The report examines cultural and social forces in the United States which discourage innovation and creativity. The history of American innovation is reviewed; innovation is defined as the process by which new knowledge is generated and applied in the material and intellectual operations of society. Effects on innovation of the changing economic environment are noted; and trends in demographics, education, institutional structure, and the international environment which work against innovation are analyzed. Schools are criticized for ignoring the needs of gifted and talented, treating science as a fringe benefit that can be deleted from the curriculum, and developing a two track academic and vocational system. Informal learning environments which stimulate innovative skills are said to involve parenting and personal contact, toys as a teaching tool, film and drama, books and magazines, science museums, television, and prizes and awards. Six critical issues in public school education are raised, including the identification and encouragement of the specially gifted and the rejuvenation of an aging teaching population which enjoys tenure but suffers from professional obsolescence. Also considered is the situation in professional education, the corporate environment, university-industry relations, and military training. Recommendations are made regarding informal learning environments, continuing education, public schools, vocational education, government/industry/school system participation, and university/corporate cooperation. (CL)