President Obama, in his first State of the Union address, told us that other countries are making the investments needed  to seize the opportunities present in meeting the world’s grand challenges, and that the U.S. risks being left behind. He’s right.

The National Science Board’s biennial Science & Engineering Indicators suggests that as early as the 2012 edition, the U.S. will no longer lead the world in total R&D expenditures – unless corrective action is taken (graph here). And Senator Jeff Bingaman, who chairs the Senate Committee on Energy and Natural Resources, recently told a Senate hearing that  “…our investments in new energy technologies, and the science underlying them, have been surprisingly deficient over the last 20 years….  our national R&D investments in medicine and biotechnology, as a percentage of sales, are about 40 times greater than our research and development investments in energy.”

These weaknesses in the R&D base are being compounded by ineffective commercialization pathways. Commerce Secretary Gary Locke recently announced the creation of the Office of Entrepreneurship and Innovation Policy, with a focus on accelerating commercialization, saying the process as it stands is “broken.”

All of this is critically important for our national innovation capacity, and thus our competitive position. But in citing Germany and China (not coincidentally the world’s two largest exporters) and their  R&D and manufacturing prowess, Obama overlooked what may be our strongest domestic competitive asset: creative innovation, beyond science, technology, engineering, and even product design (all areas in which China is on track to excel, as articulated by Martin Jacques in his masterful When China Rules the World).

Here, we find leadership in the European Union. EUROPA, the European Year of Creativity and Innovation 2009, aimed “…to raise awareness of the importance of creativity and innovation for personal, social and economic development; to disseminate good practices; to stimulate education and research, and to promote policy debate on related issues.” A stellar group called the European Ambassadors for Creativity and Innovation, representing the arts, sciences, social, and policy sectors, has issued a Manifesto stating in part: “The world is moving to a new rhythm. To be at the forefront of this new world, Europe needs to become more creative and innovative.” And the European Institute of Innovation &  Technology is envisioned as “…a key driver of sustainable European growth and competitiveness through the stimulation of world-leading innovations with a positive impact on economy and society.”

This is a classic whole-systems problem, on a truly global scale, and one that demands a comprehensive and holistic solution: R&D, education, commercialization, creativity, design, innovation. It’s a big strategy, but one that’s needed to win first place.