of the house. it just completely broke my heart. >> can we see him again? nobody wants to see me, a cute puppy there. the puppy miraculously was unharmed. there he. is he was a gift for the family's daughter who is in remission from cancer. hey, little cutie pie. glad you're okay. i'm don lemon at cnn world headquarters in atlanta. have a great week. see you back here next week. if you're hesitant to join aarp because you think it makes you old, i have a message for you: get over it! this is a "gps" special, "restoring the american dream: how to innovate." call in. i'm standing by. welcome to all of you in the united states and around the world, i'm fareed zakaria. on october 4, 1957 the ♪ get over it soviet union shocked the world by launching a tiny satellite, about the size of a beach ball, called sputnik. it weighed about 200 pounds and circled the earth in a little under two hours. america was shocked to find itself behind in the space race and began to put energy, effort and billions of dollars into

science, innovation. less than 12 years after sputnik, americans landed on the moon. >> that's one small step for man. one giant leap for mankind. >> thank you. >> now, a decade into the 21st century, listen to president obama in his last state of the union speech. >> this is our generation's sputnik moment. we need to outinnovate, outeducate and outbuild the rest of the world. >> the soviet union is gone, but other nations have taken its place, challenging our long-standing supremacy as the world's leading innovator. so, how well are we meeting that challenge? well, in a recent ranking of 40 countries' efforts to foster innovation over the past decade, guess where the united states ranked? dead last. this year china is projected to outpace us in the number of

patents it files. that's the first time any other country has overtaken the united states. and started earning loads of points. >> the first step in winning the future is encouraging american innovation. we need to get behind this innovation. you got a weather balloon with points? yes i did. innovation doesn't just change our lives. [ man ] points i could use for just about anything. it is how we make our living. ♪ >> in his state of the union address, president obama ♪ mentioned the world innovation nine times. more than any other president there it is. [ man ] so i used mine to get a whole new perspective. ever has. and on this issue, most of his opponents agree. ♪ >> the spirit of enterprise and [ male announcer ] the new citi thankyou premier card innovation and pioneering gives you more ways to earn points. propelled america's standard of living to go beyond any other what's your story? citi can help you write it. nation in the world. >> how can we move beyond the political rhetoric and get america back on track to being innovator number one in the 21st century? we've got an impressive lineup of innovation experts to give you some answers, both here on this special and in a "time" magazine essay. from google, executive chairman eric schmidt, the head of the u.s. military's crack team of

innovators, dr. regina dugan, author steven johnson, economist paul romer, venture capitalist len baker and innovation maven john kao. >> the problems are much more serious than most people realize and the consequences are more grave than most people realize. >> but let's get started by first understanding innovation and watching the effect it has our journey into innovation had on societies over the last has taken us across a millennium centuries. and around the world to discover how innovation can be a boone for america and how america finds itself falling behind. so, why does innovation now we'll look at solutions. matter? helping explain it all for us what can we do to catch up? today is a man who studied innovation from top to bottom, steven johnson. author john kao says instead of the haphazard approach the johnson is the author of a nation takes to innovation terrific book "where good ideas today, we need nothing less than a grand strategy for american come from: the natural history of innovation" and he'll show us the impact of innovation over innovation. time. >> we have people who are trying to look at education reform. we have people who are looking at life sciences. we have people looking at steven? thanks, fareed. defense-related innovation.

