>> no, it hasn't. it was so close though, but it hasn't stopped. so i hope it stops so i can walk back over to the bus, susan. >> the college kids are waiting. >> all right, susan. thank you. i'll see you tomorrow. i'm don lemon live in new hampshire. i'll see you back here this is a "gps" special, "restoring the american dream: how to innovate." welcome to all of you in the united states and around the world, i'm fareed zakaria. on october 4, 1957 the 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, technology and 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. >> the first step in winning the future is encouraging american innovation. we need to get behind this innovation. innovation doesn't just change our lives. 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 ever has. and on this issue, most of his opponents agree. >> the spirit of enterprise and innovation and pioneering propelled america's standard of living to go beyond any other 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. >> 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 had on societies over the last centuries. so, why does innovation matter? helping explain it all for us today is a man who studied innovation from top to bottom, steven johnson. johnson is the author of a terrific book "where good ideas come from: the natural history of innovation" and he'll show us the impact of innovation over time. steven? >> thanks, fareed. let's start with a long view that shows just how dramatic the change inaugurated by the modern

revolution in innovation has been. this is a charted of global gdp over the last 1,000 years, which is basically the kind of best way to measure the increase in value from new products and services created in a society. so, if we start the clock here at the year 1,000 n the middle of the dark ages and look at what happens over the next 500 years. basically, global gdp just flat lines. there's no change at all. then the trading capitals of europe start to kind of light up 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 industrial age, steam power is starting to revolutionize life in britain, united states and europe. look what happens over the next 200 years. 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 about history as being this process that repeats itself sometimes, but when you think about global gdp over this scale you realize the expression doesn't mean anything here because something this dramatic has never happened before over the course of human history. now, why is it happening? it's being driven by new ideas and new innovations that put those ideas to practical use. more often than not, it's new innovations that help us in capturing and sharing energy and information in new ways. so, let's look at one great case study which is 17th 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 the world. what's driving that? well, increased efficiency in capturing wind power. think of those classic dutch windmills, which are being used to more efficiently convert raw timber into lumber which helps them build better ships, which are using innovative new designs to capture wind power at sea more efficiently, all of which leads to and is funded by innovations in the financial sector which helps create a

global trading empire, wealthiest country in the world. let's look at one more metric. takes it to a more personal level which is energy consumption per person. how much energy do you take in over the course of the average take in terms of the food you eat, in terms of the electricity you use or in terms of the miles you drive over the course of the day. so, if we look at that same metric over the last 1,000 years, we see actually quite a similar story. you start in the year 1,000. basically, nothing changes for 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. big jump. look at what happens over the next 200 years powered in part because of the green revolutions in agriculture, which are bringing a lot more food to our

tables and incredible growth in energy consumption per person. this is actually having a physiological effect on our bodies because as people, particularly eat more food in those early crucial months prenatal and early childhood, human beings are becoming taller and stronger and living longer lives than their ancestor. >> that's fascinating, steven. if you were to tell us, though, where do these innovations come from, why do they happen? >> well, you know, we have an assumption, particularly in the u.s., the private sector, the marketplace is driving all this. actually, where good ideas come from, i analyzed the last several hundred years of innovation and what we found is, in fact, a large number of them are coming out of public sector, research or science funded by the military or the government or just kind of academic basic research. so, something like the internet or gps comes out of the public sector,en the private sector. the best model seems to be kind of a hybrid where you have entrepreneurial energy but also public sector funding. >> one of the things you point out in your book is that cities

drive a lot of innovation. it seems like we're going to have a whole lot more people living in cities in the future. >> that's true. maybe the most interesting stat over the last couple hundred years is in 1800, 2% of human beings lived in cities and just as of a couple years ago it's 50%. when people gather together there is this extraordinary process where marketplaces form, ideas flow more easily, people collaborate in new ways and cities have been historically great drivers of innovation. as the planet becomes more and more urban we'll see that process continuing. >> really interesting stuff. so, without innovation the world really would look very different. throughout this hour we'll dig deeper into the nature of innovation and how it can help america. we'll look at how we are doing, where we rank against the rest of the world. we'll examine all of america's new competition -- not just in asia, but all over the world. we'll look at ways to revive innovation in america and ways not just to help the rich get richer but the average american, too. all that and more. with diabetes, it's tough to keep life balanced.

