MR. KOJO NNAMDIAs the U.S. struggles under the weight of recession, many have become pessimistic about America's future. A Gallup poll in February asked Americans to name the world's leading economic power. By a big margin, they said China, when in fact, the U.S. is still the world's largest economy and some say predictions of the end of the American era might be premature. They argue that America has long lead the way in something less tangible than widgets or financial institutions.

MR. KOJO NNAMDIAmerica's open risk-taking society may have a unique advantage when it comes to fostering innovation. And innovation may be the key to leading the way in the 21st century. At least that's what Adam Segal argues. He is the author of, "Advantage: How American Innovation Can Overcome the Asian Challenge." He's also the Ira A. Lipman senior fellow for Counter terrorism and National Security Studies at the Council on Foreign Relations. Adam Segal, thank you so much for joining us.

MR. ADAM SEGALThanks for having me on.

NNAMDIMany call clean energy and creating the next innovations in a green economy as the next Sputnik moment. And Harry Reid just returned from a nine-day trip to China and he's concerned that China is winning the clean energy future. In fact, China is building a lot of infrastructure from the ground up. Is that making it easier for China to get ahead on green technologies?

SEGALThe green technologies exist in a different category because what the Chinese have really done is build out infrastructure as Senator Reid said. And they are managing to drive price down, which is incredibly important for green technologies because we want them to be competitive with carbon based fuels. Which is -- they're not right now. So what the Chinese have really successfully done is taken technology from the West, from Japan, from Europe and lowered the cost, which is what the model for China has been.

SEGALBut if you're looking broadly out on what the next big breakthrough might be, what the new fuel is going to be, what the new technology is going to be, I think, it's very unlikely that it'll happen in China and it's much more likely to happen here or in Japan or in Europe.

NNAMDIWhy is that?

SEGALWell, the Chinese model is still incredibly top down. It's still focused on government research institutes. It is very much focused on senior researchers who, in many cases, quash the individual initiative of young researchers. Incentives in the market are primarily short-term. Meaning that companies can make a lot of money doing what already exists. And while there isn't an expansive growth in entrepreneurship in China, most of that is focused on what we call, C to C, copy to China. Take a business model that's worked in the West and adopt it to the Chinese market.

NNAMDIIf you'd like to join this conversation, you can call us at 800-433-8850 or you can go to our website, kojoshow.org, join the conversation there. I'd like to get to what maybe the essence of your argument. And that is, you introduced the concepts of hardware and software. Can you explain how you're using those terms in this context?

SEGALSure. I use an image -- I went to visit a U.S. multinationals R and D center in Beijing and the hardware was all very present. You could see the infrastructure that had been built out. The R and D center sits in a science and technology park that's just five years old. The lab equipment was all new. The -- staffed by young ambitious scientists from Tsinghua, which is known as China's MIT, and Beijing University, all using the most advanced technology. That's all the hardware.

SEGALThese are the easily measurable metrics. The software came to me after, you know, the fifth or sixth cup of tea that I had in the interview.

NNAMDIAnd you feel that the U.S. excels on the software side?

SEGALI do, yeah. The software came to me when I -- after I had to excuse myself after drinking all these cups of tea and I'm standing in the restroom, and there was a large banner in Chinese that said, relax, all the toxins have been removed. Well, of course, this banner had the opposite effect on me, and I went to ask the managers what the story with the toxins were. And they said that because the building was new, and Chinese contractors tend to use substandard and deadly materials in their buildings, they had to convince these engineers that the building was safe.

SEGALThey brought in the safety inspector, but, of course, safety inspectors in China are often bribed. So this became an image for me for the software, which is the social, political, and cultural institutions that help move an idea from the lab to the market place. All right. These are the things that make the whole more than the sum of its parts. And the story for China has all been hardware, right? How many scientists they have, how much they're spending.

SEGALAnd the U.S. still actually leads in hardware, but it's really our software that we're most competitive.

NNAMDIWhat -- why do you think America is in the best position to stay ahead in the globalized world, because of our software, because of our institutions, because of our structures, because of our freedom, because all of those things tend to lead to innovation?

SEGALI do. And I think if we look at the way that innovation is being restricted by globalization, it's becoming incredibly global by definition, but it's also spanning different countries, different cultures, different scientific disciplines. And the U.S. has a long experience in managing in cross cultures, and managing in cross disciplines. We are probably one of the few societies in the world that is so open to ideas from wherever they come from, and people who bring them in.

