Five visiting scholars with expertise on Southeast Asia will spend varying portions of the academic year 2008-09 in residence at Stanford. Shorenstein APARC and the Southeast Asia Forum will host four of them: three were selected under the Lee Kong Chian NUS-Stanford Initiative on Southeast Asia. and one is a recipient of a 2008-09 Shorenstein Postdoctoral Fellowship. A fifth scholar will be on campus as a National Fellow of the Hoover Institution.

The five are John Ciorciari, Joel S. Kahn, Mark Thompson, Angie Ngoc Tran, and Christian von Luebke.

John Ciorciari spent the 2007-08 academic year at Stanford as a Shorenstein Postdoctoral Fellow at Shorenstein APARC. He finished a book that examines how Southeast Asian states have "hedged" their relations with the United States and China.

Dr. Ciorciari will spend upcoming academic year at Stanford as a Hoover Institution National Fellow. In that capacity he plans to expand his research to include the international relations of India.

Joel S. Kahn is a professor of anthropology (emeritus) in the School of Social Sciences at La Trobe University in Victoria, Australia. He will be at Stanford for the first half of October 2008 as the 2008 Lee Kong Chian National University of Singapore-Stanford University Distinguished Lecturer.

While at Stanford Professor Kahn will give three public lectures. Their tentative titles are: "A Southeast Asian Modernity?"; "Empires, States, and Political Identities in (Pen)insular Southeast Asia"; and "Religion, Reform, Science, and Secularity." Details including dates, times, and venues will be posted as they become known.

Mark Thompson is a professor of political science at the Friedrich-Alexander University Erlangen-Nuremberg, Germany. He will be in residence at Stanford in Winter and Spring 2009 as the 2009 Lee Kong Chian National University of Singapore-Stanford University Distinguished Fellow.

While at Stanford, Prof. Thompson will pursue a book project on "Late Democratization in Pacific Asia." The book will question the claim that democratization in Pacific Asia (including Southeast Asia) has been driven by economic growth and offer an alternative perspective. He will present the results of his project in a public lecture in the spring of 2009. Date, time, venue, and other details will be posted when known.

Angie Ngoc Trần is a professor in the Division of Social and Behavioral Sciences and Global Studies at California State University, Monterey Bay (CSUMB). She will be in residence at Stanford for the second half of November 2008 as the 2008 Lee Kong Chian National University of Singapore-Stanford University Distinguished Fellow.

In a public lecture on November 17, 2008 (Mobilized Workers vs. Morphing Capital: Challenging Global Supply Chains in Vietnam), Professor Tran will present the results of her study of labor-capital relations in Vietnam and how the different national origins of investors and owners affect workers' conditions, consciousness, and activism. Details including time and venue will be posted as they become known.

Christian von Luebke was a research fellow in Tokyo at Waseda University's Institute for Global Political Economy in 2007-08 following receipt of his 2007 PhD in public policy and governance at the Australian National University. He will be at Stanford for the 2008-09 academic year as a Walter H. Shorenstein Postdoctoral Fellow.

During his residence Dr. von Luebke will pursue a research and writing project on "Good Governance in Transition: Explaining Local Policy Variations in Indonesia, China, and the Philippines." He will give a public lecture on the results of his project in winter or spring 2009. The date, time, venue, and other details will be posted when known.

For the past ten years, Japan has undergone aggressive, government-driven reforms aimed at changing its financial systems, labor markets, and corporate governance institutions. Faced with the challenges of globalization and an ageing population, Japan undertook these reforms to regain its former competitiveness. What remains uncertain, however, is whether these reforms will also be effective in creating an environment
that is more favorable to entrepreneurship and innovation. If the reforms are effective, at what pace, and in what shape will new firms emerge? Will Japan’s system mirror the institutions that have evolved in regions such as Silicon Valley, or will it develop into a new framework of innovation?

