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.

Southeast Asia in Political Science: Theory, Region, and Qualitative Analysis is now available for purchase from Stanford University Press.  Co-published with the East-West Center, the book is innovative in several respects.

First, it reflects new thinking by younger scholars.  Its editors are all assistant professors  of political science specializing on Southeast Asia:  Erik Martinez Kuhonta (McGill University), Dan Slater (the University of Chicago), and Tuong Vu (the University of Oregon, Eugene).  

Southeast Asianist assistant professors also account for seven of the volume's other contributors:  Regina Abrami (Harvard Business School), Jamie Davidson (National University of Singapore), Greg Felker (Willamette University, Salem, Oregon), Kikue Hamayotsu (Northern Illinois University), Allen Hicken (University of Michigan, Ann Arbor), Ardeth Maung Thawnghmung (University of Massachusetts, Lowell), and Meredith L. Weiss (State University of New York, Albany).  

Three senior scholars round out the table of contents:  Richard F. Doner (Emory University), Donald K. Emmerson (Stanford University), and Ben Kerkvliet (Australian National University).  

Second, the book is a "state of the art" review of political science knowledge of Southeast Asia.  Nothing else like it exists.  What do we really know about, the state, political economy, political parties, ethnic and religious politics, rural politics, globalization and politics, democracy or the lack of it, and political life generally in Southeast Asia?  For scholars, students, and the interested public, this book is a unique place to pursue the answers.  

Third and also distinctive is the book's exploration of unchartered intellectual terrain-the simultaneously productive and turbulent overlap between Southeast Asian studies and political science.  Are the area and the discipline at odds?  Do they offer rival methods and clashing epistemologies?  Or are place-based knowledge and disciplinary ambitions mutually enhancing?  The authors of the volume wrestle with these questions as well.

The idea behind Southeast Asia in Political Science dates from the conference Southeast Asia in Political Science: Theory, Region, and Qualitative Analysis organized by SEAF at Stanford in 2004 while Erik Kuhonta was at APARC as a Shorenstein Fellow.

Over more than six decades, the partnership between the United States and the Republic of Korea has been subject to many stresses and strains, from the Korean War to coping with the challenge of North Korea’s nuclear ambitions. More recently, the democratization of South Korea has opened the alliance to much greater public scrutiny and pressures from an active and mobilized Korean public. Managing this strategic alliance in an era of democracy has been a focus of the research work on Korea conducted by FSI’s Walter H. Shorenstein Asia-Pacific Research Center.

With the election in December of Lee Myung-bak as South Korea’s president, ending two terms of progressive rule, Shorenstein APARC decided to launch a nonpartisan group of former senior U.S. government officials, scholars, and other American experts on Korea to explore how to revitalize the U.S. alliance with the Republic of Korea (ROK) after a decade of tensions. In partnership with the New York-based Korea Society, Shorenstein APARC assembled this policy study group at Stanford in early February for in-depth discussion of the challenges facing the alliance and then took the group to Korea for meetings with key figures, from President-elect Lee and his advisors to leaders of the opposition, Korean businessmen, and American diplomats and security officials.

Based on these intensive meetings, the members of this “New Beginnings” policy study group concluded that the United States now has a major opportunity to bolster and broaden its relationship with the ROK. Lee, Korea’s first businessman to be elected president and a self-proclaimed “pragmatist,” has stressed that he gives top priority to the United States in his foreign policy. His fixed five-year tenure will coincide with the entire first term of the next U.S. president, allowing the two new leaders an extended period of cooperation.

Immediately before Lee’s first visit to the United States as president in mid-April, New Beginnings members led by Shorenstein APARC Director Gi-Wook Shin, APARC Distinguished Fellow Michael H. Armacost, and Korea Society President Evans J.R. Revere visited Washington, D.C., and New York City to release their report, New Beginnings in the U.S.-ROK Alliance: Recommendations to U.S. Policymakers. They also addressed a forum in San Francisco co-hosted by the World Affairs Council and the Asia Society of Northern California on June 3 to discuss their recommendations and subsequent developments in U.S.-South Korean relations. The report received extensive coverage in the South Korean news media and was noted in American media as well.