SEGALSo I think the United States has these great strengths. What is important for us is to maintain them, getting immigration policy right, getting education right, these things.

NNAMDIWell, I want to deal with a few of those, because let me start with the education policy before the immigration policy. Do we have to focus on training more scientists and engineers to get there?

SEGALI'm a little skeptical on the response that it always has to be more scientists and engineers. There's a reason that lots of people don't become scientists and engineers, because they see that incentives in the market push you in other directions. If you compare a salary of being a biologist versus being a JD or an MBA, you're gonna leave about $3 million on the table being a biologist. So the question is how do we get people interested in raising their scientific and mathematical literacy, and allowing them to pursue whatever career it is that they want.

SEGALWe have this widespread assumption that Americans are not interested in math and sciences, but in fact, if your survey freshman classes, about a third of them say, yeah, I'm interested in science and engineering and math. They drop out. They drop out that first year either because the teaching has not been very good, or they realize that they can get higher grades, and I say this as a political scientist, in the intro to political science courses.

SEGALSo they switch over. So I think the interesting thing, the interesting question is how do we make sure people have those skills even if they don't become a scientist.

NNAMDIWe're talking with Adam Segal. He is author of the book "Advantage: How American Innovation Can Overcome the Asian Challenge." He's also the Ira A. Lipman senior fellow for counterterrorism and national security studies at the Council on Foreign Relations. You can call us at 800-433-8850. We talked about the education part. Before I go to the phones, I'd like to talk about the immigration part. You say if we can get immigration right.

NNAMDIWe did a show recently in which it was pointed out that the number of high tech companies that have been successfully started in the United States had a very high percentage of foreign-born individuals who started those companies. Is that what you mean by getting immigration right?

SEGALYes. The studies point to places like Silicon Valley and Route 120 around Boston that show something around 40, 45 percent of the companies were started by immigrants who came to the states, worked, and then started their own company. Some of those people are starting to head back, and that makes sense. They're headed back for economic reasons. They're headed back for cultural reasons. But a lot of people still want to come. And as long as we can get things, you know, we have all of these stories that -- to give the state departments its due, some of the stories have now decreased.

SEGALBut we had stories of scientists who wanted to come to the United States who had a lot of problems getting Visas, businessmen who wanted to come, and those things are getting -- the other issue of course is that people like Bill Gates and other tech leaders have said, well, if you graduate with a degree in science and engineering, and you say you want to stay in the United States, we should basically just staple a green card to your diploma. I think we have to make sure that those people have the opportunity to continue staying in the states.

NNAMDIOnto the telephones now. We will start with Neil in Silver Spring, Md. Neil, you're on the air. Go ahead, please.

NEILHi, Kojo. I hope you can hear me. If you...

NNAMDIWe hear you very well.

NEILOkay, great. There -- if we're gonna create jobs in this country, the citizens need to take control of their government again. There's been more legislation passed and regulations passed over the last 20 years that favor Wall Street, the megabanks and the multinationals that ship jobs overseas. There is a bill -- and just the most current example, I mean, you can go back over the last, you know, NAFTA and WTO and the Gramm Leach Bliley Act, so on and so forth.

NEILBut there is a bill pending, which you may be -- may or may not be familiar with before Congress that was literally written and introduced by Intel, GE, Goldman Sachs, Microsoft. It's called -- well, the Bill Number is HR...

NNAMDIWell, what do you see as the relationship between that bill and American competitiveness, Neil?

NEILWell, it has to do with patent legislation, and that bill will make it more difficult for inventors in the United States to obtain and enforce patents for inventions. The bill is so questionable that...

NNAMDIAllow me to see if Adam Segal is familiar with that at all.

SEGALAre you talking about the shift from first to file to first to invent, or...

NEILThat's part of the bill, yes. It has a lot of provisions that will make it more difficult and -- for instance there's a...

NNAMDIWell, I don't want to get into details of the finer points -- of the fine points of that bill right now. I'd just like to ask Adam Segal what he feels, since our caller brought up the WTO and such, the -- what do international agreements have to do with this?

SEGALWell, I think the question addresses two major points. I think the first, as you mentioned is the international agreements. And the issue with China is, is that the Chinese don't like being dependent on the west and the United States and Japan in particular for their foreign technology, what they see as critical and core technology. So they have introduced a whole range of policies that come under the rubric of indigenous innovation. Attempts to, in many ways, force U.S. and other companies to transfer technology to Chinese firms to use competing standards, use procurement strategies, all of which to raise the technological capabilities of Chinese firms.