The persistent decline in Japanese asset values during the 1990s engendered many policy and legal responses. Among these was a series of business policy and associated legal reforms intended to foster the creation of new companies, new industries, and new financial institutions. Starting in 1997, these reforms included changes in how firms are formed. For example, the capital required to start a stock-issuing firm was reduced from ten million yen to a mere one yen. The yugen kaisha—a secondary form of Japanese company—was also abolished and the limited liability partnership created instead. Holding companies were allowed, mergers were deregulated, treasury shares were authorized, and the liability of company directors was limited.

Additional reforms were promulgated to encourage new forms of financial intermediation. Tax benefits created for “angel” investors, foreign venture capitalists, foreign private equity, and foreign lawyers became common. Purchase of shares with shares, triangular mergers, and repurchase of shares were all allowed. Moreover, several new stock exchanges were created expressly for relatively new companies.

Corporate governance laws were also revised. For one, Japanese firms may now use U.S.-style board of director committees, with an upper limit placed on directors’ liabilities. Japanese auditors are now required to be outsiders, and consolidated accounting is likewise compulsory, as well as “mark-to-market” rules for financial reporting. These are just a few of the changes, all of which combine to increase transparency in Japan’s markets.

The results were noticeable. By 2006, new companies were garnering price-to-earnings ratios of greater than 100 to 1 in the new markets; the number of IPOs per year was comparable to the rate during the U.S. Internet bubble; and the mergers and acquisition market was transformed from one of the most moribund in the world to one of the most dynamic. Venture capital firms proliferated, as did new law firms, private equity firms, and foreign banks. Existing Japanese banks merged, new banks formed, and money-lending began again. Some new companies even gained sufficient liquidity and stature to turn their founders into celebrities and some of the wealthiest people in Japan. Rakuten, Mixi, ValueCommerce, and Cybird are just a few of these success stories. Japan is currently in its seventy-first month of economic expansion—the longest of the postwar period.

The future, however, is unclear. As Professor Yoko Ishikura, of Hitotsubashi University, recently observed at a SPRIE seminar at Stanford, “Japan is at a turning point and it is uncertain which direction it will choose.” For 2008, IPO valuations have returned to levels more comparable to those in the United States, and the climate for startups has moderated somewhat. New company startup rates are flat and IPO rates have recently dipped significantly. Some prominent studies of the entrepreneurial climate in various countries rank Japan among the least favorable. Many observers are impatient for more evidence of results from the reforms. It remains an open question whether Japan is being affected by the U.S. slowdown and commodity price increases, or if the country is simply retreating from it entrepreneurial gains.

In light of these developments, scholars remain curious: Are the reforms permanently changing the Japanese economy? Are the reforms sufficient to meet the challenges that Japan faces? Will the reforms be effective? Alternatively, are these reforms even desirable? SPRIE and the U.S.-Asia Technology Management Center, in cooperation with selected experts and research organizations in Japan, are undertaking
a major project to study the seemingly contradictory corporate and social climate in Japan, which is at present stretched between entrepreneurial and more conservative forces.

Japan’s economic relationship with the countries of the Pacific Rim—and indeed with the rest of the world—is vital to all of the economies involved. If Japan is transforming into a new economic culture, an understanding of that transformation is relevant both to global economic development and to the study of entrepreneurial growth.

As the most indebted country in the Organization for Economic Cooperation and Development (OECD), Japan’s dire fiscal situation is no secret. Yet despite its financial woes, in March 2008 the Japanese government failed to renew a relatively minor tax on gasoline that had been in force for thirty-four years. The government introduced a bill that would renew the so-called “provisional” gas tax. Although it passed the House of Representatives at the end of February, the Democratic Party of Japan (DPJ) blocked the bill in the opposition-controlled House of Councilors in March, causing the provisional tax to expire. With more than a two-thirds majority in the House of Representatives, the ruling Liberal Democratic Party (LDP)-led coalition overrode the House of Councilors at the end of April, and passed the extension of the provisional tax. What can one make of this episode and what does it say about the government’s ability to rebuild its precarious finances?