let's start with a long view but we don't really have an that shows just how dramatic the integrated national strategy change inaugurated by the modern revolution in innovation has been. based on a vision of what it's for, which also has a narrative, this is a charted of global gdp which the american people can embrace. over the last 1,000 years, which is basically the kind of best >> so, who's doing it right? way to measure the increase in what nations are the world's value from new products and services created in a society. most innovative innovators, if you will? kao points to several for so, if we start the clock here examples, starting with one of the smallest yet richest countries in asia, singapore. >> the government of singapore at year 1 ooo in the middle of has decided, for instance, they can't do everything so they're the dark ages and look at what going to have a strategy. the strategy is going to be happens over the next 500 years. focused on three areas. basically, global gdp just flat life sciences, digital media and lines. there's no change at all. clean tech. then the trading capitals of europe start to kind of light up each one of them has resulted in and you begin to see this slow but steady growth for the next 300 years. but then stop the clock right here. it's 1800, the dawn of the the building of almost a mini industrial age, steam power is city for innovation to focus on starting to revolutionize life and to develop a physical in britain, united states and platform within which those disciplines can thrive. europe. the biopolis in singapore, for look at what happens over the next 200 years. example, is slated to hold 7,000 you see this just dramatic spike, really a global spike in gdp everywhere around the planet. now, this is an extraordinary change. and you hear people talking phd scientists in the life

sciences area. by comparison, nih, our crown about history as being this jewel in public sector life process that repeats itself sometimes, but when you think about global gdp over this scale you realize the expression sciences has about 10,000 phd doesn't mean anything here scientists. because something this dramatic has never happened before over to put it in perspective, this is a country the size of long the course of human history. island, you know, chicago, throwing their hat into the ring and saying they're going to be a now, why is it happening? global leader in innovation and life sciences. it's being driven by new ideas >> asian countries like and new innovations that put singapore aren't the only nations with an eye toward those ideas to practical use. innovation, kao says, pointing more often than not, it's new also to scandinavia. innovations that help us in >> finland has a strategy, a capturing and sharing energy and fabric of financiers of information in new ways. innovation, both private and so, let's look at one great case public sector. they have an innovation manager study of this which is 17th for the city of helsinki. century holland. at this point in the 1700s, holland has the highest gdp per capita of any country in the world. it's the wealthiest country in it's at the metropolitan level the world. as well. what's driving that? in sweden, if you want to know well, increased efficiency in who runs innovation in sweden, you look in the phone book and capturing wind power. think of those classic dutch windmills, which are being used there's a vinnova and a person's to more efficiently convert raw name associated as directo, and timber into lumber which helps you can call them up and say, them build better ships, which are using innovative new designs yes, i have 300 people at to capture wind power at sea more efficiently, all of which

leads to and is funded by vinnova and we weave together a national narrative for innovations in the financial innovati sector which helps create a global trading empire, innovation. i'm sorry to say that at the moment in the u.s. government, you try find the name of the person who's responsible for creates the wealthiest country innovation, there's no name and in the world. no phone number. now let's look at one more >> our government's lack of metric that actually takes it to coordination on innovation has caused us to shoot ourselves in a more personal level which is the foot. energy consumption per person. america missed out on growing some cutting edge industries, how much energy do you take in says eric schmidt, industries over the course of the average take in terms of the food you that we actually invented in the first place. eat, in terms of the electricity you use or in terms of the miles case in point, solar power. the technology was invented in you drive over the course of the day. america, but the chinese government spent lots of money so, if we look at that same metric over the last 1,000 to subsidize the manufacture of years, we see actually quite a similar story. the panels and now they are the you start in the year 1,000. world's leading producer of that basically, nothing changes for product. 700 years. just a flat line all the way to 1700. then in the first century, really, of the industrial revolution, 1700 to 1800 we see a 50% increase in energy consumption per person. >> they're fundamentally taking big jump. ideas from america and building look at what happens over the those industries and doing it with a directed government next 200 years powered in part because of the green revolutions program that is the way we run in agriculture, which are america and we're losing because of it. bringing a lot more food to our

