Former National Security Advisor addresses the future of Asia, and explains why, by 2020, the world's five most important countries are likely to be, in this order, the United States, the European Union, the People's Republic of China, Japan, and India.

The Oksenberg Lecture, given in 2005 by Zbigniew Brzezinski, honors the legacy of Professor Michel Oksenberg (1938-2001) longtime member of APARC, senior fellow at the Stanford Institute for International Studies, and an authority on China. Professor Oksenberg was consistently outspoken about the need for the United States to engage with Asia in a more considered manner. In tribute, the Oksenberg Conference/Lecture recognizes distinguished individuals who have helped to advance understanding between the United States and the nations of the Asia-Pacific.

PALO ALTO, Calif. -- The European Union is increasingly showing a new independent stance on foreign-policy issues as the logic of its industrial and economic integration plays out in the international arena.

Already the EU has taken a distinct and independent approach to both the Israel-Palestinian conflict and the nuclear crisis in Iran. Now it has broken ranks over the Korean Peninsula, fed up and concerned with the failure to resolve the ongoing crisis over North Korea's development of nuclear arms.

Reflecting this new stance, the European Parliament this week passed a comprehensive resolution on the Nonproliferation Treaty (NPT) and nuclear arms in North Korea and Iran:

• It urges the resumption of the supply of heavy fuel oil (HFO) to North Korea in exchange for a verified freeze of the Yongbyong heavy-water reactor, which is capable of producing weapons-grade plutonium, to avoid a further deterioration in the situation. At the same time it is calling for the European Council and Commission to offer to pay for these HFO supplies.
• It urges the Council of Ministers to reconsider paying 4 million Euros of the suspension costs for KEDO (the Korea Energy Development Organization) to South Korea to ensure the continued existence of an organization that could play a key role in delivering energy supplies during a settlement process.
• It demands that the Commission and Council request EU participation in future six-party talks, making it clear that the EU will in the future adopt a "no say, no pay" principle in respect to the Korean Peninsula. Having already placed more than $650 million worth of humanitarian and development aid into the North, it is no longer willing to be seen merely as a cash cow. This view was backed in the debate by the Luxembourg presidency and follows a line initially enunciated by Javier Solana's representatives last month in the Parliament's Foreign Affairs Committee.
• It urges North Korea to rejoin the NPT, return to the six-party talks and allow the resumption of negotiations.

The EP cannot substantiate U.S. allegations that North Korea has an HEU (highly enriched uranium) program or that North Korea provided HEU to Libya. It has called for its Foreign Affairs Committee to hold a public hearing to evaluate the evidence. "Once bitten, twice shy" is the consequence of U.S. claims that Iraq possessed weapons of mass destruction.

The world order is changing; the EU -- like China -- is emerging as a significant global power economically with the euro challenging the dollar as the global currency (even prior to the latest enlargement from 15 to 25 member states, the EU's economy was bigger than that of the United States). Speaking at Stanford University earlier this month, former U.S. foreign policy adviser Zbigniew Brzezinski pointed out that the EU, U.S., China, Japan and India will be the major powers in the new emerging global order. Since the new Asia will have three out of the five major players, he stressed the importance of engaging with it.

How will those already in play respond? Some may claim that statements by North Korea welcoming the EU's involvement and participation are merely polite, inoffensive small talk that cannot be taken seriously. Yet there have been a spate of pro-EU articles appearing in Rodong Sinmun, the daily newspaper of the Central Committee of the Korean Workers Party, since 2001.

Of 128 EU-related articles between 2001 and 2004, a majority praised Europe's independent counter-U.S. stance, emphasized its increasing economic power and influence, and heralded its autonomous regional integration. Rodong Sinmun portrays the EU as the only superpower that can check and balance U.S. hegemony and America's unilateral exercise of military power.

North Korea's perception of the EU is well reflected in articles such as: "EU becomes new challenge to U.S. unilateralism"; "Escalating frictions (disagreements) between Europe and U.S."; "European economy (euro) dominating that of the U.S."; "Europe strongly opposing unilateral power play of U.S.," and so forth.

Concurrently, North Korea has pursued active engagement with the EU by establishing diplomatic relations with 24 of the 25 EU member states (the exception being France). It is not necessary to read between the lines to recognize North Korea's genuine commitment to engagement with the EU based on its perception of the EU's emerging role on the world stage.

The Republic of Korea has publicly welcomed the prospect of EU involvement, while China wishes to go further and engage in bilateral discussions with the EU on its new policy toward the North. Russia will follow the majority. The problem is with Japan and the U.S.

In Japan, opinion is split by hardliners in the Liberal Democratic Party who view problems with North Korea as a convenient excuse to justify the abandonment of the Peace Constitution. They don't want a quick solution until crisis has catalyzed the transformation of Japan into what advocates call a "normal" country.