Surrounded by a rising China, a more assertive Russia, a Japan seeking a greater international role, and a nuclear North Korea, the ROK can play a key role in working with the United States to maintain peace and stability in East Asia. No effort to address the nuclear and other challenges posed by North Korea is likely to succeed without the closest U.S.-South Korean cooperation. The ROK, as the world’s 13th-largest economy and one of Asia’s most democratic countries, is a model of the virtues of a market economy, of the values of freedom and human rights, and of alignment with the United States. The two countries are also bound by personal ties: 2 million people of Korean descent live in the United States, and 100,000 Koreans come to the United States each year for study and exchanges, more than from any other country.

President Lee’s election reflects four key changes in South Korea: (1) a shift from the political left back toward the center; (2) greater skepticism about North Korea; (3) increased wariness of China; and (4) enhanced support for the U.S.-ROK alliance. The protests against the United States seen in South Korea in 2002 were the result in part of transitory circumstances and no longer reflect the reality there.

President Lee seeks a global partnership with the United States while maintaining good relations with Korea’s neighbors, Japan, China, and Russia. He favors improved relations with North Korea and has stated his willingness to meet North Korean leader Kim Jong-Il. In major departures from the earlier “sunshine” policy of the South Korean government toward North Korea, however, Lee will not provide large-scale economic assistance to the North until after it abandons its nuclear weapons program. In another major departure from the previous ROK policy, he has also criticized human rights abuses in North Korea. Lee supports continued food and other humanitarian aid to the people of North Korea.

New Beginnings group members believe that the United States cannot afford to lose the opportunity presented by President Lee to build a global partnership with one of the United States’ most important allies. The group identified a number of steps that the United States, in cooperation with the ROK, could take to move the alliance into a new era (see sidebar).

The New Beginnings group has announced that it plans to continue its efforts in support of strengthened U.S.-South Korean relations. Among other projects, the group intends to present recommendations early next year to the South Korean government on how to develop a close relationship and bolster the alliance with the incoming U.S. administration.

Recommendations to United States Policymakers

• Global Partnership — Building on the cooperation between Presidents Bush and Lee, the new U.S. president next year should issue a vision statement with Lee detailing their partnership and goals for the alliance. To advise them, the two new presidents should establish a bi-national panel of distinguished Koreans and Americans. The United States and the ROK should also give increased emphasis to the foreign ministerial strategic dialogue they initiated in 2006.
• Security Alliance — We support the ongoing realignment of U.S. forces in the ROK. Congress should increase its budget for the relatively small U.S. portion of the total cost of its implementation. The decision to transfer wartime operational control of Korean forces back to the ROK in 2012 was likewise correct, but the United States should respond positively to any South Korean proposal to discuss conditions related to the transfer. We welcome the Lee administration’s apparent desire to review the main North Korea war plan and to prepare jointly for other contingencies, including that of a North Korean collapse. The United States should conduct regular, joint consultations with South Korea and other allies in East Asia to determine whether security conditions warrant changes in our respective force levels and, if so, in what direction.
• North Korea — The ROK election has brought the United States and South Korea into essential agreement, for the first time in seven years, on how to deal with North Korea and its nuclear aspirations. To avoid the danger that their North Korea policies will again diverge, they must establish stronger consultative mechanisms, including with Japan.
• Economy and Trade — Congress should ratify the U.S.-ROK Free Trade Agreement now. U.S. failure to approve the FTA would not only represent foregone business opportunities; it would damage U.S.-ROK relations and be seen by the international community as a weakening of U.S. self-confidence and engagement, in East Asia and around the globe.
• People-to-People Ties — The U.S. government should set an early target date to include the ROK in the Visa Waiver Program and encourage the Korean government to support a major expansion of the Fulbright Program’s English Teaching Assistant Program. The United States should create a new program to allow U.S. federal employees to intern in Korean ministries and increase the budget for the State Department’s International Visitor Program for young South Korean leaders. U.S. military personnel stationed in Korea should be joined by their families. The United States should, at long last, construct a new U.S. embassy in Seoul.