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history, propelling 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 science or technology. apple's innovations are in how the consumer uses technology in 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 about creating new business combinations than they are being scientifically driven companies. >> such as? what do you mean? >> my favorite historical example is isaac merritt singer who invented the sewing machine in 1850 or so and he invented the sewing machine but the real fortune and benefit to society is he was the first person to sell to women because it was thought that women couldn't 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 book keeping, the practice of tallying credits and debts, which was invented in renaissance italy and led to modern capitalism and trade. >> think about ebay. ebay didn't create technology. it used technology as an input and revolutionized the way people do things. >> google is another company that has absolutely revolutionized the way we all do things. search the internet, read news, even talk on the phone. its executive chairman is eric schmidt. when you look at google, what is the most innovative part of google? is it the technology of the search or is it the business model of this amazing advertising system that you've created? >> it ultimately has to be both in a company like google. the company was started with a research idea of how to do search better. our founders invented this while

at stanford. classic two young people at stanford who go off to form a company and are hugely successful. along the way in the first couple of years, there was a question of how to make money. then another group, again, a couple of very young people right out of stanford, figured out this targeted advertising model. you need both. >> a successfully innovative enterprise also needs to be about having fun. so, that brilliant minds are inspired to creative heights. at least so says eric schmidt and it means allowing people to be themselves. >> the people who are very, very creative are not going to show up at 9:00, leave at 5:00 and punch a card. they're going to be interesting. they're going to be fun. they're going to be fun-loving, 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 most outlandish ideas. could we try this? try that? so forth. those people are now running the company.

>> google's top brass came up with a set of innovation principles, one which says employees have a license to pursue their dreams. as company policy, every google engineer spends 20% of his time working on any project he or she wants. a concept they call 20% time. >> if you look back, most of the really interesting products that have come out of google have come out of the 20% time. someone starts something, he gets excited about it. >> one example. after september 11, 2001 one googler was visiting a bunch of different news sites every day to read about the attacks. he thought to himself, why don't i write a computer program that will search all of these sites for me? he used his 20% time to write the program. soon, google news was born. a web tool that searches the sites for particular news stories. google news now accounts for 30% of all news traffic on the web. not every idea is going to be a winner.

in fact, most will end in failure. the key to being a successful innovator, says len baker is knowing how to fail efficiently. >> the innovation process is inevitably hard to predict and very, very failure-prone. as a result, you need to make quick mistakes, you need to do efficient experiments so that you can profit by those mistakes so you can learn by those mistakes. >> so, you'd prefer to find entrepreneurs who have had failures in the past? >> well, i don't -- yeah. we actually don't like serial entrepreneurs because sometimes serial entrepreneurs are a little too comfortable with failure. i mean, failure needs to be painful but not too painful. >> successful innovations ultimately hinge on the people who are in charge, baker says. there are certain personality traits that are most important to him when he's looking for the next mark zuckerberg. >> the two things that i think we've sort of distilled down assist characteristics we look

for are, first of all, high energy level. people who have sort of got the psychic energy to attack things. and the other thing is intellectual honesty. people who are intellectually honest with themselves and eagerly seek negative feedback. >> one particular group of people who are known for sparking innovation are immigrants, who have always played a big role in america's economic success. >> they bring with them different ideas about what we can do. they don't always feel trapped by the way things have already been done. if you look in silicon valley this is very clear in the bios of startup companies. immigrants are one of the sources of new ideas to create new things. >> the immigration debate has been shoved aside in washington for more pressing matters. but if we want to win the innovation race, looking closely at immigration is a great way to start. because not only are these american-educated innovators now going back to their home

countries, but then those countries take these innovators' ideas and run with them. coming up -- we'll hear from eric schmidt. >> all these ideas are invented in america and then other countries, which have much more aggressive industrial plans, take those ideas and build those institutions. next up -- what is the threat? why does one man say america's innovation gap is a crisis on the scale of hurricane katrina? [ male announcer ] this...is the network -- a network of possibilities. in here, the planned combination of at&t and t-mobile would deliver our next generation mobile broadband experience to 55 million more americans, many in small towns and rural communities, giving them a new choice. we'll deliver better service, with thousands of new cell sites... for greater access to all the things you want, whenever you want them. it's the at&t network... and what's possible in here is almost impossible to say. the world needs more energy. where's it going to come from?

