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CNN PRESENTS

CNN Presents: Restoring the American Dream: How to Innovate

Aired June 5, 2011 - 20:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


FAREED ZAKARIA, CNN HOST: 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 4th, 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.

(BEGIN VIDEO CLIP)

NEIL ARMSTRONG, ASTRONAUT, APOLLO 11: That's one small step for man. One giant leap for mankind.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Thank you.

(END OF VIDEO CLIP)

ZAKARIA: Now, a decade into the 21st century, listen to President Obama in his last State of the Union speech.

(BEGIN VIDEO CLIP)

OBAMA: This is our generation's Sputnik moment. We need to out- innovate, out-educate and out-build the rest of the world.

(END OF VIDEO CLIP)

ZAKARIA: The Soviet Union is gone, but other nations have taken its place, challenging our longstanding 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. (BEGIN VIDEO CLIP)

OBAMA: 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.

(END OF VIDEO CLIP)

ZAKARIA: 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.

(BEGIN VIDEO CLIP)

MITT ROMNEY, REPUBLICAN PRESIDENTIAL CANDIDATE: The spirit of enterprise and innovation and pioneering and daring do propelled America's standard of living to go beyond any other nation in the world.

(END OF VIDEO CLIP)

ZAKARIA: But 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.

(BEGIN VIDEO CLIP)

JOHN KAO, AUTHOR, "INNOVATION NATION": Problems are much more serious than most people realize and the consequences are more grave than most people realize.

(END OF VIDEO CLIP)

ZAKARIA: 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's going to show us the impact of innovation over time.

Steven?

STEVEN JOHNSON, AUTHOR, "WHERE GOOD IDEAS COME FROM": Thanks, Fareed. So 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 the 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, in the middle of the dark ages, and look at what happens over the next 500 years, basically, global GDP just flatlines. 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 Britain. And 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 that 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. And 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 of this 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 actually 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, creates the wealthiest country in the world.

Now let's look at one more metric. Actually it 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 day 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. And basically, nothing changes for 700 years. It's 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 percent increase in energy consumption per person. Big jump. But 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. And 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.

ZAKARIA: That's fascinating, Steven. So if you were to tell us, though, where do these innovations come from, why do they happen?

JOHNSON: You know, we have an assumption, and particularly in the U.S., that the private sector, the marketplace is driving all of this. But actually, where good ideas come from, I analyzed the last several hundred years of innovations and what we found is, in fact, that 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.

And so -- something like the Internet or GPS comes out of the public sector, not the private sector. So the best model seems to be a kind of a hybrid where you have entrepreneurial energy but you also public sector funding.

ZAKARIA: And one of the things you point out in your book is that cities drive a lot of innovation.

JOHNSON: Yes.

ZAKARIA: And it seems like we're going to have a whole lot more people living in cities in the future.

JOHNSON: That's true. Maybe the most interesting stat over the last couple hundred years is in 1800, 2 percent of human beings lived in cities and now just as of a couple years ago it's 50 percent. And when people gather together there is just this extraordinary process where marketplace is formed, ideas flow more easily, people collaborate in new ways, and so cities have been historically great drivers of innovation.

And I think as the planet becomes more and more urban we'll see that process continuing.

ZAKARIA: Really interesting stuff. So without innovation the world really would look very different. Throughout this hour we're going to dig deeper into the nature of innovation and how it can help America.

We'll look at how we're 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 explore ways to revive innovation in America and ways that will not just to help the rich get richer but how the average American, too.

All that and more. Back in a moment.

(COMMERCIAL BREAK)

ZAKARIA: We've just seen in graphic detail how innovation has directly translated into rising living standards throughout history, propelling America's dramatic rise in the 20th century.

But now in the 21st century, we are falling behind. And fast. So 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 has transformed whole industries, it's changed our way of life and the market has rewarded it. Apple is now the second most valuable company in the world after Exxon.

STEVEN JOBS, APPLE CHAIRMAN AND CEO: Thank you.

ZAKARIA: But Apple spends very little of its revenue on research. Only half of what Sony spends, for example. A quarter of what Microsoft spends. Its products rarely use new 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.

