Japan must transform its economy in a way that mirrors the innovation ethos in places like Silicon Valley and Stanford University, Japanese Prime Minister Shinzo Abe said Thursday during a speech on campus.

As an example of how to encourage such creativity, Abe hailed a new partnership starting this fall with Stanford that will train the next generation of biomedical experts. In doing so, he urged a "fundamental change" in how Japanese society views the process of innovation, from how ideas originate to competition in the marketplace.

Japan Biodesign will be launched in collaboration with the Stanford Biodesign program and five higher education and research institutions in Japan. Faculty members will work together to create new interdisciplinary systems based on Stanford Biodesign. Stanford leaders will train and mentor their Japanese colleagues.

Abe, who is the first Japanese prime minister to visit Stanford, marveled at how the tech sector in the United States has "consistently evolved at top speed."

He said, "I want the best and brightest Japanese talent" to learn about Silicon Valley.

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Abe shared the Bing Concert Hall stage with Stanford President John Hennessy and George Shultz, the former U.S. Secretary of State and distinguished fellow at the Hoover Institution. Abe's talk, titled "Innovation, Japan and Silicon Valley Symposium," included an introduction and remarks by Hennessy and Shultz. The event drew a full house of invited guests and members of the Stanford community.

"It is a great honor" to be at Stanford, Abe said in beginning his remarks.

He noted that Japan is revisiting its regulatory and tax systems in order to encourage more economic dynamism and competition. "The Japanese people will benefit from innovation," he said.

The challenge, he acknowledged, has been the slow pace of innovation in Japan. Today, however, the Internet economy and big data are creating "enormous changes" in his country's economic approach, he said. "We have to catch up, or otherwise Japan will lose vitality," Abe added.

Cultural connections

In his introduction of Abe, Hennessy chronicled Stanford's long history and friendship with Japan and its people.

Japan, he said, is home to more Stanford alumni than any other Asian country, and when the university's doors first opened in 1891, the pioneer class included a Japanese student. Currently, 139 students from Japan are enrolled at Stanford.

Hennessey described Abe as focused on revitalizing Japan's economy and stewarding it toward a greater global role.

Shultz, who knew Abe's parents, shared recollections of poignant moments between Abe's politically prominent family and his own.

Abe joined a roundtable discussion after his speech with Michael McFaul, director of the Freeman Spogli Institute for International Studies; Stanford Board of Trustees Chair Steve Denning; Stanford School of Medicine Dean Lloyd Minor; Stanford political science Professor Emeritus Daniel Okimoto; Yahoo co-founder Jerry Yang; and Twitter co-founder Jack Dorsey, among other scholars and dignitaries. He also met with Stanford students before leaving campus.

Afterward, McFaul wrote in an email, "I think it is fantastic that Prime Minister Abe came to Stanford and Silicon Valley after his very successful visit to Washington. He demonstrated that deepening U.S.-Japanese relations requires not only strong government-to-government ties, but also deepening ties between our societies, including educational institutions like Stanford."

Abe's state visit to the United States this week included the first address by a Japanese leader to a joint session of Congress. Abe served as prime minister of Japan in 2006-07 and returned to the position in 2012.

'Working together'

On Tuesday, U.S. President Barack Obama said after a meeting with Abe that the two countries had made progress in trade talks on a massive 12-nation trade deal that would open markets around the Pacific Rim to U.S. exports. Both nations face domestic political obstacles to concluding the Trans-Pacific Partnership agreement.

"This agreement would expand the coverage of the free trade agreements for both Japan and the U.S. substantially," said Stanford economist Takeo Hoshi, director of the Japan Program at the Shorenstein Asia-Pacific Research Center, in an interview. "The U.S. and Japan have been working together to maintain peace and sustain economic growth in the Pacific Asia."

Hoshi said that Abe's visit to the Silicon Valley confirms that Japan is serious about transforming its economy from one based on exports to one focused on innovations.

"Going forward, we can learn a lot from Japanese experience and their reform attempts," said Hoshi, who is also a senior fellow at the Freeman Spogli Institute.

Hoshi spoke with The Associated Press just before Abe’s arrival to California, citing Silicon Valley as the ideal place for Japan to learn about innovation. He also joined KQED’s Forum to discuss the current state of the U.S.-Japan alliance. Later, he was interviewed by BBC Business about Abe's visit to Stanford.