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welcome back to our gps special -- "restoring the american dream: huh to innovate." if innovation leads to huge growth 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 they are 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 degree 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. >> how worried should we be when we notice that the chinese are approaching and even surpassing the united states at some point in the number of scientific articles they publish, patents they register? >> the answer is, almost not at all.

to the extent the chinese participate in the discovery of new things that we can use at the same time they use them, we can benefit from all of their discoveries. >> so, if they create a new medical technology that saves heart patients, we benefit. >> yeah. >> but what if they discover newer and newer processes of manufacturing and we can't find 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. united states started out behind britain, but we tried some things differently. we had room to innovate and do different thing. we became more productive and more successful and more recently, britain started to copy what was working right in the united states. >> author john kao thinks, however, america should be concerned and concerned about an innovation gap with other countries. in his latest book "innovation nation" he describes america's innovation problem in the

starkest of terms. think hurricane katrina, he says, a crisis of national competence. are you pessimistic? >> i'm worried. i think -- and i'm worried partly because i think that the problems are much more serious than most people realize. and the consequences are more grave than most people realize. so -- >> what are the consequences? >> we become the payers of rent for other people's innovation. so other people get rewarded for their innovation productivity. our best and the brightest go abroad because they can find more financing and better working environment, more government subsidies, but i think there are even more serious consequences. at its heart, the innovation gap and the erosion of innovation capability is a national security issue. you know, you think about the growing importance of the digital domain and cyber elements in terms of generic military operations that one can imagine in the future.

we don't have a monopoly in those technologies any more. other countries are quite good at doing digital thing. >> if it's a national security issue as kao says, there's one government agency whose sole mission is to buck that trend, the pentagon's darpa, cutting-edge technologies aren't limited to the battlefield. they often help you and me. ever heard of the internet? well, darpa invented it. really. we'll show you their latest innovations in just a bit. first, what makes innovation happen? the private industry or the federal government? you can imagine people disagree on this one.[ imberly ] the uniy gave me the knowledge to make a difference in peoples' lives. [ carrie ] you're studying how to be an effective leader. [ cherie ] you're dealing with professionals, teaching things that they were doing everyday. [ kimberly ] i manage a network of over a thousand nurses. [ carrie ] i helped turn an at-risk school into an award-winning school.

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our journey into innovation has taken us across a millennium and around the world to discover how innovation can be a boon for america and how america finds itself falling behind. now we'll look at solutions. what can we do to catch up? author john kao says instead of the haphazard approach the nation takes to innovation today, we need nothing less than a grand strategy for american

innovation. >> 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 defense-related innovation. but we don't really have an integrated national strategy based on a vision of what it's for, which also has a narrative, which the american people can embrace. >> so, who's doing it right? what nations are the world's most innovative innovators, if you will? kao points to several for examples, starting with one of the smallest yet richest countries in asia, singapore. >> the government of singapore has decided, for instance, they can't do everything so they're going to have a strategy. the strategy is going to be focused on three areas. life sciences, digital media and clean tech. each one of them has resulted in the building of almost a mini city for innovation to focus on and to develop a physical platform within which those disciplines can thrive.

the biopolis in singapore, for example, is slated to hold 7,000 ph.d. scientists. by comparison, nih, our crown jewel in public sector life sciences has been 10,000 ph.d. scientists. to put it in perspective, this is a country the size of long island, you know, chicago, throwing their hat into the ring and saying they're going to be a global leader in innovation and life sciences. >> asian countries like singapore aren't the only nations with an eye toward innovation, kao says, pointing also to scandinavia. >> finland has a strategy, a fabric of financiers of innovation, both private and public sector. they have an innovation manager for the city of helsinki. it's not just at the national level. it's at the metropolitan level as well. in sweden, if you want to know who runs innovation in sweden, you look in the phone book and there's a vinnova and a person's

name as director and you can call them up and they say, yes, i have 300 people at vinnova and we weave together a national narrative for 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 innovation, there's no name and no phone number. >> our government's lack of coordination on innovation has caused us to shoot ourselves in the foot. america missed out on growing some cutting edge industries, says eric schmidt, industries that we actually invented in the first place. case in point, solar power. the technology was invented in america but the chinese government spent lots of money to subsidize the manufacture of the panels and now they are the world's leading producer of that product. they're fundamentally taking ideas from america and building those industries and doing it with a directed government program that is the way we run america and we're losing because of it.

