In this appendix a brief introduction is given to the Schumpeterian evolutionary economics which provides a conceptual underpinning for much of the thinking in this book.

Joseph Schumpeter's main concern was with what he called ‘economic development’, a phenomenon that in his view was closely associated with innovation. However, in his book, The Theory of Economic Development (Schumpeter 1934), he began by imagining an economic world devoid of innovation. It is in this world, he showed, that the static theory of neoclassical economics found its natural home as equilibrium prices and quantities were established.

The choice of this starting point, however, is to emphasise that the real world of restless capitalism is fundamentally different from the stationary world imagined in our chapter 1. The essence of this real world is that it involves endogenously generated development. Schumpeter defined this development as ‘the carrying out of new combinations’ – in short, the implementation of internally created innovations. These new combinations included new products, new technologies and processes, the opening of new markets, the creation of new sources of supply of raw materials or manufactured goods and the implementation of new forms of organisation.

It is the carrying out of new combinations that, Schumpeter argued, is the function of entrepreneurs, both the individual entrepreneur (as Schumpeter argued in The Theory of Economic Development) and the large corporate ‘entrepreneur’ that organised the entrepreneurial function in routinised company R&D laboratories (as he suggested in Capitalism, Socialism and Democracy, 1943).