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This paper is examines the evolution of Japan’s capital markets and the related regulatory reforms after the Global Financial Crisis. We start by looking at the importance of capital markets in the Japanese financial system. We study how the size of financial flows through capital markets relative to those through the banking sector changed since the 1980s in Section 2. Then, in Section 3, we look at how Japan’s financial system responded to the Global Financial Crisis. We find that the disruption of the financial system in Japan was small. Section 4 then surveys the financial regulatory changes in Japan since the Global Financial Crisis. While the Japanese regulators tightened the regulation to improve the financial stability as the regulators in the U.S. and Europe did, they also continued the efforts to develop capital markets in Japan. The efforts continue and receive strong endorsement from Abenomics, which put an emphasis on economic structural reform to restore growth in Japan. We examine the capital market policies in Abenomics in Section 5. Section 6 concludes.

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World Scientific in International Economics
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Takeo Hoshi
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This paper examines the evolution of Japan’s capital markets and the related regulatory reforms after the Global Financial Crisis. We start by looking at the importance of capital markets in the Japanese financial system. We study how the size of financial flows through capital markets relative to those through the banking sector changed since the 1980s in Section 2. Then, in Section 3, we look at how Japan’s financial system responded to the Global Financial Crisis. We find that the disruption of the financial system in Japan was small. Section 4 then surveys the financial regulatory changes in Japan since the Global Financial Crisis. While the Japanese regulators tightened the regulation to improve the financial stability as the regulators in the U.S. and Europe did, they also continued the efforts to develop capital markets in Japan. The efforts continue and receive strong endorsement from Abenomics, which put an emphasis on economic structural reform to restore growth in Japan. We examine the capital market policies in Abenomics in Section 5. Section 6 concludes.

The published version of this paper is available in The New International Financial System: Analyzing the Cumulative Impact of Regulatory Reform (World Scientific, 2016), please click here for more information on how to obtain a copy.

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Takeo Hoshi
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Stanford Summer Juku on Japanese Political Economy (SSJ-JPE)

August 10-13, 2015

Oksenberg Conference Room

Stanford Japan Program at Shorenstein Asia-Pacific Research Center

The Japan Program at the Walter H. Shorenstein Asia-Pacific Research Center (S-APARC) at Stanford University started Stanford Summer Juku (SSJ) in 2013.  In SSJ, researchers on Japanese politics and Japanese economy get together and discuss their research in a relaxed setting. The third annual meeting is held at Stanford on August 10-13, 2015.  The first two days again focus on research in political science/political economy and international relations, and the latter two days focus on research in economics and business.

Takeo Hoshi, Kenji E. Kushida, Phillip Lipscy

 

Report - Stanford Summer Juku 2015

 

Program

8/10/2015

8:30-9:00    Breakfast

9:00-10:15  Session I:

"Positioning Under Alternative Electoral Systems: Evidence from 7,497 Japanese Candidate Election Manifestos", Amy Catalinac (Harvard University)

Discussants:
Gary Cox (Stanford University)
Harukata Takenaka (National Graduate Institute for Policy Studies)
 

10:15-10:45  Break

10:45-12:00  Session II:

"Identifying Multidimensional Policy Preferences of Voters in Representative Democracies: A Cojoint Field Experiment in Japan", Yusaku Horiuchi (Dartmouth College), Daniel Smith (Harvard University), and Teppei Yamamoto (Massachusetts Institute of Technology)

Discussants:
Kay Shimizu (Columbia University)
Karen Jusko (Stanford University)
 

12:00-1:00  Lunch

1:00-2:15    Session III:

"Changes in Power of Japanese Prime Minister: Still Away from a Westminster Model", Harukata Takenaka (National Graduate Institute for Policy Studies)

Discussants:
Tsuneo Akaha (Middlebury Institute of International Studies at Monterery)
Kenji Kushida (Stanford University)
 

2:15- 3:30   Session IV:

"Territorial Issues and Support for the Prime Minister: A Survey Experiment on Rally-‘Round-the Flag Effect in Japan", Tetsuro Kobayashi (National Institute of Informatics, Japan), Azusa Katagiri (Stanford University)

Discussants:
Tsuneo Akaha (Middlebury Institute of International Studies at Monterery)
Daniel Smith (Harvard University)

 

8/11/2015

8:30-9:00   Breakfast

9:00-10:15 Session I:

"Institutions and central bank norm diffusion: The Bank of Japan's delayed break with the monetary orthodoxy", Gene Park (Loyola Marymount University), Saori Katada (University of Southern California), Giacomo Chiozza (Vanderbilt University)

Discussants:
Azusa Katagiri (Stanford University)
Ayako Saiki (De Netherlandsche Bank)
 

10:15-10:45  Break

10:45-12:00  Session II:

"The Political Economy of the Trans-Pacific Parternship: Implications beyond Economics", Hiroki Takeuchi (Southern Methodist University)

Discussants:
Kay Shimizu (Columbia University)
Gene Park (Loyola Marymount University)
 

12:00-1:00  Lunch

1:00-2:15    Session III:

"Lead Markets, Vertical Specialization, and Standards Competition in Electric Vehicles", Llewelyn Hughes (George Washington University)

Discussants:
Kenji Kushida (Stanford University)
Phillip Lipscy (Stanford University)
 

2:15-3:30    Session IV:

"Renegotiating the World Order: Institutional Change in International Relations (select chapters from book manuscript)", Phillip Lipscy (Stanford University)

Discussants:
Amy Catalinac (Harvard University)
Llewelyn Hughes (George Washington University)
 

6:30        Group Dinner at Gravity Bistro and Wine Bar (544 Emerson St, Palo Alto, CA 94301)
 

 

8/12/2015

8:30-9:00    Breakfast

9:00-10:15  Session I:

"Medical spending and health care utilization in Japan, 2010-2040: Projections from a Future Elderly microsimulation", Hawre Jajal (Stanford University), Brian K. Chen (University of Southern California), Karen Eggleston (Stanford University), Hideki Hashimoto (University of Tokyo), Toshiaki Iizuka (University of Tokyo), Lena Shoemaker (Stanford University), and Jay Bhattacharya (Stanford University)

Discussants:
Yong Suk Lee (Stanford University)
TBD

10:15-10:45  Break

10:45-12:00  Session II:

"The adverse effects of value-based purchasing in health care: dynamics quantile regression with endogeneity", Galina Besstremyannaya (Visiting Scholar, Stanford University)

Discussants:
Jay Battacharya (Stanford University)
Takeo Hoshi (Stanford University)

12:00-1:00  Lunch

1:00-2:15    Session III:

How Do Agricultural Markets Respond to Radiation Risk? Evidence from the 2011 Disaster in Japan", Kayo Tajima (Rikkyo University), Masashi Yamamoto (University of Toyama), and Daisuke Ichinose (Rikkyo University)

Discussants:
Satoshi Koibuchi (Chuo University and Visiting Scholar, Stanford University)
Yong Suk Lee (Stanford University)

2:15-3:30    Session IV:

"Shocks and Shock Absorbers in Japanese Bonds and Banks During the Global Financial Crisis", Hyonok Kim (Tokyo Keizai University), Yukihiro Yasuda (Hitotsubashi University), and James A. Wilcox (University of California, Berkeley)

Discussants:
Sabrina Howell (New York University)
Suparna Chakraborty (University of San Francisco)

 

8/13/2015

8:30-9:00    Breakfast

9:00-10:15  Session I:

"Impact of Financial Intermediary's Information Production on Market Value of Firm: Case Studies on the DBJ's Liquidity Providing During the Financial Crisis and the Environmental Rating of Firm", Hiroaki Suzuoka (Development Bank of Japan), Atsushi Motohashi (Development Bank of Japan), Shinya Nakamura (Development Bank of Japan), Tomoya Maruoka (Development Bank of Japan), and Takamasa Uesugi (Development Bank of Japan)

Discussants:
Jess Diamond (Hitotsubashi University)
Masami Imai (Wesleyan University)

10:15-10:45  Break

10:45-12:00  Session II:

"Selective Disclosure: The Case of Nikkei Preview Articles", William N. Goetzmann (Yale School of Management), Yasushi Hamao (University of Southern California), and Hidenori Takahashi (Kobe University)

Discussants:
Eiichiro Kazumori (University of Buffalo)
TBD

12:00-1:00  Lunch

 

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Kenji Kushida will provide an overview of canonical works of Silicon Valley, including work of Martin Kenney and his classic co-edited volume "Understanding Silicon Valley" and other more recent work drawn from the Stanford Silicon Valley - New Japan project’s "Top Ten Reading List of Silicon Valley." He will also share insights from a recent report co-authored with Richard Dasher, Nobuyuki Harada, Takeo Hoshi, and Tetsuji Okazaki entitled "Institutional Foundations for Growth" which partially draws from research on Silicon Valley.   