>> are you saying that you would like to see the american government do some of the things the chinese government does in terms of providing capital and other kinds of access, infrastructure, for fledgling technology? >> we're going to have to do something like that. we're going to have to have, for example, some kind of a guaranteed load program or a matching program. >> in schmidt's part of the world, silicon valley, there's a long history of government involvement but len baker, a silicon based venture capitalist, says government should leave innovation to the market. >> i think the issue with the government is that, you know, just as -- if you say, all politics is local, all economics is ultimately a microeconomic. the real question is, what is the process by which government funding, which is inherently centralized, gets translated into micro-economics in a way that it can actually connect

with these small groups of entrepreneurs? >> the chinese government is making massive investments in clean tech, in infrastructure, in science. if they're doing it all wrong, they're certainly getting a hell of a growth rate out of it. >> china is an interesting for example. if you think of the chinese economy as being divide between government-linked companies, state-owned enterprises and private sector companies, the productivity of capital in the state-owned enterprises is very, very low. >> but if government-run enterprises can be inefficient at times, the private sector isn't perfect either, says schmidt. funding new social networking sites galore, for example, but a reluctance to finance large-scale, cutting-edge manufacturing companies. >> it's very hard to get venture funding if you're a company that needs $100 million to build a brand new plant for advanced materials. or a new form of plastic or a new form of steel.

very, very difficult to find the kind of capital. it's too expensive for venture and not predictable enough for private equity. it means this valley of death, as it's called, uses all of these ideas invented in america and then other countries with much more aggressive industrial plants take those ideas and build those institutions. >> schmidt says america's public sector has scored many successes in fostering innovation. >> we did this to develop the farming industry in america in 1910 and 1920. most of high tech, most of the revolution that got us to where we are today, came out of the military industrial complex post war '50s and '60s when it was understood the military value of the science was so great and the spinoffs would be even greater. there's a long, long history of american government essentially focusing on things. not so much focusing on a specific company as a winner, that would be anathema to america's but focusing on industry. >> the history he mentions

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. in here, the planned combination of at&t and t-mobile would deliver our next generation mobile broadband experience to 55 million more americans, many in small towns and rural communities, giving them a new choice. we'll deliver better service, with thousands of new cell sites... for greater access to all the things you want, whenever you want them. it's the at&t network...

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the race is on to see who will win the 21st century, so we thought we'd talk to the people responsible for winning the 20th century, by outinnovating the competition. one small government agency within the vast pentagon bureaucracy has had a lot of success spurring innovation, called defense advanced research project agency, also known as darpa created in 1958 in response to the soviet union's launch of sputnik, darpa is to maintain technological superiority of the u.s. military. they've done a pretty good job over the years, coming up with the stealth bomber, the m-16 assault rifle, the unmanned aerial drones used in afghanistan and pakistan, but many of darpa's innovations have had an impact on society well beyond the military.

darpa-funded projects include the internet and technology behind gps, which, of course, powers the new mobile revolution. >> you can think of defense a bit like a mini society. it has many of the same problems as society of a whole, from energy to health care to communication. so it's no small surprise that many of the advances we make at darpa have cascading implications for the larger society as a whole. >> the high stakes of providing sound technology for soldiers in combat motivates the darpa team to create the best technology in the world. >> they simply must work in all number of austere situations, life and death, and that kind of urgency focuses the mind, inspires greater genius. >> scientists and engineers come to work for darpa for three to five years, focusing on a particular project in any number of fields, including quantum mechanics, mathematics and biology. these program managers oversee projects at businesses and

universities all over the country. most famously darpa funded the first version of the internet, then called arpa net. in 1969 computer hubs called nodes were able to send messages to each other over a phone line. >> that original investment was about $150 million. and that gave birth to the internet, now about $300 billion later. >> these days darpa is working on a slew of exciting innovations, including big dog, a ground-breaking project in robotics. the idea is to create a robot with animal-like capacities and strength that can go with soldiers on combat missions in rough terrain. >> when you watch the big dog video, what you'll see is that it really looks like a dog. and it has all sorts of other attributes that make it resilient in difficult environments. >> another project is called blue angel, created in 2009 to combat the h1n1 pandemic.