Stanford Biodesign

Founded in 2001, Stanford Biodesign has pioneered a new training methodology in which interdisciplinary teams of engineers and physicians go through a rigorous process of carefully characterizing unsolved clinical needs before jumping to technology solutions.

For the Japan Biodesign program, the bulk of the educational activities will take place at the campuses of the partner Japanese universities.

Clifton Parker is a writer for the Stanford News Service.

In conversation with Shorenstein APARC, Takeo Hoshi, Stanford professor and director of the Japan Program, discusses his intial draw to studying the Japanese economy, and its intersections with finance and public policy. Hoshi highlights some of his recent research and the Japan Program's upcoming activities, including a new student course focused on innovation-based economic growth in Silicon Valley and Japan.

What led you to study the Japanese economy?

I majored in social sciences as an undergrad at the University of Tokyo. I was especially intrigued by macroeconomics – the study of the aggregate economy (GDP growth, inflation, unemployment, etc.).  I came to the United States to pursue graduate studies at the Massachusetts Institute for Technology. In the 1980s, Japan’s economy was growing relatively fast and performing better than the United States and other advanced economies. Japan was boring for a macroeconomist. But soon after I got my doctorate in economics, Japan started to encounter some economic problems and became interesting, so this is what I started to investigate. I shifted my focus from theoretical work to empirical work, and began to look at the Japanese economy, especially its financial aspects.

Can you tell us more about your current research focus?

I have continued to do research on Japan’s financial system. I have just completed two papers on this subject. One examines financial regulatory changes in Japan after the global financial crisis, and the second studies the development of capital market regulations in Japan, again focusing on the period after the global financial crisis. I also have a research project on institutional foundations for innovation-based economic growth. I work with Kenji Kushida, also at Shorenstein APARC, and Richard Dasher, at the U.S.-Asia Technology Management Center, for this project. We study the economy seen in Silicon Valley, perhaps the best example of innovation-based economic growth, and examine what Japan needs to do to achieve similar growth. For example, here in Silicon Valley, venture capital plays a very important role in providing capital to startups. In Japan, the role and size of venture capital is much smaller. We’ve been researching to find out why this is. Good ideas always exist in a society, but depending on the condition of the economy and policies created, entrepreneurs may find barriers to getting them anywhere without access to capital. It’s about connecting capital to the right ideas at the right time.

What’s ahead for the Japan Program this year?

The Japan Program has several events coming up. In April, an event will focus on international terrorism and how Japan faces newer security threats such as the Islamic State. Given the recent killings of the Japanese hostages, the threat of international terrorism is evident to people in Japan. For U.S. citizens, it’s been apparent for awhile, but for Japanese citizens it is a more recent realization. The Japan Program also has an upcoming project that highlights the 70^th anniversary of World War II, which is being commemorated this year. At the 50^th and 60^th anniversaries of the War, the prime minister of Japan gave a short statement reflecting on Japan’s past actions and reinforcing its pacifist vision for the future. The current leader Shinzo Abe will also do this. Colleagues from Shorenstein APARC and the Freeman Spogli Institute for International Studies have been asked to write a short statement that they would give if they were in the Prime Minister’s shoes. A broad cross section of faculty authors coming from different disciplines are participating and will provide diverse views. The collection of statements will be compiled into a report (in both English and Japanese).

This spring, you’re teaching a new course Innovation Based Economic Growth. What makes this course unique?

I’m very excited to be back teaching again. Since arriving at Stanford in 2011, I haven’t yet taught a course, so it’s a great opportunity. It’s a project-based course focused on innovation policy in Japan. Students will form groups and perform research on several policies aimed at encouraging innovations in Japanese businesses. Students will then analyze those policies once they are implemented. In the process, students will develop a framework for policy evaluation. And for some of those policies, we may be able to collaborate with a part of the Japanese government to implement a policy evaluation framework.

Tell us something we don’t know about you.

I am a devote San Diego Chargers fan. And, as a child, my dream job was to own a hardware store.

In Nikkei Shimbun, Takeo Hoshi examines 2015 to enter the implementation stage for the Abenomics growth strategy.  The revised New Growth Strategy released last year has narrowed the “third arrow” to ten reforms.  Out of the ten, Hoshi suggests to focus on four key reforms: 1) Accelerating industrial restructuring and venture businesses, 2) Promotion of innovation, 3) Enhancing women's participation and advancement, 4) Attracting talent from overseas.