>> are you saying that you would tables and incredible growth in like to see the american government do some of the things the chinese government does in energy consumption per person. terms of providing capital and other kinds of access, infrastructure, for fledgling this is actually having a technology? >> we're going to have to do something like that. physiological effect on our we're going to have to have, for example, some kind of a guaranteed load program or a bodies because as people, matching program. >> in schmidt's part of the particularly eat more food in those early crew shall months world, silicon valley, there's a prenatal and early childhood, long history of government human beings are becoming taller involvement but len baker, a and stronger and living longer silicon based venture lives than their ancestor. capitalist, says government >> that's fascinating, steven. should leave innovation to the market. if you were to tell us, though, where do these innovations come >> i think the issue with the from, why do they happen? government is that, you know, >> well, you know, we have an just as -- if you say, all assumption, particularly in the politics is local, all economics u.s., the private sector, the is ultimately a microeconomic. marketplace is driving all this. actually, where good ideas come the real question is, what is from, i analyzed the last the process by which government several hundred years of innovation and what we found is, in fact, a large number of them funding, which is inherently are coming out of public sector, centralized, gets translated research or science funded by into micro-economics in a way the military or the government or just kind of academic basic that it can actually connect research. so, something like the internet with these small groups of entrepreneurs? or gps comes out of the public sector,en the private sector. >> the chinese government is making massive investments in the best model seems to be kind clean tech, in infrastructure, of a hybrid where you have in science. entrepreneurial energy but also public sector funding.

>> one of the things you point if they're doing it all wrong, out in your book is that cities they're certainly getting a hell of a growth rate out of it. drive a lot of innovation. >> china is an interesting for it seems like we're going to have a whole lot more people example. if you think of the chinese living in cities in the future. >> that's true. economy as being divide between government-linked companies, maybe the most interesting stat over the last couple hundred state-owned enterprises and private sector companies, the years is in 1800, 2% of human beings lived in cities and just as of a couple years ago it's 50%. productivity of capital in the state-owned enterprises is very, when people gather together very low. there is this extraordinary >> but if government-run enterprises can be inefficient process where marketplace is form, ideas flow more easily, at times, the private sector people collaborate in new ways isn't perfect either, says schmidt. and cities have been historically great drivers of funding new social networking innovation. as the planet becomes more and sites galore, for example, but a more urban we'll see that process continuing. reluctance to finance >> really interesting stuff. so, without innovation the world really would look very different. large-scale, cutting-edge throughout this hour we'll dig manufacturing companies. >> it's very hard to get venture deeper into the nature of innovation and how it can help funding if you're a company that america. we'll look where we rank against needs $100 million to build a the rest of the world, examine all of america's new brand new plant for advanced competition, not just asia but all over the world, explore ways materials. or a new form of plastic or a to revive innovation in america new form of steel. very, very difficult to find the kind of capital. it's too expensive for venture and ways not just to help the and not predictable enough for rich get richer but the average private equity. american, too. all that and more.

it means that this valley of back in a moment. death, as it's called, uses all of these ideas invented in tdd# 1-800-345-2550 absolutely, i mean, these financial services companies america and then other countries with much more aggressive industrial plants take those plans to build those institutions. >> schmidt says america's public sector has scored many successes in fostering innovation. tdd# 1-800-345-2550 are still talking about retirement >> we did this to develop the farming industry in america in 1910 and 1920. tdd# 1-800-345-2550 like it's some kind of dream. tdd# 1-800-345-2550 it's either this magic number i'm supposed to reach, or... most of high tech, most of the tdd# 1-800-345-2550 it's beach homes or it's starting a vineyard. revolution that got us to where tdd# 1-800-345-2550 come on ! tdd# 1-800-345-2550 just help me figure it out we are today, came out of the tdd# 1-800-345-2550 in a practical, let's-make- this-happen kind of way. military industrial complex post war '50s and '60s when it was tdd# 1-800-345-2550 a vineyard ? understood the military value of schwab real life retirement services is personalized, tdd# 1-800-345-2550 the science was so great and the practical help that's focused on spinoffs would be even greater. there's a long, long history of making your retirement real. american government essentially focusing on things. open an account today and talk to chuck tdd# 1-800-345-2550 about setting up your one-on-one consultation. tdd# 1-800-345-2550 not so much focusing on a specific company as a winner, that would be anathema to america's competitive notions but focusing on industries. >> that continues to this very day and it's embodied by this woman, dr. regina dugan, leading

