What happened to American innovation? The key is investing in education and research.

For the first time in a generation, both Congress and the White House proudly proclaim themselves to be pro-business. The change this has brought about has been dramatic. Many industries and sometimes even specific companies have been able to win more sympathetic hearings and friendlier legislation.

But in a rush to undo the worst of government regulation and intrusion, it will be a terrible mistake if we abandon our national commitment to do one of the things government has done best in the past 50 years--provide the sustained financial support of scientific research and discovery across all branches of knowledge.

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Ironically, we seem to be forgetting what made us great, just as other countries are catching on. In 2005, The World Economic Forum at Davos named the world's most competitive economy: Finland.

Who? It wasn't until Nokia surpassed Motorola and Japanese competitors to become the leading cell phone maker that the media paid much attention to Finland. But now we have come to discover that Finland is a world-class competitor. Two factors in particular support the Finns' achievements. First, they have what is largely acknowledged to be the best educational system in Europe. Finnish students, when tested, are the world's best readers and among the best in science and math. The second factor is that the Finns have an extraordinary commitment to research and development.

Through government and private industry, the Finns devote 3.5 percent of their gross domestic product to R & D, almost a full percentage point more than the total U.S. private and public research investment (which is 2.6 percent of GDP) and nearly double the average for Europe as a whole.

The lesson of Finland is the same lesson the United States taught the rest of the world in the past 50 years: Investment in education combined with investment in research and discovery pays enormous returns. I believe--and studies show--that national investment in education and R & D is probably the single best way we can address some of the most persistent and difficult challenges facing our nation today.

For example, we are all aware that our country has a huge trade deficit that ultimately may threaten our economic security. We have lived with this imbalance for years, driven in part by our thirst for imported oil. But the recent numbers are worrisome. Since the end of World War II, we have always maintained a positive balance of trade in high-tech exports. That has consistently been a source of our strength.

In 1980, the U.S. produced 31 percent of global high-tech exports; Japan produced 15 percent; and emerging Asia, 7 percent. But by 2001, those numbers had turned around, with the U.S. producing only 18 percent; Japan, 10 percent; and the emerging nations of Asia, fully 25 percent of high-tech exports. Our once-positive balance of trade for high-tech items is now in deficit, and continuing to fall rapidly--and it is science and technology exports that are most likely to provide the means of reversing our balance of trade shortfalls.

Historically, innovation in science and technology has been the direct result of investments in basic research and development. America's long-standing commitment to generously fund R & D has been a major driver of our economic competitiveness. However, as a percentage of our overall gross domestic product, U.S. federal research and development spending peaked 40 years ago--in 1965, at just under 2 percent of GDP. Today, it is now down by more than half, to about 0.8 percent of GDP.

And while government spending for medical research has increased, overall R & D spending, especially in basic sciences, continues to decline.

As we should expect, these numbers have very real consequences. The number of science and technology articles published in Western Europe already exceeds those in the U.S. By 2010, it is anticipated that the emerging economies of Asia will produce more patents and spend more on R & D than the U.S. Moreover, as the national focus on science and engineering, discovery and research has declined, so, too, has the interest in these subjects demonstrated by our young people--our next generation of innovators and inventors. Europe now produces more than twice the number of scientists and engineers as the U.S., and Asia about three times the number. According to National Science Foundation data, the U.S. share of world bachelor degrees in engineering that have been granted dropped in half during the 1990s, from about 12 percent in 1991 to 6 percent in 2000.

At my own university--Johns Hopkins--this year, only 4 percent of freshmen expressed interest in studying computer science and computer engineering. And our engineering school enrollment in these areas has fallen significantly during the past few years, from 266 declared computer-science majors in 2001, to 206 in 2002, 163 in 2003 and down to only 120 this year. I compare this trend with what I witnessed in music. I play the piano and trained--for a time--to perform the great classical repertoire of the 18th and 19th century composers. Like many classical music fans, I am dismayed to see all the empty seats in the hall whenever I go to a concert. And like many other lovers of the genre, I trace the decline in interest directly to the trend in the past several decades to de-emphasize and often remove music education from our schools. If we don't value something, and we won't pay for it, then it is likely, eventually, to go away.

Are we willing to see the same thing happen to American preeminence in scientific research and discovery?

In 2005, I began co-chairing the National Innovation Initiative with Intel CEO Craig Barrett. This effort is sponsored by the Council on Competitiveness, a 20-year-old national forum of industrial, university and labor leaders organized to promote, study and advance American business competitiveness. In my work with the council, I have been introduced to a novel concept: the calculus of innovation.

The idea is quite simple:

* Knowledge drives innovation.

* Innovation drives productivity.

* Productivity drives our economic growth.

It's a formula with profound implications. Throughout the roaring 1990s, our knowledge enabled us to innovate, and our innovations increased American productivity and, hence, American economic growth. But there is no guarantee that these productivity gains will continue. And recent studies by the Council on Competitiveness suggest that in America today, this formula is breaking down; it looks as though the innovation pipeline is slowly being squeezed dry.

Part of the reason is that we are losing the skills race. About one-third of all jobs in the United States require science or technology competency, but currently only 17 percent of Americans graduate with degrees in science or technology. By contrast, the National Science Foundation's 2004 Science and Engineering Indicators report shows that the world average is 27 percent, Korea's average is twice ours, and in China, fully 52 percent of college degrees awarded are in science and technology.

To master the calculus of innovation, promote economic growth and support the genius for innovation and discovery that has been the hallmark of American prosperity for two centuries, we must reaffirm our national belief in the transformative power of knowledge.

We must rededicate ourselves to transmitting existing knowledge to the next generation through the world's best educational system. And we must recognize that in order to continue leading the world in the discovery of new knowledge, we must aggressively fund research and development in all areas of science and technology.

In the American century, our country had the money and the focus and the will to make enormous investments in science and technology--investments that have repaid themselves many times over in new discoveries, new technologies and processes, and entire new industries. The White House and Congress shouldn't forget it. All of us need to remember this fundamental truth. Working hard is admirable, but working smart has made us great.