The U.S. expects an EU financial commitment, but not EU participation. The neocons believe that EU participation would change the balance of forces within the talks inexorably toward critical engagement rather than confrontation.

The question is whether the EU's offer will point the U.S. into a corner or trigger a breakthrough. Will U.S. fundamentalists outmaneuver the realists who favor a diplomatic rather than military solution? Only time will tell.

Glyn Ford, a Labour Party member of the European Parliament (representing South West England), belongs to the EP's Korean Peninsula Delegation. Soyoung Kwon is a postdoctoral fellow at Stanford University's Asia-Pacific Research Center.

On March 25, 2005, Stanford University Press will publish Prospects for Peace in South Asia, the inaugural book in a new series of "Studies of the Asia-Pacific Research Center." Designed to showcase APARC's cutting-edge research on contemporary Asia, the series will feature the varied work of the Center's faculty and the unique interdisciplinary perspective that informs it. According to Andrew Walder, director of APARC, "We are delighted to begin this series with Stanford University Press, which has a large and distinguished list of books on modern East Asia. It is a perfect way to showcase the best of the scholarly work to come out of APARC." Two more books have recently been added to the series pipeline.

Prospects for Peace in South Asia addresses the largely hostile, often violent relations between India and Pakistan that date from their independence in 1947. The most persistent conflict between the two neighboring countries over Kashmir has defied numerous international attempts at resolution.

The struggle over Kashmir is rooted in national identity, religion, and human rights. It has also influenced the politicization of Pakistan's army, religious radicalism, and nuclearization in both countries. Dossani and Rowen's incisive volume analyzes these forces, their impact on relations between the two countries, and alternative roles the United States might play in resolving the dispute. While acknowledging the risks, the book is optimistic about peace in South Asia. The key argument is that many of the domestic concerns -- such as territorial integrity and civilian-military rapprochement -- that had fueled the conflict have now abated.

"Volatile relations between India and Pakistan reflect issues deeper than territorial ambitions over Kashmir and predate their nuclear capability. That is a key theme of the book. The book is particularly timely: as India turns increasingly vibrant and globally important and Pakistan begins to clear the shadows of its past, policymakers need to understand the issues that will drive relations into the long-term," said Rafiq Dossani, co-editor, senior research scholar at APARC, and director of its South Asia Initiative. The volume's co-editor, Henry S. Rowen, is director emeritus of APARC, senior fellow at the Hoover Institution and emeritus professor of Public Policy and Management at Stanford's Graduate School of Business.

Chris Farrell: Remember the dot-com boom of the 1990s? It seemed as if every entrepreneur with a good idea and a PC could challenge established companies for customers. Brick-and-mortar companies jumped on the e-commerce bandwagon. The demand for digital workers soared. Long-time computer professionals hopped from job to job, pulling down more money with every employer. Newly minted college graduates juggled multiple job offers. But when the Y2K problem emerged in the latter part of the '90s business and government quickly realized there still weren't enough IT workers on hand to find and repair the computer glitch. The quick fix? Hire computer professionals overseas. And that temporary solution permanently changed the global economy.

Paul Saffo: Y2K was huge in getting the ball rolling on offshoring.

Farrell: Paul Saffo is director of the Institute for the Future, a high-tech think tank in Silicon Valley.

Saffo: But once they went overseas, they discovered it's not just a matter of cost. These programmers overseas are often better than the best you can get in the United States.

Farrell: Ireland, the Philippines, and Israel were among the more popular destinations for offshoring Y2K programming fixes. But India became the offshore capital. It had plenty of high-tech companies staffed with well-educated English speaking digital workers. Thanks to India's steep import barriers in the 1980s, no one could afford new computer systems. So Indian tech workers were the world's leading experts in the older software languages that needed upgrading. Suhas Patil is chairman emeritus of semiconductor maker Cirrus Logic.

Suhas Patil: And they were listening to their customers and what their needs were, and as the recognition came that systems had to be upgraded to not have the problem based on the Y2K issues, that's how they got their break.

Farrell: And made the most of the opportunity. AnnaLee Saxenian is Dean of the School of Information Management and Systems at the University of California, Berkeley.

AnnaLee Saxenian: I think the importance of Y2K was overwhelmingly about establishing Indian companies' reputation among US customers and helping begin a set of customer supplier relationships that have simply taken off in the last four years.

Farrell: Of course, Y2K contracts ended in 2000. Yet many Indian companies took advantage of their now sterling programming reputations to negotiate for more sophisticated work. Research. Software development. Accounting services. Long-distance medical advice. Rafiq Dossani is a senior research scholar at Stanford University.