the charge for innovation at the pentagon. over the years her agency came up with stealth fighter, beginnings of gps technology and the internet. >> we are motivated in part by our defense mission but that has cascading benefits to the society as a whole. >> and later, we'll answer the most important question of all -- can innovation improve the lives of every american? >> the united states is in danger of becoming a nation of innovation haves and have nots.

with your host, betty white. featuring lifetime aarp member, betty white. and betty white. i'm sorry, betty isn't here. [ male announcer ] with outstanding performances by the bettys. if you're 50 or over but hesitant to join aarp because you think it makes you old, i have a very important message: [ all ] get over it! [ male announcer ] joining aarp is only sixteen dollars a year. so call in and get a free travel bag when you join now. we've just seen in graphic

detail how innovation has direct ly converted into rising living standards throughout history, protelling america's dramatic rise in the 20th century. now in the 21st century, we are falling behind. and fast. how do we get our innovation groove back? first, let's take a step back and look at just what innovation means and what makes a good innovator. take a look at apple. most of us would say this is one of the world's most innovative companies. it's transformed whole industries, changed our way of life, and the market has rewarded it. apple is now the second most valuable company in the world after exxon. >> thank you. >> but apple spends very little of it's revenue on research. only half of what sony spends, for example, a quarter of what microsoft spends. its products rarely use new breaking path breaking science or technology.

apple's innovations are in how the consumer uses technology n design, in marketing, in the overall experience of technology, information and entertainment and in their intersection. this is how it has always been, according to venture capitalist len baker. >> if you look at the most innovative and most valuable companies, they're much more [ bell tolls ] about creating new business combinations than they are being [ indistinct conversations ] scientifically driven companies. >> such as? [ hissing ] what do you mean? >> my favorite historical agents, what did we learn here today? example is isaac merritt singer that lint balls are extremely flammable! well, yeah. who invented the sewing machine and that 15,000 dryer fires happen every year! in 1850 or so and he invented that's why it's important to regularly clean and inspect your vents! correct. where did you get that?! the sewing machine, but the real i built it. fortune and benefit to society is he was the first person to [ male announcer ] we are insurance. sell to women because it was thought that women couldn't ♪ we are farmers ♪ bum, ba-da-bum, bum, bum, bum ♪ operate machinery. he invented the installment plan. he invented the trade-in. and he invented the idea of selling internationally. >> one the most revolutionary

business innovations was not an exciting new scientific invention. it was the accounting system of double-entry bookkeeping, the practice of tallying credits and debts, which was invented in renaissance italy and led to modern capitalism and trade. i'm don lemon. >> think about ebay. here are your headlines. ebay didn't create technology. massive wildfires in arizona are it used technology as an input forcing thousands to flee their homes tonight. more than a quarter million and revolutionized the way acres have burned over the past week. one of the largest in state history is the wallow fire in people do things. northeastern arizona near the >> google is another company town of springerville. that has absolutely the cause of the blaze, which revolutionized the way we all do things. has scorched 180,000 acres, is search the internet, read news, even talk on the phone. under investigation. its executive chairman is eric crews are working to breach a levee breach along the missouri schmit. river. it's forcing the evacuation of when you look at google, what is 600 residents in iowa. the most innovative part of engineers aren't certain the google? is it the technology of the breach can be repaired. search, or is it the business if it fails, interstate 29 and model of this amazing parts of hamburg would likely be advertising system that you've created? flooded. defense secretary robert gates is making his final stop in >> it ultimately has to be both in a company like google. afghanistan. he's leaving his post late they the company was started with a are month. research idea of how to do he told a group of u.s. forces search better. that he feels responsible for

