In Newsweek’s current cover story article, “Can America Still Innovate?” Fareed Zakaria, Senior International Correspondent for CNN and Senior Editor of Newsweek , argues that America is falling behind in its ability to innovate and compete.  Large government investments in R&D were a critical factor in previous U.S. economic and innovation leadership, but that has changed.  Citing a report by Breakthrough Institute, written by the fellows of Breakthrough Generation, he writes:

“Government funding of basic research has been astonishingly productive. Over the past five decades it has led to the development of the Internet, lasers, global positioning satellites, magnetic resonance imaging, DNA sequencing, and hundreds of other technologies. Even when government was not the inventor, it was often the facilitator. One example: semiconductors. As a study by the Breakthrough Institute notes, after the microchip was invented in 1958 by an engineer at Texas Instruments, “the federal government bought virtually every microchip firms could produce.” This was particularly true of the Air Force, which needed chips to guide the new Minuteman II missiles, and NASA, which required advanced chips for the on-board guidance computers on its Saturn rockets. “NASA bought so many [microchips] that manufacturers were able to achieve huge improvements in the production process–so much so, in fact, that the price of the Apollo microchip fell from $1,000 per unit to between $20 and $30 per unit in the span of a couple years.”

Zakaria argues that education and human capital are critical factors for competitiveness:

Part of the slippage is due to the fact that other countries—from Singapore and South Korea to Canada and Sweden—are actively changing their laws and systems to make themselves more competitive. The United States didn’t raise its corporate tax rate; others lowered theirs. But the United States is falling far behind in one key resource: human capital. Whether measured by the percentage of kids with high-school diplomas or performance on standardized tests, America is not producing the kinds of workers needed in a knowledge-based economy. Let’s be clear. Even properly measured, the United States does well. But the halo is fading. The wide gap between the United States and the rest of the world is closing.