SEGALSome of these are against the spirit of the WTO's. Some of them fall outside the realm. And the U.S., this is becoming an increasing issue in U.S. trade relations, and I think we need to pressure more. The big issue, of course, is China's failure to protect intellectual property rights. And that we have been hammering the Chinese for a long time over, and not making a great deal of progress on.

NNAMDII want to stay with China for a second. Neil, thank you very much for your call. I was about the ask the question that I think Mike on Route 66 is going to ask for me. Mike, you're on the air. Go ahead, please.

MIKEThanks for taking my call. I would say that one of the big advantages China has over us, is that they do not have to contend with the democratic process. If they want to build something, if they want to do something, they just do it. And if you say your -- oh, my house is in the way, they say, here -- too bad, here's 20 bucks, get out the way, we're gonna put a power plant there, or stadium or factor, or whatever.

MIKEThey don't have to abide by any rules. They don't have any worker safety. They -- like you said before, the inspectors are all bribed. It's a tremendous advantage that we couldn't possibly compete with unless we can force...

NNAMDII find that fascinating, Mike, because you are right, China does a tightly controlled political system, and tightly controlled economy. And I guess Mike and others would see advantage in that. But doesn't that also stifle innovation?

SEGALYeah. I think it depends on how we define what the advantage is and what type of economy we're talking about. And I think the caller is exactly right. When we're thinking about manufacturing and scaling up, the ability to tell people, you know what, you have to move, we're building a highway here, is a great advantage on this type of economic development, on catching up development. But making this inflection point, this qualitative change from what the Chinese themselves say is made in China to innovated in China, I think requires a more open system.

SEGALAnd I'll just give the example of the tax on Google. You know, we always talk about the hacking attack on Google, and we focus primarily on the attack on dissidents e-mail accounts and the threat to Google's intellectual property right. But the people who might have been hurt most by Google leaving the Chinese market were Chinese scientists. Nature did a survey after the attacks, and something like 78 or 85 percent of Chinese scientists said, well, we use Google Docs and we use Google Scholars for international collaboration.

SEGALWithout access to that, we're really gonna be hurt. So I think it's very hard to build an open collaborative innovative economy without having greater transparency and greater openness.

NNAMDIWhich brings us from China to India. It's the world's largest democracy, the government has increased spending on education. Does India have the ability or the potential to compete in the area of innovation?

SEGALYeah. I think that the India story is the mirror story of China as it often is. The Indians are getting the software in place, right? There is a -- certainly a much more open system, there's a great history of networking and international collaboration. The problem for India is scaling up, right? So you have all of these really great examples, pockets of excellence, but without the ability to finish the ports, to build the roads, and to invest the resources, the Chinese spend about 1.5 percent, with a goal of 2.5 percent of GDP on all R&D.

SEGALThe Indians have been about less than 1 percent, and have often failed to .8 -- fall to .8 and .6. So they haven't been able to keep up on spending. The other big problem for India is just talent, the access to talent. So we think about, well, India is massive, right? There must be all these people being trained, which they area, but the quality is not very good. So places like IIT Delhi, the Indian Institute of Technology Delhi, it already has a third of its positions are unfilled because there are not enough Ph.Ds in India.

NNAMDIThere's also conflicting aspects of the U.S.'s relationship with China and other Asian countries. There's the business side, there's the political and the military side, and they don't always seem to have the same goals.

SEGALThat's exactly right. We -- on the security side, and particularly with China, we have real serious concerns about what technology flows to China, how it gets there and how the Chinese use that. We can, you know, we can see the concern, for example with the J20 stealth fighter, which the Chinese seemed to roll out when Secretary Gates was visiting this year. People said well, is that a copy of our stealth fighter, how did they get that, how did they do that?

SEGALThe problem for the United States is, is that we are so dependent on the flow of people and ideas, that we don't want to make the cure worse than the disease. We don't want to shoot ourselves in the foot, so it's hard for the U.S. to walk this line between controlling technologies that we don't want to end up in the hands of the People's Liberation Army, and making sure that we still are very open.

NNAMDIMeanwhile, global companies and quite a few economists see the movement of technology across borders as a good thing. Why?

SEGALWell, as somebody once said to me, that I'm part of the problem, right. That you -- all this economic growth is better and that, you know, there's more pie for everyone to eat, which I think is fundamentally true. I don't actually argue with that. And as I often like to say, that when I have a headache, I don't care that it was a French scientist who discovered aspirin and the German's who commercialized it, I'm just happy to have that aspirin. And we have so many global problems that the more Chinese, the more Indians who are working on it, the better.