their well-being, noting that he our founder invented this while at stanford. signed the deployment papers that put them there. classic two young people at stanford who go off to form a company and are hugely as for the plan withdrawal of successful. u.s. troops, gates says he along the way in the first expects it to be a mix of combat couple of years, there was a and support elements. question of how to make money. in his words, i have confidence then another group, again, a we'll strike the right balance. couple of very young people right out of stanford, figured country sing irtrace adkins lost his home to fire, but his out this targeted advertising model. you need both. three kids and their 19managed >> a successfully innovative to escape unhurt. flames destroyed his 5,000 enterprise also needs to be about having fun. square foot house in the nashville suburb of brentwood as so, that brilliant minds are pictures on hiss website show. inspired to creative heights. at least so says eric schmidt atkins was on a plane to alaska and it means allowing people to be themselves. when the fire started saturday. >> the people who are very, very no word yet on a cause. knows are your headlines creative are not going to show this hour. up at 9:00, leave at 5:00 and punch a card. i'm don lemon, keeping you they're going to be interesting. they're going to be fun. they're going to be fun-loving, informed. cnn, the most trusted name in news. free food, all the benefits of google were fundamentally decided early on so people were working with each other and were creative. people were encouraged to make the race is on to see who will win the 21st century, so we thought we'd talk to the people the most outlandish ideas. responsible for winning the 20th could we try this? try that? so forth. those people are now running the company.

>> google's top brass came up century by out-innovating the competition. one small government agency within the vast pentagon with a set of innovation principles, one which says bureaucracy has had a lot of employees have a license to pursue their dreams. success spurring innovation, called defense advanced research as company policy, every google project agency, also known as engineer spends 20% of his time working on any project he or she wants. darpa. created in 1958 in response to a concept they call 20% time. >> if you look back, most of the the soviet union's launch of really interesting products that have come out of google have come out of the 20% time. someone starts something, he sputnik, darpa are to maintain gets excited about it. technological superiority of the u.s. military. >> one example. after september 11, 2001 one they've done a pretty good job over the years, coming up with the stealth bomber, the m-16 googler was visiting a bunch of assault rifle, the unmanned aerial drones used in afghanistan and pakistan, but different news sites every day many of darpa's innovations have had an impact on society well to read about the attacks. beyond the military. darpa-funded projects include he thought to himself, why don't i write a computer program that will search all of these sites the internet and technology for me? behind gps, which, of course, he used his 20% time to write powers the new mobile revolution. the program. >> you can think of defense a soon, google news was born. bit like a mini society. a web tool that searches the it has many of the same problems site for particular news story. now accounts for 30% of all new of the society as a whole, from

energy, to health care, to communications, so it's no small sites on the web. not every idea is going to be a winner. surprise that many of the in fact, most will end in advances that we make at darpa failure. have cascading implications for the larger society as a whole. the key to being a successful >> the high stakes of providing inknow rate issor, says len sound technology for soldiers in combat motivates the darpa team to create the best technology in baker, is knowing how to fail efficiently. the world. >> they simply must work in all >> the innovation process is inevitably hard to predict and number of austere situations, very, very failure-prone. as a result, you need to make quick mistakes, you need to do life and death, and that kind of urgency focuses the mind, efficient experiments so that inspires greater genius. >> scientists and engineers come you can profit by those mistakes so you can learn by those mistakes. >> so, you'd prefer to find to work for darpa for three to entrepreneurs that had failures five years, focusing on a in the past? particular project in any number >> well, i don't -- yeah. of fields, including quantum we actually don't like serial entrepreneurs because sometimes serial entrepreneurs are a mechanics, mathematics and little too comfortable with failure. biology. i mean, failure needs to be these program managers oversee projects at businesses and universities all over the painful but not too painful. country. >> successful innovations most famously darpa funded the ultimately hinge on the people first version of the internet, who are in charge, baker says. then called arpa net. there are certain personality in 1969 computer hubs called traits that are most important to him when he's looking for the nodes were able to send messages to each other over a phone line. next mark zuckerberg. >> the two things that i think