Rafiq Dossani: India is now growing at 70-80 per cent a year in offshored services ... services which are maintaining an accounting system, maintaining an HR system, doing claims processing, that's growing easily at 70 per cent, maybe even higher.

Farrell: Offshore also came onshore during Y2K. The town of Mountain View lies at the heart of California's Silicon Valley. Housed in one of the many nondescript low-rise office buildings that crowd the region's business avenues is the Indus Entrepreneur, or TIE. It is a networking base for the Indian high-tech Diaspora.

Shankar Muniyappa: Y2K was a big opening as early as 98.

Farrell: Shankar Muniyappa is director of information systems for TIE. He came to America for Y2K-and stayed.

Muniyappa: Myself and many of us believe still believe this is the place where you need to be if you want to be middle of innovation.

Farrell: Some 30,000 Indian IT professionals now live and work in the Valley. Rafiq Dossani of Stanford University:

Dossani: At least 25 per cent of the start ups have Indian employees at fairly senior levels working for them. And ... there's a whole infrastructure therefore being built around them because it's a substantial number now, so you see shopping malls you see business services and so on catering to this particular immigrant community.

Farrell: That community is adding vitality to the American economy. Still, many American high-tech workers are threatened by the offshoring of white collar jobs. The numbers are murky, but according to Mark Zandi of Economy.com 370,000 non-manufacturing jobs moved overseas over the past fours years-with most of the information technology jobs going to India. Salaries are down too. Still, the big factor behind the loss of 1.5 million jobs lost since Y2K is improved business efficiency or productivity - not offshoring. And Y2K also played an important role in boosting business efficiency.

Economists initially looked at Y2K as a productivity killer.

Imagine a town threatened by a rising river. Every able-bodied person in town is put to work stacking sandbags. It's necessary work to save the town - but it's unproductive work. Nothing gets built. No food gets grown.

With the Y2K bug, programmers, chief information officers, project managers, and other digital workers were getting paid to do unproductive work - stacking sandbags of silicon. No innovative investments. No new productivity enhancing software.

But economists were wrong. Y2K wasn't a flood. Instead, think of it as clearing a path choked with underbrush. Once the trail is open, it is much easier to zip from point A to point B. Y2K gave companies an excuse to clean up their software and hardware underbrush - a critical factor in today's improved business productivity. Paul Saffo:

Saffo: A lot of companies said well, gosh, if we're going to have to spend all this money to fix our software let's also see what else we can do at the same time, so it was an invitation to replace a whole bunch of stuff. ... So it forced people to ask hard questions about how they were using things and in the best instances people really did become more efficient.

Farrell: The result? Companies used the new systems they installed to cut costs and work smarter - and hire fewer workers.

[Voice of Leonard Nimoy: "Do you have hard copies of all your important documents ... such as bank statements."]

That's Leonard Nimoy, Mr. Spock from Star Trek. He's narrating the Y2K Family Survival Guide video - one of thousands of products peddled by prophets of doom. Y2K did bring home how reliant we all are on computers. Many of us still don't back up critical data at home. The same isn't true for business and government. Many learned from Y2K just how vulnerable information systems are to a malicious attack or unforeseen disaster. Case in point: Y2K actually helped some businesses survive 9/11.

[News broadcast of President George W. Bush: "I've directed the full resources of intelligence and law enforcement communities to find those responsible and bring them to justice."]

The attack on the World Trade Center stopped trading on the New York Stock Exchange. Against the odds, that citadel of capitalism opened six days later.

John Koskinen: The reason the markets, securities markets, were able to open the Monday after the Tuesday of 9-11 was they still had the test scripts that had been developed in 1998 and 99.

Farrell: John Koskinen credits preparations for Y2K. He was President Clinton's Y2K czar.

Koskinen: ... they were able to in effect take all of those Y2K scripts and make sure that all the transactions with all of the major players would close. Without that they never would have been able to do it in the time frame with the confidence they had.

Farrell: A record 2.4 billion shares traded on the New York Stock Exchange the day it reopened.

Y2K was a unique economic event. Earlier jolts to the economy, like the 1973 oil price hike and the 2001 attack of 9/11, were shocks. But the Year 2000 arrived right on schedule. The surprise was how little immediate impact the much-feared transition had on the economy. Yet we're still living and working with the economic impact of Y2K five years later.

For Marketplace and American RadioWorks, I'm Chris Farrell.

In light of the rise of Asia in research and development (R&D) and the challenge it poses on American supremacy, SPRIE invited industry and academic R&D leaders for a panel discussion entitled "The Globalization of R&D" on February 10, 2005. The panel included Dr. John Seely Brown, visiting scholar, Annenberg Center, USC; Dr. Kris Halvorsen, vice president and director, Solutions and Services Research Center, Hewlett-Packard; and Dr. Yoshio Nishi, director of research at the Center for Integrated Systems, director of Stanford Nanofabrication Facility, National Nanotechnology Infrastructure Network. Participants discussed a wide array of issues, including the economic rationale for new models of R&D, national/regional comparative advantage in R&D, and the coordination of global R&D.