(BEGIN VIDEO CLIP)

LEN BAKER, SUTTER HILL VENTURES: If you look at the most innovative and the most valuable companies, they're much more about creating new business combinations than they are being scientifically driven companies.

ZAKARIA: Such as? What do you mean?

BAKER: Well, so our -- 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 the real benefit to society was, 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.

(END OF VIDEO CLIP)

ZAKARIA: 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.

BAKER: Think about eBay. EBay didn't create technology. It used technology as an input and revolutionized the way people do things.

ZAKARIA: 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. (BEGIN VIDEO CLIP)

ZAKARIA: When you look at Google, what is the innovative part of Google? Is it the technology of the search or is it the business model of this amazing advertising system that you have created?

ERIC SCHMIDT, EXECUTIVE CHAIRMAN, GOOGLE: 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 founder Sergey Brin and Larry Page invented this while they were at Stanford. The 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. And then another group, again, a couple of very young people right out of Stanford, figured out this targeted advertising model. You need both.

(END OF VIDEO CLIP)

ZAKARIA: 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.

(BEGIN VIDEO CLIP)

SCHMIDT: 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, want to have free food, all the benefits of Google were fundamentally decided very early on so that people were working with each other and were creative.

And people were encouraged to make the most outlandish ideas. Could we try this? Could we try that? And so forth. And those people are now running the company.

(END OF VIDEO CLIP)

ZAKARIA: Google's top brass came up with a set of innovation principles, one of which says employees have a license to pursue their dreams. As company policy, every Google engineer spends 20 percent of his time working on any project he or she wants. A concept they call 20 percent time.

(BEGIN VIDEO CLIP)

SCHMIDT: If you look back, most of the really interesting products that have come out of Google have come out of the 20 percent time where somebody starts something, he gets excited about it.

(END OF VIDEO CLIP)

ZAKARIA: One example. After September 11th, 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 percent time to write the program.

And soon Google News was born. A Web tool that searches the site for particular news stories. Google News now accounts for 30 percent of all traffic to new sites on the Web.

But 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.

(BEGIN VIDEO CLIP)

BAKER: The innovation process is inevitably hard to predict and very, very failure-prone. And 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.

ZAKARIA: So you'd prefer to find entrepreneurs who have had failures in the past?

BAKER: Well, I don't -- yes. I -- 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.

(END OF VIDEO CLIP)

ZAKARIA: 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.

(BEGIN VIDEO CLIP)

BAKER: 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've 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.

(END OF VIDEO CLIP)

ZAKARIA: 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.

(BEGIN VIDEO CLIP)

PAUL ROMER, ECONOMIST: 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 the new ideas that create new things.

(END OF VIDEO CLIP)

ZAKARIA: 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.

(BEGIN VIDEO CLIP)

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.

(END OF VIDEO CLIP)

ZAKARIA: And next up, what is the threat? Why does one man say America's innovation gap is a crisis on the scale of Hurricane Katrina?

(COMMERCIAL BREAK)

ZAKARIA: Welcome back to our GPS special, "Restoring the American Dream: How to Innovate."

If innovation leads to huge growth as we learned in 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 says a big threat comes from across the pacific. Asian countries are focusing on innovation much more intensely than the U.S., stealing our thunder.

(BEGIN VIDEO CLIP)

SCHMIDT: 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.

ZAKARIA: When you travel to places like South Korea, Singapore, China, does it worry you?

SCHMIDT: 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 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. (END OF VIDEO CLIP)

ZAKARIA: Schmidt says that China is already starting to challenge the U.S. as an innovator, sooner than we might have imagined.

(BEGIN VIDEO CLIP)

SCHMIDT: The evidence is that the Chinese companies are beginning to do things that are innovative. Much of the new networking ideas are coming out of a company called WaWei which has 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 is that America has historically dominated.

(END OF VIDEO CLIP)

ZAKARIA: 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 percent annual growth rate in spending.

From 1987 to 2008 there was a 0.3 percent annual growth rate in spending. By 2013, China is projected to overtake the United States as the world's leading publisher of scientific research.