>> that original investment was we've sort of distilled down about $150 million. assist characteristics we look and that gave birth to the for are, first of all, high internet, now about $300 billion energy level. people who have sort of got the later. psychic energy to attack things. >> these days darpa is working and the other thing is intellectual honesty. on a slew of exciting people who are intellectually innovations, including big dog, honest with themselves and eagerly seek negative feedback. a ground-breaking project in >> one particular group of robotics. the idea is to create a robot with animal-like capacities and people who are known for sparking innovation are strength that can go with immigrants, who have always soldiers on combat missions in rough terrain. played a big role in america's >> when you watch the big dog video, what you'll see is that economic success. it really looks like a dog. and it has all sorts of other >> they bring with them different ideas about what we attributes that make it can do. resilient in difficult environments. they don't always feel trapped by the way things have already been done. >> another project is called if you look in silicon valley this is very clear in the bios of startup companies. immigrants are one of the blue angel, created in 2009 to sources of new ideas to create combat the h1n1 pandemic. new things. scientist came up with a way to >> the immigration debate has see who had the flu before they been shoved aside in washington for more pressing matters. get symptoms. but if we want to win the innovation race, looking closely they also invented a new and at immigration is a great way to start. faster way of producing because not only are these vaccines. american-educated innovators now >> the conventional way of producing a vaccine takes nine

months and includes eggs. in the blue angel program we going back to their home countries, but then those have used tobacco plants to make countries take these innovators' the protein necessary to produce ideas and run with them. coming up -- we'll hear from eric schmidt. vaccines. he can do that in one month as >> all these ideas are invented opposed to nine months. in america and then other very fast. countries, which have much more >> since dr. dugan became aggressive industrial plans, director two years ago, she's take those ideas and build those institutions. revitalized her agency's next up -- what is the commitment to the intersection of open-ended blue sky research threat? and applied sciences. why does one man say america's innovation gap is a crisis on the scale of hurricane katrina? a focus that produced many of darpa's signature achievements. ♪ do you think we're at another sputnik moment where there are ♪ challenges to america's [ male announcer ] thanks to advanced natural gas turbine technology from ge, innovation, skills, its the power that will help make innovation lead? our nation more energy independent >> one of the significant is right here in america. challenges that we are concerned [ crickets chirping ] with is the ability in the nation to make things, to ♪ [ cheers and applause ] advanced gas turbine technology from ge. manufacture things. now, this is very important for ♪ defense applications as well, as you might imagine. and we are investing $1 billion over five years to significantly advance the state of the art in manufacturing.

>> in december 2009 the 40th anniversary of the internet, the agency led a challenge to promote innovation in social networking. a contest was held to find ten red balloons. each eight feet wide. in different locations across the country. with $40,000 going to the winner. >> the first team found them in but when she got asthma, all i could do was worry ! eight hours and 52 minutes. an astonishingly fast way. >> did they use the internet -- specialists, lots of doctors, lots of advice... >> internet and social networks. five researchers at m.i.t. and my hands were full. i couldn't sort through it all. learned of the race 48 hours with unitedhealthcare, it's different. we have access to great specialists, ahead of the balloon launch and with five initial e-mails they and our pediatrician gets all the information. everyone works as a team. reached thousands of people that and i only need to talk to one person about her care. could in turn reach millions of we're more than 78,000 people people in eight hours and 52 looking out for 70 million americans. minutes after he launched the that's health in numbers. balloons, they had all the locations. unitedhealthcare. >> researchers say their advanced social networks could be applied to stopping terrorist attacks or finding missing children.