Prime Minister Yasuo Fukuda’s stance on the gasoline tax is an attempt to take the high ground, sticking to the position that the government must take painful but necessary steps to address Japan’s public debt crisis. After being selected as the head of the LDP and prime minister, Fukuda appeared set to prioritize fiscal reconstruction. He appointed well-known fiscal hawks to key party posts and cabinet positions and indicated a need to raise taxes. Fukuda soon backed away from a general tax increase, but on the provisional gasoline tax issue he stood his ground, arguing that its abolition would worsen Japan’s deficit and also run counter to the government’s effort to reduce greenhouse emissions.

The Fukuda administration’s stance on the provisional gasoline tax proved to be a disaster for both his cabinet and the LDP. The largest opposition party, the DPJ, skillfully turned the gasoline tax into an issue that it used to attack the LDP. During a recent by-election in Yamaguchi prefecture, historically a LDP stronghold, the DPJ candidate, Hiraoka Hideo, soundly defeated the LDP candidate, taking 70 percent of the vote. Hiraoka and the DPJ touted their success in abolishing the gasoline tax, while denouncing the government’s move to deduct health insurance premiums from seniors seventy-five years and older.

The DPJ successfully turned the provisional gasoline tax into a winning issue in large part because the tax has been viewed as a funding source that feeds the LDP-run pork barrel machine. The heart of the matter is not the tax, but how tax revenues are spent. Funds from the gasoline tax have been earmarked for road construction projects that are widely viewed as inefficient, corrupt, and driven above all by political considerations. Although the DPJ could only temporarily block the government’s bill to renew the gasoline tax, the action signaled the DPJ’s commitment to cutting wasteful government spending. The DPJ also advocates further constraints on road spending by abolishing the earmarking of funds from the basic, nonprovisional gasoline tax. Prime Minister Fukuda has now agreed to consider this proposal, indicating the extent to which public opinion has turned against such earmarking.

While the DPJ scored a political victory with its symbolic attack on road spending, it is less clear if it or the LDP will be able to take the much harder step of increasing taxes in the future. One proposal that has emerged is to earmark revenues from an increase of the national value-added tax (VAT) for social security spending. This proposal is intended to dampen resistance to the move by ensuring that the revenues will not be diverted to wasteful projects but rather used for popular welfare programs. Some within the LDP support such a plan. The DPJ has publicly endorsed turning the VAT into a “social security” tax, but it remains vague on the details. However, a poll from the Nikkei Shimbun revealed that only 34 percent of the population supports an increase in the VAT, even if the revenues are used for social security.

It has always been politically perilous to raise taxes. This fact is not lost on the LDP, which suffered declining support after it introduced the VAT in the 1980s and then raised it under Prime Minister Ryutaro Hashimoto (1996–98). This realization largely explains why LDP-led administrations have attempted to pursue fiscal reconstruction through cuts on the expenditure side while avoiding measures to increase revenue. From “fiscal reconstruction without tax increases” during the 1980s to Junichiro Koizumi’s structural
reforms without raising taxes, this formula has proved durable.

If Japan is to get serious about restoring its public finances, it cannot indefinitely postpone the issue of increasing revenue. The fundamental problem, however, is the public’s widespread belief that the government is wasteful, corrupt, and inefficient. Ultimately, if Japan is to succeed in raising taxes and rebuilding the nation’s finances, the LDP, DPJ, or any new party that may emerge will have to address this deep-seated public perception.

As a 2007-08 Shorenstein Fellow at Shorenstein APARC, John D. Ciorciari pursued a full and varied agenda of research and writing on Southeast Asia.

Fellowships are more often won on the promise of completing a book than books are finished before the fellowships end. Dr. John Ciorciari broke this “rule” by completing his book manuscript in Spring 2008 and submitting it to a university press for possible publication.

Based on his Oxford dissertation, the work is provisionally entitled “Hedging: Using Southeast Asian States as Case Studies.” In it, he examines the range of options that secondary states possess between outright alignment with and neutrality toward the great powers. He argues that secondary states normally seek to "hedge" by limiting their alignments. They do so to avoid the risks of tight security cooperation with the great powers, including diminished autonomy and entrapment, while reaping sufficient rewards in the form of protection. He presented his findings at a Southeast Asia Forum seminar on May 28, 2008 titled “Dating but Not Married: Southeast Asian Security Responses to the Rise of China.” See the link below for an audio file of the seminar.