Kanetaka Maki will present his new research from a paper entitled "Milestones to University-Based Startup Success: What Is the Impact of Academic Inventor Involvement?” Based on the data analysis of 533 University of California startups, he will explain the impact of inventor involvement in the growth and success of university-based startups.

RSVP Required

 

Agenda
4:15pm: Doors open
4:30pm-5:30pm: Lecture, followed by discussion
5:30pm-6:00pm: Networking

 

For more information about the Silicon Valley-New Japan Project please visit: http://www.stanford-svnj.org/

Philippines Conference RoomEncina Hall, 3rd Floor616 Serra StStanford, CA 94305
Kenji Kushida, Research Associate, Shorenstein APARC Japan Program and Stanford Silicon Valley - New Japan Project leader
Kanetaka Maki, Research Associate, Shorenstein APARC Japan Program
Seminars
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Technological advances have brought us to a potential tipping point in the delivery of financial services that will affect the individual, firm, the industry and the country. How important will this development be for potential growth in developed and developing countries? Will the changes occur without official intervention, or will they need the state’s guiding hand to ensure that they provide their benefits with minimal risk? What measures are needed from policy makers and regulatory authorities to clear the path for faster growth?

This seminar, co-sponsored by the Stanford Center for International Development and the Shorenstein Asia-Pacific Research Center, will look at how a group of companies, an industry and a country have effectively capitalized on conducive regulatory environment the opportunities offered by the technological advances and related disruptions. The talk will focus on the strategy of M-Pesa/Alibaba, Chinese Financial Sector and Singapore. The combination of Silicon Valley Technology and Smart Nation/City initiative may overcome some challenges of low productivity and low growth in many parts of the world especially in Asia and ASEAN.

David LEE Kuo Chuen is a visiting scholar at the Walter H. Shorenstein Asia-Pacific Research Center (APARC) for the fall of 2015.  He is currently the Director of Sim Kee Boon Institute for Financial Economics.  He holds the appointment of Practice Professor of Quantitative Finance, Lee Kong Chian School of Business, in Singapore Management University.  He is also the founder of Ferrell Asset Management Group. His research interests encompass digital and Internet finance, digital banking, Asia finance, impact investing, financial inclusion and asset allocation. During his time as a Fulbright Scholar at Shorenstein APARC, his research will focus on harnessing Silicon Valley technology for connectivity and financial inclusion in ASEAN and Singapore. David is also an Independent Director of two SGX-listed companies and sits on the Investment Committee and Council of two charitable organizations. He is the Vice President of the Economic Society of Singapore.  He was the Founding Vice Chairman of the Alternative Investment Management Association (Singapore Chapter), a member of the SGX Security Committee, and MAS Financial Research Council.  He was also the Group Managing Director of OUE Limited and Auric Pacific Limited, as well as the Non-Executive Chairman of MAP Technology Limited. David speaks frequently in international conferences with occasional appearances in Bloomberg, Reuters and Channel NewsAsia.  He has published in Financial Analyst Journal, Journal of Investing, Journal of Wealth Management, Journal of Statistical Computation and Simulation, Applied Financial Economics, and several books and chapters on Household Economics and Hedge Funds.  His two books on Asia Finance focus on Banking, Sovereign Wealth Funds, REITs, Financial Trading & Markets, and Fund Performance. His latest book is on Digital Currency. He graduated from the London School of Economics and Political Science with a BSc (Econs), MSc (Mathematical Economics and Econometrics) and a PhD in Econometrics and Mathematical Economics.

Smart Nation, Silicon Valley Technology and Asia Growth Strategy
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Philippines Conference Room3rd floor, Encina Hall616 Serra StreetStanford, CA 94305
David LEE Kuo Chuen, Director of Sim Kee Boon Institute for Financial Economics and APARC Visiting Scholar
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A podcast from the book event on Jan. 15 is available at the link above. An earlier interview with author Michael Armacost was first published in Oct. 2015 and is reposted below.

When it comes to elections, politics can supersede strategy. But what is often overlooked is the process through which the United States selects their commander in chief and its impact on policy – particularly, foreign policy.

What then shapes foreign policy during that time? “Events, my dear boy, events,” Harold Macmillan, a former British prime minister, famously replied when asked what could change a government's directions. To which Michael Armacost agrees and explores the interplay between campaign politics and foreign policy in his new book.