And China is gaining on us in advanced degrees in engineering and technology. In 1995, they produced less than 13,000 Master's 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.

(BEGIN VIDEO CLIP)

ZAKARIA: 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?

ROMER: The answer is almost not at all. To the extent that the Chinese participate in the discovery of new things that we can use at the same time that they use them, we can benefit from all of their discoveries.

ZAKARIA: So if they create a new medical technology that saves --

ROMER: Exactly.

ZAKARIA: You know heart patients, we benefit.

ROMER: Yes.

ZAKARIA: But what if they discover newer and newer processes of manufacturing and we can't find the same level of innovation and innovative companies?

ROMER: So, in that case, it's probably best to think about that comparison between Britain and the United States. United States 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.

(END OF VIDEO CLIP)

ZAKARIA: Author John Kao thinks, however, that 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.

(BEGIN VIDEO CLIP)

ZAKARIA: Are you pessimistic?

KAO: 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 --

ZAKARIA: What are the consequences?

KAO: We become the payers of rent for other people's innovation. Right? 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 they're 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.

Well, we don't have a monopoly in those technologies anymore. There are other countries that are actually quite good at doing digital things.

(END OF VIDEO CLIP)

ZAKARIA: If our innovation problem is a national security issue, as Kao says, there's one government agency whose sole mission is to buck that trend, the Pentagon's innovation arm DARPA. Their 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.

But first, what makes innovation happen? The private industry or the federal government? You can imagine people disagree on this one.

(COMMERCIAL BREAK)

ZAKARIA: Our journey into innovation has taken us across a millennium and around the world to discover how innovation can be a boom 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 that the nation takes to innovation today we need nothing less than a grand strategy for American innovation.

(BEGIN VIDEO CLIP)

KAO: We have people who are trying to look at education reform. We have people who are looking at life sciences. We have people who are 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.

(END OF VIDEO CLIP)

ZAKARIA: So who's doing it right? What nations are the world's most innovative innovators, if you will?

Kao points to several examples, starting with one of the smallest yet richest countries in Asia -- Singapore.

(BEGIN VIDEO CLIP)

KAO: The government of Singapore has decided, for instance, that they can't do everything so they're actually 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.

But Biopolis in Singapore, for example, is slated to hold 7,000 PhD scientists in the life sciences area. By comparison, NIH, our crown jewel in public sector life sciences, has been 10,000 PhD scientists.

So to put it in perspective, this is a country about the size of Long Island or, you know, Chicago, throwing their hat into the ring and saying they're going to be a global leader in innovation and life sciences.

(END OF VIDEO CLIP)

ZAKARIA: Asian countries like Singapore aren't the only nations with an eye toward innovation, Kao says, pointing also to Scandinavia.

(BEGIN VIDEO CLIP)

KAO: Finland has a national innovation strategy. They have a fabric of financiers of innovation, both private and public sector. They even have an innovation manager for the city of Helsinki. So it's not just at the national, 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 Vinnova and there's a person's name associated as director and you can call them up and they say, yes, you know I have 300 people at Vinnova and we do innovation policy and science and technology, 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 to find the name of the person who's responsible for innovation, there's no name and there's no phone number.

(END OF VIDEO CLIP)

ZAKARIA: 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.

(BEGIN VIDEO CLIP)

SCHMIDT: They're fundamentally taking ideas from America and building those industries and they're doing it with a directed government program that is anathema to the way we run America and we're losing because of it.

ZAKARIA: 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?

SCHMIDT: 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.

(END OF VIDEO CLIP)

ZAKARIA: In Schmidt's part of the world, Silicon Valley, there's a long history of government involvement but Len Baker, a Silicon Valley based venture capitalist, says government should leave innovation to the market.

(BEGIN VIDEO CLIP)

BAKER: 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. And the real question is, what is the process by which government funding, which is inherently centralized, gets translated into microeconomics in a way that it can actually connect with these small groups of entrepreneurs? ZAKARIA: 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.

BAKER: Well, China, I think, is a really interesting example because if you think of the Chinese economy as being divided between government-linked companies, state-owned enterprises and private sector companies, the productivity of capital in the state-owned enterprises is very, very low.

