keynes, John Maynard, 22, 59, 67, 118, 119 Knowledge economy, 90 Kolodko, Grzegorz, 23, 69, 70 Kondratiev’s long waves, 7, 58, 81 Korea, Rep., 104, 106 L Landes, David, 69 Lee, Keun, 70, 90, 91 Levels of technology, 108 Limann, Hartmuth, 127 Lundvall, Bengt-Ake, 91 M Macroeconomic equilibrium, 66, 69, 72, 120, 122 Macroeconomics handbooks, 2–3, 24 mainstream, 20 without “innovations,” 20 Mainstream of fundamental economic theory, 2–4, 6–8, 11, 12, 20–22, 24, 25, 26, 70–73, 125 133 Malerba, Franco, 56 Mankiw, Gregory, 21 Market power, 90 Marshall, Alfred, 67 Marx, Karl, 25 Matrix of McKinsey-General Electric, 104 Mensch, Gerhart, 57 Mercantilism, 74, 75, 77, 78 Minimum wages, 120, 123, 128 Monetarists, 76–79 N National accounts, 120 National innovation system, 8, 23 National Science Foundation, 16 Nelson, Richard, 56, 91 Neoclassical growth model “Statics” mode, 55 Neoclassical growth models AK model, 28 Cobb-Douglas production functions, 27 endogenous models, 29 model Solow, 28 TFP as “black box,” 28 Neoclassical theory, 7, 9, 49, 76, 118 Neo-Schumpeterian theories “Dynamics” mode, 56 Neo-Schumpeterian Economics, 56 of technological paradigm, 41, 44, 48, 55–60, 80, 90 New industrialization, 91 North, Duglas, 69 O OECD, 16, 19, 109, 118 Okun, Arthur, 67 Opportunity cost, 72 134 INDEX P Pareto efficiency, 36, 54, 67, 72, 121 Perez, Carlota, 56, 57, 81, 91 Phelps, Edmund, 69 Physiocrats, 75, 77 Pigou, Arthur, 67 Piketty, Thomas, 21 Poland, 125, 126, 127 Political Economy conceptual framework, and factor productivity, 24 of innovation development, 6, 17, 83 necrophilia syndrome, 78, 79 “vicious cycle” of, 6, 80 Wealth of Nations doctrine, The, 65 Post-industrial economy, 88, 92, 95 Post-industrial society, 89, 91 Productivity and wages, 118 Ptolemy, Claudius, R R&D intensity, 33, 108 Ranking approach, 102 Recession, 7, 43, 46, 59, 120, 124, 125 Re-industrialization, 77, 87 Reinert, Erik, 69 Ricardo, David, 25 Rima, Ingrid, 48 Rodrigues, Maria, 91 Romer, David, 21, 28 Romer, Paul, 31 Rosenberg, Natan, 27 Rostow, Walt, 48 S Sala-i-Martin, Xavier, 28, 32 Schumpeterian models, 26–31 Dixit-Stiglitz-Ethier production function, 31 growth through creative destruction, 29 new quality of old resources, 33 Product-Variety Model, 30, 33 Schumpeter innovations, 8, 69, 117 and total factor productivity, 32, 117 as isolated production factor, 4, 17, 25 as key factor of development, 3, 21, 76 creating new production function, 25 in mainstream economic theories, invisible factor of economic development, isolated factor of economic development, 6, 20 means of saving capitalism, 42 new added value, 4, 118 phenomenon, 79 radical, destructive, 28 special phenomenon, 3, 118 using new resources, 31 Schumpeter, Joseph, 44 heuristic invention of, 4, 49–54 theory of economic development, 17 Schumpeter’s theory competitor to Neoclassics, “creative destruction,” 22, 36–38 circular flow model, 50–54, 72 ingaging into mainstream, 24 paradigmatic assumptions, paradigm of Political Economy, 24 as systematic doctrine, Slovenia, 123 Smith, Adam, 33, 66, 75 Smith’s dogma, 120 Socio-economic systems’ name, 88 Soete, Luc, 57, 91 Solow, Robert, 27, 54, 119 “Solow Residue,” 55 INDEX Spiethoff, Arthur, 10, 44, 47–48 Stiglitz, Joseph, 31, 69, 70 Strategy Europe 2020, 88, 91 Structural technological dynamics, 58, 107, 110 T Taiwan, China, 104, 106 Taxons of technologies, 109 Technological change, 5, 7, 27, 28, 51–52, 55–57, 59, 70, 82, 93–94 Technological determinism, 14, 109 Technological paradigm, fifth paradigm, 109 fourth paradigm, 109 sixth paradigm, 113 third paradigm, 109 Technological structure of economy, 5, 43, 44, 96, 108, 112 Technologies development, 107–108 Theory of Economic Development of Schumpeter, 5–6 Tugan-Baranovsky, Michael, 11 “Applied Tuganism,” 45 economic cycle as steam engine, 48 first theory of economic cycles, 42–45 important “pillar” of paradigm innovation, 42 “long waves” of Kondratiev, 48 origin of Schumpeter’s theory, 45 135 technological structure of economy, 43 Tylecote, Andrew, 56 U Ukraine, 9, 77, 118, 127 industry structural dynamics, 110 mistakes of economic policy, 9, 128 structural industry development, 109 UNCTAD, 16 Unemployment, 8, 25, 120, 125 US PTO, 105, 106 Utility patents, 103 W Washington Consensus, 23 Wealth of Nations, The, 6, 10, 12, 25, 65–83 WIPO, 16 World Bank, 16, 23, 90, 91, 127 World Economic Forum, 103 World rent, The, 72 Z Zero sum game, 72 .. .The Political Economy of Innovation Development Iurii Bazhal The Political Economy of Innovation Development Breaking the Vicious Cycle of Economic Theory Iurii Bazhal National University of. .. the significant meaning of the original key subject of Political Economy, namely, The Wealth of Nations, but not only the Pareto equilibrium; the theory of value, theory of long-run economic cycles,... transition economies The title of this book has two parts: Political Economy of Innovation Development: Breaking Vicious Cycle of Economic Theory. ” We believe that category of Schumpeter innovations