In addition to finishing his book on hedging, Ciorciari used his fellowship period to pursue his research interest in Asian financial cooperation, which is increasingly central to broader political relations in the region. He focused on the Chiang Mai Initiative (CMI), an effort by China, Japan, South Korea, and the ten members of the Association of Southeast Asian Nations (ASEAN) to develop economic resilience by establishing regional mechanisms for balance-of-payments support.

Ciorciari collaborated on this study with Jennifer Amyx, a professor of political science at the University of Pennsylvania and herself a former Shorenstein Fellow and speaker for the Southeast Asian Forum (SEAF) at Shorenstein APARC. Ciorciari and Amyx acknowledge that establishing an effective financing mechanism under the CMI has proven to be a challenging task. Nevertheless, by fostering regular interaction among Asian central bankers and finance ministry officials, the CMI has begun to yield a range of spillover benefits conducive to regional financial resilience. (Schedules permitting, Ciorciari and Amyx may present some of their findings at a SEAF seminar at Stanford in the upcoming academic year.)

As a Shorenstein Fellow in 2007-08 Ciorciari also worked on two projects on Cambodia: a book chapter on the international politics surrounding the long-delayed and finally ongoing Khmer Rouge Tribunal, and an article on China’s relations with the Khmer Rouge regime during the late 1970s. The article argues that the Pol Pot regime effectively punched above its weight in an otherwise asymmetrical relationship by exploiting China's rigid conception of its security interest in Indochina. In studying the Sino-Cambodian alliance, Ciorciari was able to test and illustrate some of the arguments in his book manuscript as to how small states pursue leverage and autonomy in their relations with major powers.

In 2007 Shorenstein APARC and The Asia Foundation chose Dennis Arroyo to be the first Shorenstein APARC/Asia Foundation Visiting Fellow.  Arroyo spent the 2007-08 academic year researching and completing a monograph on "The Political Economy of Successful Reform:  Asian Stratagems."  An edited abstract follows:

Major economic reforms are often politically difficult, causing pain to voters and provoking unrest.  They may be opposed by politicians with short time horizons. They may collide with the established ideology and an entrenched ruling party.  They may be resisted by bureaucrats and by vested interests.  Obstacles to major economic reform can be daunting in democratic and autocratic polities alike.
 
And yet, somehow, past leaders of today's Asian dragons did implement vital economic reforms. "The Political Economy of Successful Reform:  Asian Stratagems" recounts the political maneuvers used by Asian leaders of economic reform in these countries at these pivotal times:  Thailand under General Prem Tinsulanonda; Vietnam during Doi Moi (or Renovation); Singapore under Lee Kuan Yew; China under Deng Xiaoping; India in the 1990s; and South Korea under Park Chung Hee.

The paper classifies these maneuvers as responses to the main political barriers to reform and develops a "playbook" of tactics for economic reformers.  To overcome ideological obstacles, for example, the reformers packaged and presented reforms as ways of strengthening the party in power. Reformers proceeded gradually.  Initially they sought win-win compromises. They blessed pro-market violations as pilot projects. They even created new provinces in order to dilute the anti-reform vote.

The full text of Arroyo's monograph has been published by the Stanford Center for International Development in its working paper series.

Arroyo came to Stanford well qualified to study economic reform techniques.  In 2005 he was named director for national planning and policy at the National Economic and Development Authority (NEDA) of the Philippines.  His duties included building public support for the economic reforms championed by NEDA.  He has consulted for the World Bank, the United Nations, and the survey research firm Social Weather Stations, and has written widely on socioeconomic topics.  His critique of the Philippine development plan won a mass media award for "best analysis."  He has degrees in economics from the University of the Philippines.