how do you protect against the politicalization of this? some senator calls you up and says, my -- you should give money to my state or my constituents? >> well, our projects are competitively assessed, and we assess them on their scientific merit. we have the mechanism for doing that and it is at the hands of the scientists and engineers. >> no outside interference, no political interference? >> there is no political interference in this election process for projects. >> dr. regina dugan has spent most of her career thinking about innovation. i spent the last few months getting my arms around it. when we get back, i'll tell you my own conclusions, and we'll answer the most important question of all -- can innovation really create jobs right here in america? ttd# 1-800

ttd# 1-800-345-2550 ttd# 1-800-345-2550 ttd# 1-800-345-2550 and talk to chuck about ttd# 1-800-345-2550 rolling over that old 401k.

welcome back to our gps special -- "restoring the american dream: how to innovate." if innovation leads to huge growth as we learned at the beginning of the show and if america is falling behind in innovation, where does that leave us? in a major crisis, according to many of our experts. eric schmidt of google it is a big threat comes from across the pacific. asian countries are focusing on innovation much more than the u.s., stealing our thunder. >> the fact of the matter is the other countries are putting a lot more money than we are, and we're not going to win unless we do something like what we're that doing. >> when you travel to places like south korea, singapore, china, does it worry you? >> it worries me a lot. south korea is a classic example. who would have thought that south korea would become major iron, steel and ship-building country in the world? makes no sense, right? not with the right choice of natural resources.

but 30 years ago in their organized way they decided those are the industries they're going after, and they built a fine product. so the asian model works really, really well from the standpoint of productivity for the country and innovation. we've got to find a way to marry that with our cultural ideals and our democracy here in america. >> schmidt says china is already starting to challenge the u.s. as an innovator, sooner than we might have imagined. >> the evidence is that the chinese companies are beginning to do things innovative. much of the new networking ideas are coming out of a company with a research campus as large as silicon valley in a far city in china. so, it's perfectly possible that these people will begin to get into the spaces that america has historically dominated. >> everywhere you look, there are troubling signs that suggest america is falling behind on innovation. government investment in research and development has stagnated. from 1953 to 1987 there was a

4.9% annual growth rate in spending. from 1987 to 2008 there was a 0.3% annual growth rate in spending. by 2013, china is projected to overtake the united states as the world's leading publisher of scientific research. china is gaining on us in advanced degrees in engineering and technology. in 1995, they produced less than 13,000 masters degrees graduates, about a quarter of our total. ten years later, they turned out over 63,000 masters graduates, beating out america for the first time. for some that's reason for concern, but economist paul romer has a different take on the rise of the rest. as we marvel at the how worried should we be when we possibility of innovation, we still need to ask a fundamental question. notice that the chinese are approaching and even surpassing will innovation bring america the united states at some point jobs? in the number of scientific how can we ensure these new jobs created by innovation won't go articles they publish, patents they register?

>> the answer is, almost not at overseas? it's true that u.s. all. to the extent the chinese manufacturing jobs are generally going abroad, generally, to asia. participate in the discovery of new things that we can use at but google's eric schmidt says it's possible to keep the latest the same time they use them, we can benefit from all of their high-tech manufacturing jobs here in the u.s. if we back discoveries. certain industries. >> so, if they create a new medical technology that saves >> there are people who are heart patients, we benefit. working on new forms of >> yeah. materials, new plastics. when you touch them, they move. >> but what if you discover they respond to heat and newer and newer processes of location and temperature in ways that are fantastic. this research is done in manufacturing, and we can't find american universities, the same level of innovation and innovative companies? >> so, in that case, it's probably best to think about comparison between britain and the united states. manufacturing plants for that need to be where the research is done. the united states started out another example has to do with nanotechnology, the manipulation behind britain, but we tried of things that are very, very some things differently. small. with nanotechnology you can we had room to innovate and do build personal drugs of one kind different thins. or another, new kinds of we became more productive and materials and so forth. more successful and more recently, britain started to copy what was working right in all of those factories will be the united states. built in the united states because it's too new to put in >> author john kao thinks, however, america should be somewhere else. >> now, let me give you a few of my own conclusions, having concerned and concerned about an worked on this special and innovation gap with other talked to all of these experts. we've learned that innovation countries. in his latest book "innovation has been the key to our dramatic