The Economic Rationale for New Models of R&D

Dr. Nishi highlighted the economic rationale behind the quest for new models of R&D. While back in the early 1990s, a $200 million investment in R&D would grant a semiconductor company a one-year lead in technology, by the early 2000s, a one-year lag would transpire with the same investment level. Such an escalation of R&D cost points to the mounting importance of the efficiency of R&D--or as Dr. Nishi put it, the importance of generating "the right technology at the right time for the right cost." The economic forces will not only alter how R&D activities are organized and distributed within and across firms, markets, regions, and countries but also influence the breadth and depth of knowledge searches. For example, R&D alliance might become a viable and lucrative scheme for cost/risk sharing in R&D. The search for non-silicon-based devices might rise in importance as silicon fabrication reaches its limits. By the same token, the division of innovative labor across nations/regions might deepen to further exploit respective comparative advantages.

Regional Comparative Advantage in R&D

One strand of development is the globalization of R&D, which necessitates comparative advantages across regions. Dr. Brown maintained, "I'm moving my analysis from individual firms to [regional] 'niches.' What I see happening is that thousands of [regional] niches are developing all over the place. What's interesting is how dynamic these niches are in building their unique capabilities." The availability of innovative talents, for example, varies significantly across regions. Invoking "the law of large numbers," Dr. Brown pointed out that given its enormous population size, Asia could produce a large number of engineers, even if they are only a tiny fraction of the total population. Currently, the U.S. produces 50,000 engineers every year; the number is 500,000 for Asia--and it is rapidly growing. Meanwhile, more and more immigrant talents choose to return to their home countries after receiving higher education and some work experience in the U.S. Few U.S. companies can afford to ignore such alarming trends. "We need to move with the market for talent," commented Dr. Halvorsen who overseas HP's global R&D activities. Take HP's R&D effort in Bangalore, India as an example. The effort had a humble start in the mid-1980s. Yet, within ten years, the number of local technical staff grew to 3,000. Today, the number is approaching 10,000.

Market-specific demand also pushes R&D to relocate. As Dr. Halvorsen put it, "when success depends on [geographical] closeness, … you need to do design in close loop with the rest of the activities." Furthermore, overseas R&D might well find its way back into the U.S. As explained by Dr. Brown, "The rise of the middle class in China and India at 1/10 of the price point [of the U.S.]" could spur innovations at 1/10 of the price point. Innovations taking place in China or India might be totally unheard of in the U.S. and eventually finds its way into the U.S. market.

The Coordination of Global R&D

While the globalization of R&D brings many promises, it also poses acute challenges to firms that need to coordinate R&D efforts across national boundaries. As Professor William Miller pointed out, "Increase in R&D cost forces specialization. Then you have to put together an assembly of specialists. The problem is that they are everywhere. Therefore, being able to pull them together becomes the differentiator." The story of Li & Fung serves as a perfect example. Li & Fung is a global leader in the apparel business. In 2002, the company contracted with 7,500 factories in 37 countries and generated a revenue of $5 billion. In an industry with thin margins of a few percent, the company continues to uphold a return-on-equity of 30-50%. Yet, Li & Fung owns no factories. Its competitive advantage lies entirely in its expertise in assessing and orchestrating the unique capabilities of each of the 7,500 suppliers. As Dr. Brown summed up, "Making money will depend less on what you own than on what you can mobilize--[i.e. the ability to] orchestrate."

In a parallel argument, Dr. Halvorsen proposed the new model of "meta-national" R&D. Different from the traditional multinational setup, where R&D is orchestrated from the center and diffused to the peripheral, in a meta-national setup, innovation for different parts of the system are consciously placed in different parts of the world. Advances are made in parallel and feedbacks flow bi-directionally.

An even more decentralized model was advanced by Dr. Brown. Dubbed a "swarm ecosystem," such a system is characterized by one (or more) assemblers and hyper-competition among a constellation of component suppliers. The assembler merely provides the focal model with no detailed design, and leaves it to the component suppliers to compete for coming up with the best fit. In this model, the assembler does not orchestrate the development process from top-down; rather, progress is made from the bottom-up. Yet, at the end of the day, only the fittest component suppliers survive and the result is a highly efficient and competitive system that best exploits its own niches.

Other Issues

Panelists and the audience also engaged in lively discussions about intellectual property rights, organizational learning, institutional innovations, the role of public policy, and the impact of culture on innovation. The globalization of R&D--particularly rising competencies in Greater China and their network of relations to Silicon Valley and their worldwide implications--is a new priority area of research for SPRIE.