The process of "innovation"—the way in which a brilliant idea becomes a product or service that impacts people's lives—may never be fully understood. Innovation is difficult to measure or quantify, and even when observed is very difficult to replicate.

There are a few things we know about innovation, however. For starters, the American economy relies heavily upon it for growth. From the Industrial Revolution to the post-World War II boom to the technology-driven economy of the 1990s, innovation has been a primary force in employing millions of Americans and raising our country's standard of living. A recent study by the Council on Competitiveness found that innovation generated the productivity that accounted for half of U.S. GDP growth over the last 50 years.

Additionally, it is now obvious that the rest of the world is starting to catch up to the United States in terms of innovation. China, for instance, is moving increasingly away from simply manufacturing products such as cell phones and televisions and towards designing them. In 2002, only 10 percent of cell phone handsets made in China were designed by the companies that made them; experts expect that figure to be 40 percent by 2008. The United States' share of the world's undergraduate science and engineering degrees is also dropping, and the share of technical papers published by American authors has declined from 38 percent to 31 percent over the past few years.

Yet despite what we know about the importance of innovation to economic growth and the increased competition we face from countries around the world, the current administration is not pursuing policies that encourage innovation. From a budget that cuts funding for scientific inquiry to a policy against stem-cell research, the Bush White House has frequently been an impediment to innovation.

From a public policy perspective, we do not know precisely which set of policies will lead to specific scientific and technical developments. We do know, however, what is required to lay the groundwork for broad-based innovation. The two most important building blocks are a solid education system and investment in the research and development necessary to translate an idea into a useful product or service. In the United States, there is much room for improvement on both of these fronts.

The failings of our education system are well-documented and diverse, from the declining quality of K-12 education to the rapidly rising costs of higher education. In math and science, U.S. high school students perform well below the international average. American high school students, for example, currently rank 24th out of 29 industrialized countries in basic math concepts. Tuition at four-year universities is rising by 4 to 6 percent per year, making it difficult for many students to afford the education they need to succeed in our economy. Other factors, including inadequate teacher training and unfocused and repetitive curricula, make it more difficult for American students to learn the skills they need.

Yet the administration's 2006 budget proposes a 1 percent overall cut in the Department of Education budget, which stands in stark contrast to President Bush's pronouncements that educating our children is critical for our nation's future. Our education system should be the best in the world. Although it will take time and investment, ensuring that it is will bring an enormous payoff in terms of innovation.

In addition to our educational problems, our federal investment policies are hampering the innovation process. Tax policy and direct investment should be used to encourage innovation. Making the research and development tax credit permanent and fully funding agencies like the National Science Foundation (NSF) and National Institutes of Health (NIH) are obvious steps to take, but the Bush administration has not done either.

In fact, the president's most recent budget proposes cutting total federal research investment in basic and applied sciences by 1.4 percent in the 2006 fiscal year. The NIH budget would decrease in real terms, and according to the American Association for Advancing Science, the NIH projects a decline in its research project grants for the second year in a row. These grants lead not only to economy-boosting innovation, but also to the kinds of medical discoveries that save lives.

The American economy has continuously been one of the most innovative in the world. From the first commercially-sold television to the iPod, from the cure for polio to the artificial heart, innovation has been a driver of economic success and a boon to Americans' quality of life. There is no reason to think that such innovation cannot happen in the future, but without proper education and federal investment policies, there is no guarantee that it will.

John Lyman is a research associate at the Center for American Progress and Radha Chaurushiya is a policy analyst at the Center for American Progress.

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