Google chairman Eric Schmidt took responsibility for the search titan’s failure to counter Facebook’s explosive growth, saying he saw the threat coming but failed to counter it.

Speaking at the D9 tech conference outside of Los Angeles Tuesday evening, Schmidt said that for five years, he’s been aware of the competitive threat posed by upstart social networking websites like Facebook and LinkedIn. Schmidt even wrote internal memos about the threat, he said, but was so focused on running Google’s day-to-day operations that he didn’t give the issue the necessary attention.

In an interview with AllThingsD’s Kara Swisher, Schmidt described Google’s social stumble as his biggest regret.

“I clearly knew I had to do something and I failed to do it,” Schmidt said. “CEOs need to take responsibility. I screwed up.”

Pressed by Swisher and her co-host, Wall Street Journal tech columnist Walt Mossberg, about why he didn’t focus more on social networking, Schmidt had a simple answer:

“I was busy,” he said.

Earlier this year, Google announced that Schmidt would become non-executive chairman, paving the way for company co-founder Larry Page to become CEO. Schmidt said that Google’s management structure had become “unwieldy,” leading himself, Page, and Google co-founder Sergey Brin to decide to streamline the company’s chain of command.

Page’s elevation to company CEO accompanied a management re-organization into seven product groups. While Page meets with each of the company’s product groups on a regular basis, Schmidt’s new role entails flying around the world talking to customers, partners, and government officials as a kind of global ambassador, he said.

Swisher and Mossberg pressed Schmidt on privacy issues, which have become a hot topic now that lawmakers and regulators on both sides of the Atlantic are scrutinizing Google’s privacy practices, as well as those of other big internet companies like Facebook and Twitter.

Schmidt said that Google actually quashed one research project, based on facial recognition and mobile tracking, because the company was worried that the technology could be used by dictators and states with nefarious intent.

“We built it, but we pulled it,” Schmidt said. “We were worried what dictators could use it for. Nobody wants biometric surveillance databases.” Schmidt’s comments echoed an argument advanced by author Evgeny Morozov, who pointed out that internet technologies can be used for repressive purposes by anti-democratic states.

Turning to the exploding market for internet services, Schmidt said that traditional desktop and PC-based computer systems are becoming obsolete, as web-based, so-called “cloud services” proliferate. In cloud computing, data is storied in remote servers and accessed via the web.

Schmidt called cloud services “the death of IT as we know it.”

Other highlights from the interview:

• Schmidt said he was unsuccessful in convincing the major record labels to launch a subscription music service for Android. Apple is expected to announce a cloud-based service next week.
• Schmidt said Google and Apple recently struck a deal to renew their search and map business relationship.
• Schmidt said that he expects constant scrutiny of Google by the federal government, including acquisitions.
• Schmidt says he plans to be “very involved” in the Obama re-election campaign.

Photo: Former Google CEO Eric Schmidt (left) with current CEO Larry Page at a Google event in 2009. Credit: Loic Lemeur