In May 2008 Arroyo presented his findings in a SEAF lecture entitled "The Foxy Art of Herding Dragons: How Sly Asian Leaders Pulled off Politically Difficult Economic Reforms."

In 2008 an Indonesian economist, Sudarno Sumarto, was chosen to become the second Shorenstein APARC/Asia Foundation Visiting Fellow. He will be in residence at Stanford during the 2009-2010 academic year.  

An edited summary of Dr. Sumarto's proposed research and writing at Stanford follows:

Facing the major damage wreaked by the Asian financial crisis of 1997-98 on already poor and/or vulnerable Indonesians, the government in Jakarta was forced to launch a series of emergency social safety nets.  These programs targeted multiple sectors:  employment, education, health, food security, and community empowerment.  

Now that a decade has gone by since these measures were undertaken, it is time to draw policy lessons from the experience.  Special attention will be paid in this project to the dynamics of the process of deciding and delivering social protection, the difficulty of enlisting or creating appropriate targeting and implementation mechanisms, institutional enablers and impediments, the role of civil society, the impact of commodity subsidy reforms, and the relevance of good (and bad) governance.  

The study will also draw comparisons between Indonesia's record of targeted social protection and the experiences of other developing countries.  

Dr. Sumarto heads the SMERU Research Institute (Jakarta).  He also lectures at the Bandung Institute of Technology, Universitas Nusa Bangsa (Bogor), and the University of Indonesia (Jakarta).  

Dr. Sumarto has contributed to more than sixty co-authored articles, chapters, reports, and working papers, including "Agricultural Growth and Poverty Reduction in Indonesia," in Beyond Food Production (2007); "Reducing Unemployment in Indonesia," SMERU Working Paper, 2007; and "Improving Student Performance in Public Primary Schools in Developing Countries:  Evidence from Indonesia," Education Economics, December 2006.

Dr. Sumarto has spoken on poverty and development issues in Australia, Chile, China, Egypt, Ethiopia, France, Japan, Morocco, Thailand, and the United Kingdom, among other countries.  He has a PhD and an MA from Vanderbilt University and a BSc Cum Laude from Satya Wacana Christian University (Salatiga), all in economics.  He and his wife Wiwik Widowati have three children.  

After the events of the past few days, I felt a need to update and expand on my note to you of last week about Dokdo.

First, as a preface for all that is to follow, I fully understand why Koreans feel very strongly about the Dokdo issue and, frankly, I personally sympathize with the ROK claim to the islets.

My basic understanding of the issue is as follows:

(1) The ROK has actual possession of the islets. Japan cannot take the matter to the international court unless the ROK agrees, and the ROK won't. Japan will not attempt to use force to take the islets. As far as I know, not a single country in the world wishes to get involved in the controversy between the ROK and Japan over Dokdo, and thus none will support Japan. In other words, there is no prospect that possession of the islets will ever change from the ROK to Japan (in fact, former Prime Minister Abe made a statement acknowledging this situation a few years ago).

(2) Because of (1) above, however, probably no country, much less the international community as a whole, is likely for the foreseeable future to formally support ROK sovereignty (as opposed to not challenging its actual possession) over Dokdo.

(3) Logically, therefore, the ROK's goals should be to (a) maintain actual physical possession of Dokdo, which, as explained above, is not a problem, (b) in the mid-term, persuade others in the international community that Korea's claim outweighs Japan's, and (c) thereby lay the basis, in the long run, for Japan's eventual dropping its claim and/or the international community actively supporting the ROK's claim.

(4) Given all of the above, tactically the ROK should take a confident, low-key, long-term, strategic approach toward Dokdo.

(a) Overreacting to offending Japanese steps or actions can play into the hands of the Japanese right-wing, both domestically in Japan where those Japanese not particularly interested in Dokdo may be offended and energized by Korean criticism of all "Japanese" and "Japan," and in the international community, where strong Korean reactions are widely reported and thus unintentionally result in increased publicity for the Japanese claim.

(b) Similarly, the ROK should take care not to "demand" that foreign countries support its position on Dokdo-for the time being that will not work and it risks offending those countries and thus hurting Korean interests overall-but confidently, diplomatically publicize its position based on the very best objective research on the issue.