economic growth and our rising nation" he describes america's standards of living. innovation problem in the steven johnson showed that earlier. starkest of terms. think hurricane katrina, he says, a crisis of national there's no question of innovation's importance. competence. we've also learned that innovation comes in many are you pessimistic? >> i'm worried. varieties, from the private i think -- and i'm worried sector and the public sector, partly because i think that the from businesses and universities. problems are much more serious len baker reminded us innovation isn't just about science and technology. than most people realize. it's about inventions in and the consequences are more grave than most people realize. so -- >> what are the consequences? business and business processes, and these kinds of innovations >> we become the payers of rent for other people's innovation. really come out of a fertile private sector. we saw the perfect example of so other people get rewarded for that in google. but i have to say that i am still persuaded that the government has proven to have a powerful role in innovation, at their innovation productivity. least in the past. our best and the brightest go abroad because they can find look at all of the achievements more financing and better of darpa in inventing the internet, gps. working environment, more government subsidies, but i think they're even more serious without them america and the consequences. world would be a very different place. at it's heart, the innovation gap and the erosion of innovation capability is a after all, the fastest growing national security issue. economies in the world today, you know, you think about the growing importance of the china, south korea, are using digital domain and cyber the government to fund research, elements in terms of generic to promote innovation, in

industry after industry, they're military operations that one can imagine in the future. establishing commanding leads we don't have a monopoly in those technologies any more. because of government policy. other countries are quite good so, i think we need both -- government support and a vibrant private sector to foster innovation. at doing digital things. but my final thought about all this is that even if we do >> if it's a national security issue as kao says, there's one government agency whose sole mission is to buck that trend, out-innovate the rest of the world, even if we maintain the cutting edge, there is still a big question. the pentagon's innovation arm given the way technology works and globalization works these darpa, that cutting-edge technologies aren't limited to days, will innovation benefit the battlefield. the average american? they often help you and me. ever heard of the internet? will he or she have a better job well, darpa invented it. really. we'll show you their latest innovations in just a bit. as a consequence of innovation? first, what makes innovation happen? the answer is, we can't be sure. take a look at apple. the private industry or the federal government? you can imagine people disagree the model of innovative company. it employs about 50,000 people. on this one. @ hi, i'm betty white, host of the aarp get-over-it-a-thon. then you've got foxconn, the company in china that makes most of apple's products. it employs over 1 million people. the small number of engineers, designers and executives at

apple are thriving, but the jobs are going to hundreds of thousands of workers in china. unless we can solve this problem, innovation might prove to be good for some americans, but not all. here's john kao. >> the united states is in danger of becoming a nation of innovation haves and have nots, so there's a segment of the population that they may have started a company, they may have gone to a good school, they may have the skills to be able to innovate, but i think there's a growing potential for a disenfranchised part of the american public that are not beneficiaries of the innovation economy, are not able to originate within that, and to the extent the funding, the education and the infrastructure become less and less available, they'll be sort of a large group of disenfranchised people in this country. >> economist paul romer agrees, not all americans may end up reaping the benefits of

innovation, but, he says, there is a solution. >> the best way to avoid that rising inequality from new technology is to do a better job of educating people. this is the make or break issue for the united states. if we can do a better job of educating all of our young people, they'll take full advantage of the new technologies and we won't have this problem of widening income inequality. >> it all comes back to education. can we get average americans to upgrade their skills in grade school, in high school, in college, frankly for the rest of their lives? that topic will be the focus of our next special here at "gps" and also in "time" magazine, how to educate america. you can read more of my thoughts on this special in my essay in