As the world’s most dynamic and rapidly advancing region, the Asia-Pacific has commanded global attention. Business and policy leaders alike have been focused on the rise of China, tensions on the Korean peninsula, Japan’s economic recovery and political assertiveness, globalization and the outsourcing of jobs to South Asia, Indonesia’s multiple transitions, competing forces of nationalism vs. regionalism, and the future of U.S.-Asia relations.

What is the near-term outlook for change in the region? How might developments in the economic, political, or security sphere affect Asia’s expected trajectory? And how will a changing Asia impact the United States? These were among the complex and challenging issues addressed by a faculty panel from the Shorenstein Asia-Pacific Research Center (Shorenstein APARC) and the Eurasia Group at the Asia Society in New York on January 23, 2006.

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Q. COIT BLACKER: WHAT IS THE MOST DIFFICULT, CHALLENGING ISSUE YOU SEE?

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A. HARRY HARDING:

In China, we are seeing a darker side of the Chinese success story. Millions of people have been lifted out of poverty, China's role in international affairs is on the rise, and China is an increasingly responsible stakeholder in an open, liberal global economy. Yet, the world is now seeing the problems China's reform program has failed to resolve. China's new five-year plan seeks to address a number of these issues, providing a plan for sustainable economic development that is environmentally
responsible and addresses chronic pollution problems, for a harmonious society that
addresses inequalities and inadequacies in the provision of medical care, insurance
and pension systems, and for continuing technological innovation, as part of China's
quest to become an exporter of capital and technology.

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The world should be deeply concerned about developments on the Korean peninsula. Two pressing issues are U.S. relations with South Korea and the nuclear crisis with the North. It is not clear when or whether we will see a solution. Time may be against the United States on the issue. China and South Korea are not necessarily willing to follow the U.S. approach; without their cooperation, it is difficult to secure a successful solution. The younger generation emerging in South Korea does not see North Korea as a threat. Our own relations with South Korea are strained and we are viewed as preoccupied with Iraq and Iran, as North Korea continues to develop nuclear weapons.

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In Southeast Asia, a key problem is uneven development, both in and between the political and economic spheres. Potentially volatile contrasts are seen throughout the region. Vietnam is growing at 8 percent per year, but will it become a democracy? It has not yet. Indonesia has shifted to democracy, but absent faster economic growth, that political gain could erode. Indonesia's media are among the freest in the region;
multiple peaceful elections have been held--a remarkable achievement--and nearly all Islamists shun terrorism. Older Indonesians remember, however, that the economy
performed well without democracy under President Suharto. Nowadays, corruption
scandals break out almost daily, nationalist and Islamist feelings are strong, and the
climate is not especially favorable to foreign investment. While Burma's economy
lags, its repressive polity embarrasses the Association of Southeast Asian Nations
(ASEAN). How long can the generals in Rangoon hold on? Disparities are also
international: dire poverty marks Laos and Cambodia, for example, while the
Malaysian and Thai economies have done well.

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Japan is a "good news/bad news" story. The good news is that Japan has found a new security niche since the end of the Cold War. Previously, when a security problem loomed "over the horizon," they expected us to take care of it while, if prodded, they increased their financial support for U.S. troops stationed in Japan. During the first post-Cold War conflict in the Persian Gulf, Japan had neither the political consensus nor the legal framework to permit a sharing of the risks, as well as the costs, and this cost them politically. Since then, they have passed legislation that permits them to participate in U.N. peacekeeping activities, contribute noncombat, logistic, and other services to "coalition of the willing" operations, and even dispatch troops to join reconstruction activities in Iraq. Clearly, their more ambitious role is helping to make the U.S.-Japan alliance more balanced and more global.The bad news is a reemergence of stronger nationalist sentiment in Japan and more generally in Northeast Asia. In part this is attributable to the collapse of the Left in Japanese politics since the mid-1990s. This has left the Conservatives more dominant, and they are less apologetic about Japanese conduct in the 1930s and 1940s, more inclined to regard North Korea and China as potential threats, more assertive with respect to territorial issues, less sensitive to their neighbors’ reactions to Prime Ministerial visits to Yasukuni Shrine, and more eager to be regarded as a “normal” nation. Many Asians see the United States as pushing Japan to take on a more active security role and, in the context of rising Japanese nationalism, are less inclined to view the U.S.-Japan alliance as a source of reassurance.

