With the world's eighth-largest economy, California might appear secure from challenges to its innovation leadership. Ever resilient, it ranks among the top states in the nation for small-business vitality and entrepreneurial energy. Its universities are global leaders in their ability to deliver commercial applications of laboratory research.

Yet while California holds enormous economic growth potential, the view to the future reveals some rough terrain, according to panelists at the eighth annual State of the State Conference. Among the challenges: an aging infrastructure that hasn't been seriously funded in decades; huge population gains, including a growing unskilled, undereducated labor force; a struggling K-12 educational system whose failures put the state's system of higher education at risk; and an unfriendly business climate.

Political and business leaders must address and surmount these challenges if the state is to maintain its innovation leadership, panelists agreed. If we ignore them, we are, as one speaker warned, "sleepwalking into the future."

More than 500 attendees listened to representatives from business, labor, academia and the political arena debate such topics as the upcoming statewide infrastructure bond measures, longstanding Sacramento gridlock and leadership problems, and the local impact of potential congressional power shifts.

But if urgency was the dominant refrain, optimism and resolve defined a second theme. Californians can tackle these infrastructural, fiscal and social issues, panelists agreed time and again. Human capital remains the state's greatest strength, and Californians can harness the same political and entrepreneurial will that has always carried the state to the forefront of innovation.

Among the session highlights:

  • Failure to pass the infrastructure bond measures on the Nov. 7 ballot could, in the words of several panelists, damage the state's economy and harm the environment.
  • A disconnect exists between immigration laws and the natural law of supply and demand that governs the nation's economy.
  • As affordable housing is increasingly found further away from urban areas, traffic will increase on our highways and public transportation options narrow, with the result that for low- and middle-income families, "affordable" housing is not actually affordable.
  • Stiffer visa restrictions created as a result of 9/11 have made it harder to bring students and educated workers to the United States. Nonetheless, California has managed to retain a highly skilled labor force and is home to 35 percent of all U.S. venture capital.
  • California's leadership in environmental issues is creating new business opportunities.
  • Imagine a new kind of urban development - "linear development" defined by linked green space, public transit and neighborhoods that maintain diversity within the greater, unified community.

Robert Dynes, president of the University of California, delivered the keynote address. Proclaiming UC the top university in the world - both because of its public mission and its vast size and influence - he explained that it will succeed because it anticipates trends and stays ahead of them. Promising a push for "RD&D," or research, development and delivery, he stressed the need to put the final "D" into research discoveries and strengthen the connection between UC and industry.