“Since World War II, the United States has consistently pursued a global role, but the tempo of its engagement with the world has been repeatedly adjusted to reflect circumstances and domestic moods,” Armacost wrote.

A veteran scholar, former ambassador and undersecretary of state for political affairs, Armacost is an expert on the U.S. government system and policy process. In the book, he examines ideology and the struggle for power in the six elections that have taken place since 1948, ending with Barack Obama’s re-election in 2012.

The book, which reads somewhat like a guide, largely began as a project for students, he said. 

Armacost initially came to Stanford in 1994, and in 2002, returned as a distinguished fellow at the Walter H. Shorenstein Asia-Pacific Research Center. He co-teaches a graduate course on U.S. policy in Northeast Asia.

“When I left government, I found a lot of literature on how foreign policy affects elections but little in the reverse,” Armacost said. “So my aim behind the research was to not only satisfy my own curiosity but to offer a comprehensive and accessible analysis for students.”

Armacost’s career in government began in 1983 when an advisor encouraged him to apply for a White House fellowship. His fellowship in the deputy secretary of state’s office – which was only set to be a single year in Washington – led to 24 years of public service.

He went on to serve as the U.S. ambassador to Japan from 1989 to 1993 and the Philippines from 1982 to 1984, and was a member of the National Security Council.

Armacost said he remains positive about the electoral system, while also suggesting a few reforms. The system ensures a cyclical chance to step back and assess where America stands in the world, he said.

“Our system provides regular opportunities to put the spotlight on troubling foreign policy problems,” he wrote. “And supplies an incentive to consider course corrections for costly, inconclusive foreign as well as domestic policies, or offers a chance to select new management to fix them.”

Shorenstein APARC asked him a few questions about his research in the context of the 2016 election cycle. His answers are posted below.

Will Obama attempt a “sprint to the finish line” on foreign policy?

He is well embarked on that sprint. In the fourth quarter of his presidency, he is eager to burnish his foreign policy legacy. President Obama’s agenda is clear. It includes the normalization of relations with Cuba, implementation of the Iran nuclear agreement, ratification of the Trans-Pacific Partnership free trade agreement, and promotion of further international cooperation on climate change. He will also seek to avoid losing ground in geopolitical competition with ISIS in Iraq and Syria, the Russians in the Ukraine and elsewhere, and China in the South China Sea.

A president’s power to effectively undertake controversial initiatives at home and abroad tends to ebb as his tenure runs out. Those requiring Congressional support are particularly problematic. And events will play a large role in determining the problems and opportunities that come his way before Jan. 20, 2017.

Does the Trans-Pacific Partnership (TPP) stand a chance of getting ratified?

It stands a chance, but it will not be easy. Fortunately, Trade Promotion Authority has been secured from the Congress. Hence, it will be limited to an up or down vote without amendments.

Opposition from labor unions and environmental groups assures that there will be very limited Democratic support for the TPP, and Hillary Clinton, Bernie Sanders and Martin O’Malley have publicly expressed their opposition. There has also been some erosion of support for free trade among the Republicans, whose leaders have mostly expressed misgivings about some of the TPP’s provisions.

I believe the TPP will advance U.S. economic and strategic interests, but whether its ratification will be achieved before or after the 2016 election is at this point uncertain.

How do the politics of the TPP differ from that of George H.W. Bush’s pursuit of the NAFTA agreement in 1992?

In 1992 President Bush didn’t hesitate to push hard for NAFTA throughout his campaign. And the Mexican and Canadian governments also regarded the U.S. election day as a convenient deadline for getting the agreement finished. The president’s GOP Party believed in free trade, and considered the push for an embryonic hemispheric market a worthy and historic objective. A NAFTA accord could be portrayed as extending a helping hand to a friendly neighbor. The Party’s business constituency was supportive; the bulwark of opposition to the deal were labor and environmental groups, which were unlikely to vote for Bush anyway.

Promoting NAFTA also offered the president a chance to put the Democratic candidate, Bill Clinton, who had made public remarks supporting such an agreement, on the spot. If he reversed his position and opposed the accord, he could be accused of “waffling;” if he didn’t, he would risk alienating his labor and environmental constituencies. Bush nearly got the deal finished, but side letters on labor and environmental issues remained to be completed after Clinton won the election.