SEGALThe issue I think is, that we talked about on the -- when you asked me about world trade, is that the Chinese aren't playing by the same rules as we are. They are not building an open, transparent trade positive science technology system right now. They're building one that's closed and (word?) . And so without that happening, I think that's very bad for U.S. national interest.

NNAMDIGotta get back to the telephones. Here now is Glenn in Washington D.C. Glenn, you're on the air. Go ahead, please.

GLENNHi. I just wanted to say that in terms of legal assistance, I don't see the U.S. legal system as a disadvantage in terms of contract law. People make long-term investments in places where they see that they'll be protected. And, you know, you were talking before about what a benefit it was to have everyone kicked off the land for a new project in China, well, that's not a great idea if you're gonna make the investment and you don't wanna be kicked off the land yourself down the road.

GLENNI mean, I've done some work overseas in Eastern Europe, and there's a clear difference in countries where a legal system that will protect you attracts more long-term investment than in other countries which are obvious where the people know there's no such protection, and as a result they vote with their feet, and they don't invest there. So I think there's, you know, the benefit, maybe the short-term benefit of getting things started in a place like China because the legal system is not objective maybe, and not long term. That's gonna really limit them at some point. People are simply gonna vote with their feet and go somewhere else.

NNAMDIWhat do you think?

SEGALNo. I think that's exactly right and I think the caller is right and, you know, I walk back from the broad statement about, you know, you want to be able to dispossess people from their land at all times. I think starting it's easier, bringing them to fruition, creating a stable environment, clearly not good, and I mentioned earlier the issue of intellectual property rights and the failure for the Chinese to protect that clearly shapes how people are investing.

SEGALI think what we haven't seen very much is people voting with their feet. Because everyone is so drawn to the China market, and companies have to tell their boards and everyone else, well, yes, we're involved in China, even if the Chinese are stealing our intellectual property and we are not really sure that the contracts are gonna be worth the paper that they're written on.

NNAMDIGlenn, thank you very much for your call. There's also what you might call a confidence gap. You mentioned a poll in which 81 percent of Chinese see the United States as staying ahead on innovation, but only 41 percent of Americans felt that way.

SEGALYeah. And part of the reason why I wrote the book was after doing a series of interviews in China and India and kind of asking these questions about America's inevitable decline, and somebody looked across the table at me and said, you Americans have lost your mind, right? You have all of these strengths that are already in place. Yeah. You have problems and you need to address them, but we're still building these systems, and these systems are incredibly hard to build, and it's not clear we're gonna be successful.

SEGALSo, you know, I don't -- the argument of the book is not everything is great and we, you know, we don't have any problems and we can just kind of coast along what we -- doing what we're doing, but we have some serious problems that need to be addressed. But we have some real strengths compared to what other countries are doing.

NNAMDITime for one more call. It will be from Michael in Alexandria, Va. Michael, you're on the air. Go ahead, please.

MICHAELHey, Kojo. Thanks again for taking my call. I just wanted to bring up, there are some really big wins that are happening on the part of the administration in reforming the way that we do major military acquisition which, you know, is, you know, part of the biggest -- it's one of the biggest chunks of the budget. Owner secretary for acquisition logistics and technology has just recently released some requirements to sole source some of the military procurement executions that are going against the federal budget, specifically to American small businesses, and bringing a lot more competitive nature to the acquisition process. I just wanted to get your author's thoughts on that.

NNAMDIAdam?

SEGALI mean, I think that's a great point, and as you said, an important win if it plays itself out in actually meaning more business for small businesses. Because one of the things I focus on the book is the importance and role of small business and small business creation, both in job employment because -- job creation because small businesses have generated about 50 percent or more of all new jobs, but also in innovation. Small companies play such a huge role in disruptive innovation and new innovations. And we want to focus on how can we help them grow.

SEGALAnd one of the most important things for them is getting customers early, getting capital early, getting them through what's called the valley of death, right, the early stages of how do you grow and how do you scale up.

NNAMDIThank you very much for your call, Michael. And I'm afraid that's all the time we have. Adam Segal, thank you so much for joining us.

SEGALMy pleasure. Thanks for having me. Adam Segal is the author of "Advantage: How American Innovation Can Overcome the Asian Challenge." He's also the Ira A. Lipman senior fellow for counterterrorism and national security studies at the Council on Foreign Relations. Thank you all for listening. I'm Kojo Nnamdi.