The Heat Is On How long can the U.S. maintain its innovative edge?

As industries and jobs move overseas, the U.S. has focused oncutting-edge innovations to stay one step ahead. But if the U.S. isan economic Energizer Bunny, the rest of the world is determined tostep up the pace.

In July, France announced plans to invest $1.82 billion tocreate 67 "competitiveness centers" to fuel research andinnovation, with more to come. China is building a world-classuniversity system to produce scientists, and now ranks third behindthe U.S. and Japan in nanotechnology patents.

As other countries invest more in R&D, education andentrepreneurship, business and academic leaders are asking anuncomfortable question: Is the U.S. losing its innovative edge?Consider these statistics: American companies now account for just52 percent of U.S. patents; we rank 13th in household broadbandpenetration among 15 highly developed countries; and only 29percent of papers published in top physics journals in 2004 were byAmericans.

It doesn't stop there. Only 6 in 100 American undergraduatedegrees are in the natural sciences or engineering. In a December2004 survey, meanwhile, American teenagers ranked 24th out of 29industrialized countries in everyday math skills. The problem, saysRobert Boege, executive director of the Alliance for Science andTechnology Research in America, is that Americans aren't awareof the growing threats to our competitiveness. "Does therehave to be an innovation Pearl Harbor to wake people up?" hewonders.

BIZ Experiencesial activity shows troubling signs, too. A survey of12,000 Americans ages 18 to 74 by the Pino BIZ Experiencesship Centerat Florida International University in Miami calculated a 20percent drop in BIZ Experiencesial activity between 2003 and 2004,with 4 million fewer Americans starting and running new companies."I didn't expect this big of a drop," says Paul D.Reynolds, a lead researcher on the annual study.

Innovation goes beyond bits, bytes and biology; it includescoming up with unique processes and business models. Forentrepreneurs like Michael Murphy, however, the process ofinnovating is getting harder. Murphy is CEO of Gentris Corp., a4-year-old pharmacogenomics company in Morrisville, North Carolina,with 30 employees and 2004 sales of $2.3 million. Because of are-interpretation of federal rules prohibiting small firms fromqualifying for Small Business Innovative Research grants if themajority of company shares are owned by private institutions,Gentris slashed R&D spending by 50 percent this year.

"This is very much going to inhibit people from eitherstarting companies or being able to compete for those researchdollars that [drive] a lot of innovation," says Murphy,50.

Stories like Murphy's fuel the Council on Competitiveness, a175-member nonprofit group comprised of labor leaders, universitypresidents and CEOs. In 2003, it launched a 21st Century NationalInnovation Agenda that includes the development of "innovationhot spots" to drive growth; encourages greater investment inresearch and education; and calls on the government to issue greencards to foreign-born, U.S.-educated scientists and engineers."Innovation is the most important factor in determining ourcountry's security and standard of living," says DeborahWince-Smith, the council's president.

Alan Ying, founder and CEO of MercuryMD, a 4-year-old Durham,North Carolina, medical software firm with 75 employees, seesopportunity in globalization. "I don't think[entrepreneurs] see [China] as a threat necessarily," he says."They see it as a huge opportunity that they don't knowhow to take advantage of easily." Ying, 33, believes Americansmust address the underlying issue: Will we be protectionistregarding global talent, or become open to it? "Having[foreign talent] here is going to raise the bar of performance foreveryone," he says.

In May, Congressman Frank Wolf (R-VA), chairman of the HouseAppropriations Committee Subcommittee on Science, State, Justice,Commerce and Related Agencies, called on President Bush to triplespending on basic research. With so many competing priorities,however, pushing an innovation agenda will be hard work. But thebiggest challenge could be changing how we think. Says Murphy,"We need to make math and science cool."