This year, a Democratic president is confronting major opposition from his own party, and widespread support from Congressional Republicans is therefore indispensable to his chances of ratifying the agreement. A number of Republican leaders who are generally supportive of free trade, however, contend that President Obama was so eager to wrap up the deal on his own watch, that he missed a chance to drive a harder bargain. Others are reluctant to hand the president a foreign policy victory during a presidential campaign.

And as November 2016 nears, the Democratic candidate is likely to be reluctant to buck unions and environmental groups who not only provide much needed financial support, but supply the volunteers who perform crucial “get out the vote” duties on election day.

Where does foreign policy fit into the 2016 campaign? 

Foreign policy is likely to feature very prominently in the coming election, particularly if the economy continues its steady, if modest, rate of growth. The reason is simple. The United States faces serious challenges in the Middle East, the Ukraine, South Asia and the South China Sea. And many voters who favored retrenchment in 2008, now fear it is now perceived increasingly by friends and adversaries as weakness and/or retreat.

One should not, however, expect the presidential campaign to illumine the strategic choices we face abroad. Presidential contenders typically articulate a wide range of aspirational foreign policy goals. But they rarely outline priorities among these declared aims, let alone their potential costs and risks, or the trade-offs among them. To address these core elements of strategy might offend one or another potential voting bloc. Candidates, therefore, tend to focus upon the appeal of their foreign policy objectives at home, rather than their efficacy abroad.

A wide field of candidates has emerged early on. What foreign policy issues are not being addressed that should figure in the debates?

It’s a bit early to say. The first primaries are still three months away. Few debates have yet been held. The election is likely in any event to be in part a referendum on President Obama’s record. But Hillary Clinton, who served for four years as the Secretary of State, is differentiating her position from that of Obama’s on a number of foreign policy matters. And as I noted above, the focus in most campaigns is on laudable goals rather than the key elements of strategy, i.e. the operational tests of foreign policy for anyone who occupies the Oval Office.

What will happen to the U.S. “pivot back to Asia” strategy?

President Obama performed a useful service in underlining America’s growing stake in Asia. I would expect the candidates of both major parties to affirm their intent to devote more time, attention and resources to the Asia-Pacific region. The problems the current administration has experienced in Asia are a by-product of the policy’s implementation. Many Asian leaders wonder whether the policy has been forgotten or overtaken by events. Adjustments in our regional security policy have been essentially symbolic.

With China, we are still looking for a sustainable balance between constructive engagement and prudent hedging. The diplomatic opening to Myanmar was timely, but progress has been complicated by ethnic struggles in that country. American leaders visit Asia periodically, but the United States is still perceived as primarily preoccupied with problems in the Middle East. Conclusion of the TPP will lend credibility to the policy, but only if the agreement is ratified. So it will be up to the next president to put some meat on the bones of this strategic initiative.

How do election cycles in the United States and South Korea mesh, and what might the coming cycle mean for U.S.-Korean relations?

America has a four-year election cycle for the presidency. The Republic of Korea elects its presidents for a five-year term. We have experienced several occasions when our cycles appeared out of sync, i.e. when the United States elected more conservative candidates to the White House as the Koreans chose more liberal contenders for the Blue House. George W. Bush, a conservative, served during a period when the South Korean presidents – Kim Dae Jung and Roh Moo-Hyun – were both liberals or progressives. American and South Korean perspectives on policy toward North Korea diverged sharply. Nonetheless, they joined hands in launching the U.S.-Korea Free Trade Agreement, and formulated plans for a major redeployment of U.S. military forces away from the Seoul metropolis to bases further south. And President Obama, a liberal, fashioned a close relationship with Presidents Lee Myung-bak and Park Geun-hye, both conservatives.

Thus, shared national interests have a way of tempering the ideological predilections of our respective leaders, enabling them to collaborate when dangers loom or when opportunities beckon.

South Korea now trades twice as much with China as it does with the United States and Japan combined. So its economy is tied more closely to China now, though it still looks to Washington for protection. Seoul will not want to choose between its economic interests and its strategic concerns. The United States has no reason to force such a choice on its ally, but it is clear that Beijing hopes to use its economic leverage to influence the Republic of Korea’s strategic decisions, for example, its readiness to deploy a THAAD, high altitude ballistic missile defense system. This is the kind of issue that could feed back into our election-year politics.

Related links

WNYC Brian Lehrer Show (Audio): How Elections Derail Foreign Policy (Aug. 4, 2015)

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Confetti on stage as U.S. President Barack Obama celebrates after winning the U.S. presidential election in Chicago, Illinois, Nov. 7, 2012.
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