(END OF VIDEO CLIP)

ZAKARIA: But if government-run enterprises can be inefficient at times, the private sector isn't perfect either, says Schmidt. Take the venture capital industry. It will fund new social networking sites galore, for example, but there is a reluctance to finance large- scale, cutting-edge manufacturing companies.

(BEGIN VIDEO CLIP)

SCHMIDT: 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 it's not predictable enough for private equity. It means that this value of debt, as it's called, uses all of these ideas are invented in America and then other countries with much more aggressive industrial plants take those ideas and build those institutions.

(END OF VIDEO CLIP)

ZAKARIA: Schmidt says that America's public sector has scored many successes in fostering innovation.

(BEGIN VIDEO CLIP)

SCHMIDT: 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 all to where we are today came out of the military industrial complex post-war funding in the '50s and '60s when it was understood that the military value of the science was so great and the spinoffs would be even greater.

So 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 industries.

(END OF VIDEO CLIP)

ZAKARIA: The history that Schmidt mentions continues to this very day and it's embodied by this woman. Dr. Regina Dugan, who is 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.

(BEGIN VIDEO CLIP)

DR. REGINA DUGAN, DIRECTOR, DARPA: We are motivated in part by our defense mission but that has cascading benefits to the society as a whole.

(END OF VIDEO CLIP)

ZAKARIA: And later, we'll answer the most important question of all. Can innovation improve the lives of every American?

(BEGIN VIDEO CLIP)

KAO: The United States is in danger of becoming a nation of innovation haves and havenots.

(END OF VIDEO CLIP)

(COMMERCIAL BREAK)

DON LEMON, CNN ANCHOR: Hello, everyone. I'm Don Lemon. Live at the CNN world headquarters in Atlanta. Here are your headlines this hour.

Massive wildfires in Arizona are forcing thousands to flee their homes tonight. More than a quarter million acres have burned over the past week.

One of the largest in state history is the Wallow Fire in northeastern Arizona near the town of Springerville. The cause of the blaze which has scorched 180,000 acres is under investigation.

Yemen is celebrating the departure of its president at least temporarily and the possibility of a truce. A spokesman says, a tribal leader has agreed with Yemen's vice president to stop the fighting.

President Ali Abdullah Saleh is in Saudi Arabia getting medical treatment after being wounded in an attack on the palace. But the government insists he will return.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Oh, my god. Oh, my god.

(END OF VIDEO CLIP)

LEMON: That is frightening. Thirteen people were hurt when a gust of wind blew away three bounce houses in Oceanside, New York. It happened at a soccer tournament Saturday. Kids were in the inflatables which also mowed down parents trying save their children.

Our affiliate News 12 Long Island reports one person used a knife to deflate one house. No major injuries and no criminal charges are expected.

Those are your headlines this hour. I'm Don Lemon. We'll return you to the CNN special "RESTORING THE AMERICAN DREAM" right after this.

ZAKARIA: 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 out-innovating the competition.

One small government agency within the vast Pentagon bureaucracy has had a lot of success spurring innovation. It's called the Defense Advanced Research Project Agency, also known as DARPA. Created in 1958 in response to the Soviet Union's launch of Sputnik, DARPA's mission is to maintain the 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 that have 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 the technology behind GPS, which of course powers the new mobile revolution.

(BEGIN VIDEO CLIP)

DUGAN: You can think of defense a bit like a mini society. And it has many of the same problems of the society as 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.

(END OF VIDEO CLIP)

ZAKARIA: The high stakes of providing sound technology for soldiers in combat motivates the DARPA team to create the best technology in the world.

(END OF VIDEO CLIP)

DUGAN: They simply must work in all number of austere situations, life and death, and that kind of urgency focuses the mind, inspires greater genius.

(END OF VIDEO CLIP)

ZAKARIA: 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 research projects at businesses and universities all over the country.

Most famously DARPA funded the first version of the Internet, then called ARPANET. In 1969 computer hubs called nodes were able to send messages to each other over a phone line.