scientist came up with a way to see who had the flu before they get symptoms. >> the conventional way of producing a vaccine takes nine months and includes eggs. in the blue angel program we have used tobacco plants to make the protein necessary to produce vaccines. he can do that in one month as opposed to nine months. very fast. >> since dr. dugan became director two years ago, she's revitalized her agency's commitment to the intersection of open-ended blue sky research and applied sciences. 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 innovation, skills, its innovation lead? >> one of the significant

challenges that we are concerned with is the ability in the nation to make things, to 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, moored in different locations across the country. with $40,000 going to the winner. >> the first team found them in eight hours and 52 minutes. an astonishingly fast way. >> did they use the internet -- >> internet and social networks. five researchers at m.i.t. learned of the race 48 hours ahead of the balloon launch and with five initial e-mails they

reached thousands 6 people that could in turn reach millions of people and eight hours 52 minutes after we launched the balloons they had all the locations. >> researchers say their advanced social networks could be applied to stopping terrorist attacks or finding missing children. >> how do you protect against the politicization of this? some senator calls you up and says, my -- you should give money to my state or my constitute yens. >> 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? a network of possibilities. in here, the planned combination of at&t and t-mobile would deliver our next generation mobile broadband experience to 55 million more americans, many in small towns and rural communities, giving them a new choice. we'll deliver better service, with thousands of new cell sites... for greater access to all the things you want, whenever you want them. it's the at&t network... and what's possible in here is almost impossible to say. has twice the calcium of the leading yogurt. that's 50% of the daily value. pass on the news and make sure you and everyone you know is getting the calcium they need. ♪ britta olsen is my patient. i spend long hours with her checking her heart rate, administering her medication, and just making her comfortable.

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as we marvel at the possibility of innovation, we still need to ask a fundamental question. will innovation bring america jobs? how can we ensure these new jobs created by innovation won't go overseas? it's true that u.s. manufacturing jobs are generally going abroad, generally, to asia. but google's eric schmidt says it's possible to keep the latest high-tech manufacturing jobs here in the u.s. if we back certain industries. >> there are people who are working on new forms of materials, new plastics. when you touch them, they move. they respond to heat and location and temperature in ways that are fantastic. this research is done in american universities, manufacturing plants that need to be near where the research is done. another example has to do with nanotechnology, the manipulation of things that are very, very small. with nanotechnology you can

build personal drugs, new kinds of materials, so forth. all of those factories will be built in the united states because it's too new to put in somewhere else. >> now, let me give you a few of my own conclusions, having worked on this special and talked to all of these experts. we've learned that innovation has been the key to our dramatic economic growth and our rising standards of living. steven johnson showed that earlier. no question of innovation's importance. we've also learned that innovation comes in many varieties from the private sector and the public sector, from businesses and universities. len baker reminded us innovation isn't just about science and technology. it's about inventions in business and business processes and these kinds of innovations really come out of a fertile private sector. we saw the perfect example of 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 least in the past.

look at all of the achievements of darpa in inventing the internet, gps. without them america and the world would be a very different place. after all, the fastest growing economies in the world today, china, south korea, are using the government to fund research, to promote innovation, in industry after industry, they're establishing commanding leads because of government policy. so, i think we need both -- government support and a vibrant private sector to foster innovation. but my final thought about all this is that even if we do outinnovate the rest of the world, even if we maintain the cutting edge, there is still a big question. given the way technology works and globalization works these days, will innovation benefit the average american? will he or she have a better job as a consequence of innovation? the answer is, we can't be sure. take a look at apple. the model of innovative company.

it employs about 50,000 people. 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 n 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.