(5) Regarding the recent controversy concerning the U.S., I agree fully that it was wise of President Bush to reverse the recent step by the Board on Geographic Names; the timing of the BGN step last week was extremely unfortunate. But for the ROK to develop a good strategy and good tactics on Dokdo for dealing with all countries, including the U.S., it is critically important for the ROK to correctly and fully analyze both the actions and the intentions of foreign countries.

As far as I can reconstruct what happened-and I caution that, as a former U.S. official, I have no access to confidential information and I am not a representative of the U.S. government-the BGN made a policy decision a year or more ago to note which territories are the subject of disputes around the globe.

Why then, the Korean media asks, did the BGN decide only last week to change the listing for Dokdo but not for other territories in the region, as has been asserted? It appears that bureaucratic procedures and resource limitations resulted in the BGN being very slow to make the actual changes mandated by its policy decision to specify territorial disputes.

What has not been noted in Korea, where the focus naturally is on the Dokdo issue, is that the BGN database has a huge number of errors and inconsistencies in its geographical listings, including territorial disputes, all over the world. Top U.S. government officials have publicly indicated that the BGN move was made by relatively low-level, technical officials who did not seek policy input from senior levels of the U.S. government. Clearly that was very unfortunate, and, for the U.S., the incident highlights the need for the BGN to seek such policy guidance in all cases.

As for the timing of the BGN change, it appears, ironically, that BGN officials were alerted to the controversy by media reporting about the strong Korean reaction to the latest Japanese step. (The Japanese step itself would have received virtually no coverage in the U.S. media if it had not been for the strong Korean reaction.) Acting without policy guidance related directly to Dokdo, the BGN officials apparently thought they were updating the database in response to the general policy change made a year or so earlier. I am aware of no indication that Japanese "lobbying" was behind the BGN move last week.

(6) I can thus easily understand why Koreans, based on their concerns and the information available to them, would construe the BGN action as "siding with" the Japanese position. But, in terms of developing ROK strategy and tactics, it is important, as I noted above, that the Korean government and people fully and accurately understand foreign intentions. In the U.S. case, it is clear that the U.S. government did not and does not intend to change its long-standing policy of not taking a position regarding Dokdo.

What happened in the U.S. was largely the result of pedestrian bureaucratic incompetence and failure to communicate internally within the government-not the result of a basic policy change, much less a conspiracy to support Japan. (I am reminded of the old and very wise saying that one should "never ascribe to conspiracy that which can be explained by stupidity.")

While Koreans of course want all countries, particularly their U.S. ally, to support their position on Dokdo, they should also recognize the fundamentally favorable situation of the ROK in regard to Dokdo: the international community, including the U.S., is not challenging and will not challenge the ROK's actual possession of Dokdo. Thus, as former Prime Minister Abe indicated, Dokdo will remain Korean, and Koreans can say confidently, "Dokdo is our land."

Pantech Fellow

• Don Keyser: Former Deputy Assistant Secretary of State for East Asian and Pacific Affairs

Koret Fellow

• Byung Kwan Kim: General (Ret.), former Deputy Commander of ROK-US Combined Forces Command

POSCO NGO Fellows

• Hye-jeong Kim: Korea Federation for Environmental Movement
• Hyun Gon Jung: Korean Council for Reconciliation and Cooperation

Visiting Scholars, Korean Studies Program

• Seil Park: Professor of Law and Economics, Seoul National University
• Jongsuk Lee: Former Deputy Secretary General, National Security Council, ROK
• Hyung Joon Ahn: Reporter, MBC, Korea
• Gug-Hyeon Cho: Director, Public Relations, Northeast Asia History Foundation, Korea
• Oh Eul Kwon: Policy deputy-chairman, Grand National Party, Korea

Visiting Scholars, Center for East Asian Studies

• Hakjoon Kim: President, Dong-a Ilbo, Korea
• Hyung Chan Kim: Assistant Professor of Philosophy, Korea University