Iurii Bazhal is Head of the Economics Department at National University of Kyiv-Mohyla Academy in Ukraine, and author of The Political Economy of Innovation Development: Breaking the Vicious Cycle of Economic Theory (Palgrave Macmillan, 2017). He argues that innovation development has been the key to successful economies.

Social and economic trends in recent decades have led to fundamental collisions in the development of human civilization. Ambitions for a strong and prosperous society include putting in place an economic system for successful development; ensuring a safe and high quality of life; implementing an inclusive growth model; reducing economic and social inequality; providing broad access to quality education and medicine, and so on. All of these challenges have aggravated and increased the potential of future crises. Yet, these processes take place non-uniformly in different countries and do not appear to be directly conditioned by the specifics of that country’s economic policy. Types of policies differ not only among themselves but they often contradict canonical notions that are studied at universities according to typical neoclassical textbooks. Statistics show a rather paradoxical situation – countries most successfully at overcoming the aforementioned crises are those that did not directly follow orthodox approaches to achieve financial stability, but instead actively implemented the State’s social and innovation policy. These countries did not squeeze expenditures for education, science, medicine, social protection but, on the contrary, developed social and human capital in society.

In such a framework, modern mainstream economic theory cannot explain this process. This furthers the existing crisis of canonical economic theory; the arising of anti-capitalist and anti-globalist activities, the criticism of existing international relations, and the growing threat of legitimizing the military to solve problems. My book demonstrates that such crises are not new in a historical context; they are conditioned by the changing technological paradigm of a given country’s economy. These processes are closely related to innovation activity and so the aforementioned measures enhancing social and human capital that directly affect innovation activity are necessary for economic growth. My book explains why historically, innovations  were a primary driver of economic development and why the role of innovation will become even more dominant in the future, not least to ensure the effective functioning of the market economy. Schumpeter's theory of economic development is developed in the book to argue that genuine economic growth – especially in transitioning and developing countries – is only possible with strong innovation activities.

Schumpeter's theory of innovation development is presented as the new mainstream of economic theory for the future. This approach is based on Schumpeter’s belief that innovation is an independent and isolated production factor that creates added value in a national economy. As such, innovations should be recognized as the “stem cells” of the new political economy of innovation development. I show that underestimating the methodological foundations of innovation as a fundamental category of economic theory led to the inadmissible gap between neoclassical mainstream theories and the real innovation processes of modern economic life. A similar methodological collision was inherent not only to current mainstream theory but to all previous mainstream theories too. This crisis of mainstream theories has occurred because they have eventually lost their explanatory function for the existing economic phenomena that were constantly changing due to innovations. The history of political economy shows that in such a methodological framework, without the Schumpeter innovations, a crisis of economic theory always took place.

The novelties of the book have a direct connection to the problems mentioned at the beginning of this article. A crisis of manifestations appears when a national economy slackens the pace of newly added value generation, and the process of redistributing existing national income dominates. According to Schumpeter’s theory, only innovations can generate the extra added value that is associated with a nation’s economic growth. Where a country’s innovation activities are weak, profits and other gains of economic agents are a result of redistributing the national income in about volume of previous periods. Then, a growth of the traditional output (and related income) of some firms becomes possible only by reducing the income of other production entities or industries. In classical mainstream theory, this methodological approach has very broad applications called opportunity cost. Further, the scenario of achieving added value in one place at the expense of losing it in another is called zero sum game. It leads to a rise of income inequality, and gives argument for the austerity policy. This approach also vitalizes popular political views about the existence of “ world rent”, as if most of which is received by the countries of the “golden billion”. Such a vision of political economy regenerates ideas of socialist and anti-imperialist revolutions.

Thus it is very important to recognize the main factor that ensures countries’ economic development in terms of generating new amounts of national added value. In this dimension the traditional neoclassical economic policy pays attention to the competitive advantages of available resources with proposals of further modernization. The Schumpeterian approach promotes the innovation model of economic development focusing on the creation of new knowledge resources to produce innovations. The proposed new political economy of innovation development contains findings to argue that R&D and the technological innovation sphere of a country is not so much the result, as the key factor, of sustained economic growth. Readiness to improve innovation becomes the main competitive advantage of national economies, determines their position in the world competitiveness ranking, and becomes the main capability in order to reach the well-being goal of these countries.

The new analytical angle presented here considers urgent economic problems and addresses challenges attached to current economic development policies. The book will be of interest to academics, professionals, and politicians in many countries, especially in transitioning and emerging economies. It could also appeal to a wider general audience interested in modern economic problems and discussions. It gives readers the materials and insight to take a fresh look at known problems and to recognize new approaches and solutions. Importantly, it gives attention and credits recognition to a new practical function in modern economic theory.