(BEGIN VIDEO CLIP)

DUGAN: That original investment was about $150 million. And that gave birth to the Internet, now about $300 billion later. (END OF VIDEO CLIP)

ZAKARIA: These days DARPA is working on a slew of exciting innovations, including BigDog, 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.

(BEGIN VIDEO CLIP)

DUGAN: When you watch the BigDog video, what you'll see is that it really looks like a dog moving and it has all sorts of other attributes that make it resilient in difficult environments.

(END OF VIDEO CLIP)

ZAKARIA: Another project is called Blue Angel, created in 2009 to combat the H1N1 swine flu pandemic. Scientists came up with a way to determine who has the flu before they get symptoms. They've also invented a new faster method of producing vaccines.

(BEGIN VIDEO CLIP)

DUGAN: The conventional way of producing a vaccine takes about nine months and it's done in eggs. What we have done in the Blue Angel program to use tobacco plants to make the protein necessary to produce vaccines. And we can do that in one month as opposed to nine months. Very fast.

(END OF VIDEO CLIP)

ZAKARIA: 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.

(BEGIN VIDEO CLIP)

ZAKARIA: Do you think we're at another Sputnik moment where there are challenges to America's innovation, skills, its innovation to lead?

DUGAN: 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.

(END OF VIDEO CLIP)

ZAKARIA: 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 10 red balloons. Each eight feet wide. Moored (ph) in different locations across the country. With $40,000 going to the winner.

(BEGIN VIDEO CLIP)

DUGAN: The first team found them in eight hours and 52 minutes. An astonishingly fast way rate. And --

ZAKARIA: And using the Internet? They use -- how did they find it?

DUGAN: They use the Internet and social networks. And in fact five researchers at MIT learned of the challenge 48 hours ahead of the balloon launch and with five initial e-mails they reached thousands of people that could in turn reach millions of people and eight hours 52 minutes after we launched the balloons they had all the locations.

(END OF VIDEO CLIP)

ZAKARIA: Researchers say that their advanced social networking could be applied to stopping terrorist attacks or finding missing children.

(BEGIN VIDEO CLIP)

ZAKARIA: How do you protect against the politicization of this? Some senator calls you up and says, you know, my -- you should give money to my state or my constituents.

DUGAN: Well, our projects are competitively assessed and we assess them on their scientific merit. We have a mechanism for doing that and it is at the hands of the scientists and the engineers.

ZAKARIA: No outside interference? No political interference?

DUGAN: There is no political interference in this election process for projects.

(END OF VIDEO CLIP)

ZAKARIA: 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?

(COMMERCIAL BREAK)

ZAKARIA: 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 that 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.

(BEGIN VIDEO CLIP)

SCHMIDT: 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 with that need to be near where the research is done.

Another example has to do with nanotechnology. Nanotechnology is the manipulation of things that are very, very small. And with nanotechnology you can build personal drugs of one kind or another, new kinds of materials, and so forth.

All of those factories will be built in the United States because it's too new to put in somewhere else.

(END OF VIDEO CLIP)

ZAKARIA: 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. There's 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 that 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 and GPS. Without them America and the world would be a very different place.

And 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 out-innovate 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 an 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 one 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.

(BEGIN VIDEO CLIP)

KAO: The United States is in danger of becoming a nation of innovation haves and havenots, 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 sort of large group of disenfranchised people in this country.

(END OF VIDEO CLIP)

ZAKARIA: Economist Paul Romer agrees that not all Americans may end up reaping the benefits of innovation, but he says there is a solution.

(BEGIN VIDEO CLIP)

ROMER: 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.

(END OF VIDEO CLIP)

ZAKARIA: It all comes back to education. Can we get average Americans to upgrade their skills in grade school, in high school, in college, and 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 "TIME" magazine and at time.com. Also check out our new innovation channel on our Global Public Square blog. You can find it at CNN.com/gps.

Thanks for tuning in. You can catch us Sundays in our normal time slot, 10:00 a.m. Eastern and Pacific. Thanks again.

PIERS MORGAN, CNN HOST: Tonight before there was Kim or Lindsay, there was Paris. And you might say we've got -- well, a little bit of history.