"We need to out-innovate, out-educate and out-build the rest of the world," Obama told a joint session of Congress in his State of the Union address Tuesday.
"We have to make America the best place on Earth to do business," he said hours before traveling to Wisconsin to tour a company that makes energy-efficiency equipment. "We need to take responsibility for our deficit, and reform our government. That's how our people will prosper. That's how we'll win the future."
Nations like China and India are already reinventing themselves, Obama said.
"They started educating their children earlier and longer, with greater emphasis on math and science. They're investing in research and new technologies. Just recently, China became home to the world's largest private solar-research facility, and the world's fastest computer."
The United States must accelerate "rebuilding for the 21st century" to remain "the largest, most prosperous economy in the world," he said.
This rebuilding includes making "hard choices" to cut the U.S. budget deficit, but also making "the investments we need to win the future," he said.
His proposed blueprint calls for spending in areas such as education, high-speed rail, high-speed Internet and clean-energy technology, he said.
His proposed deficit-cutting measures include a five-year freeze in spending on some domestic programs. Republican called for much steeper budget cuts.
Obama said improving government efficiency while still addressing fundamental challenges would cut the deficit by $400 billion over 10 years.
In the official Republican response, House Budget Committee Chairman Paul Ryan, R-Wis., said the United States was "approaching a tipping point."
"We are at a moment where, if government's growth is left unchecked and unchallenged, America's best century will be considered our past century," he said. "This is a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency."
He said Democrats were still interested in new spending proposals.
"Whether sold as 'stimulus' or repackaged as 'investment,' their actions show they want a federal government that controls too much, taxes too much and spends too much in order to do too much," he said.
Rep. Michele Bachmann, R-Minn., who delivered a critique with the backing of the Tea Party wing, said Obama had created "a bureaucracy that tells us which light bulbs to buy" rather than creating "a leaner, smarter government."
Obama travels to Manitowoc, Wis., near Green Bay, Wednesday to tour Orion Energy Systems Inc., which specializes in energy-efficiency technologies that cut energy costs for commercial and industrial spaces, to highlight what he calls the job-creating capabilities of a "clean energy" economy.