Q. COIT BLACKER: WHAT ARE THE COMPETING AND CONFLICTING TENSIONS BETWEEN REGIONALISM AND NATIONALISM?

A. HARRY HARDING:

In China, there has been a resurgence of nationalism over the past 10 to 15 years. Since the end of the Maoist era and the beginning of the reform movement, the leadership has embraced nationalism as a source of legitimacy, but this is a double-edged sword. It places demands on the government to stand up for China’s face, rights, and prestige in international affairs, especially vis-à-vis Japan, the United States, and Taiwan, at times pushing Beijing in directions it does not wish to go.

A. DONALD EMMERSON:

In Indonesia, it is important to distinguish between inward and outward nationalism. Outward nationalism was manifest in Sukarno’s policy of confrontation with Malaysia. ASEAN is predicated on inward nationalism and outward cooperation. Nationalist feelings can be used inwardly to motivate reform and spur development. But there are potential drawbacks. Take the aftermath of the conflict in Aceh. The former rebels want their own political party. Hard-line nationalists in the Indonesian parliament, however, are loath to go along, and that could jeopardize stability in a province already exhausted by civil war and damaged by the 2004 tsunami.

A. GI-WOOK SHIN:

Korea is a nation of some 70 million people, large by European standards, but small in comparison to the giants of Asia, especially China, India, and Russia, making Korea very concerned about what other countries are doing and saying. Korea is currently undergoing an identity crisis. Until the 1980s, the United States was seen as a “savior” from Communism and avid supporter of modernization. Since then, many Koreans have come to challenge this view, arguing that the United States supported Korean dictatorship. Koreans are also rethinking their attitudes toward North Korea, seeing Koreans as belonging to one nation. This shift has contributed to negative attitudes toward both the United States and Japan

Q. COIT BLACKER: GENERATIONAL CHANGE IS ALSO A MAJOR ISSUE IN CHINA, THE DPRK, AND JAPAN. WHAT DOES IT BODE FOR POLITICAL CHANGE?

A. MICHAEL ARMACOST:

Japan has had a “one and a half party system” for more than half a century. Yet the Liberal Democratic Party has proven to be remarkably adaptive, cleverly co-opting many issues that might have been exploited by the opposition parties. It is clearly a democratic country, but its politics have not been as competitive as many other democracies. As for the United States, we have promoted lively democracies throughout the region. But we should not suppose that more democratic regimes will necessarily define their national interests in ways that are invariably compatible with ours. In both Taiwan and South Korea, to the contrary, democratic leaderships have emerged which pursue security policies that display less sensitivity to Washington’s concerns, and certainly exhibit little deference to U.S. leadership.

A. GI-WOOK SHIN:

In both North and South Korea, a marked evolution is under way. In the South, many new members of the parliament have little knowledge of the United States. Promoting mutual understanding is urgently needed on both sides. In the North, the big question is who will succeed Kim Jong Il—an issue with enormous implications for the United States.

A. DONALD EMMERSON:

Indonesians have a noisy, brawling democracy. What they don’t have is the rule of law. Judges can be bought, and laws are inconsistently applied. The Philippines enjoyed democracy for most of the 20th century, but poverty and underdevelopment remain rife, leading many Filipinos to ask just where democracy has taken their nation.

A. HARRY HARDING:

China has seen a significant increase in rural protests. There has been an increase in both the number of incidents and the level of violence. People are being killed, not just in rural areas, but also in major cities like Chengdu. We are seeing a new wave of political participation by professional groups, such as lawyers and journalists, galvanizing public support on such issues as environmental protection, failure to pay pensions, confiscation of land, and corruption. A new generation has been exposed to the Internet, the outside world, and greater choice, but it is not yet clear at what point they will demand greater choice in their own political life.

WHAT WOULD YOU ADVISE THE PRESIDENT ON U.S. POLICY TOWARDS ASIA?

In the lively question-and-answer session, panelists were asked, "Given the chance to talk to the U.S. President about change and improvement in U.S.-Asia policy, what would you say?"

MICHAEL ARMACOST: I am struck by a mismatch between our interests and our strategy in Asia. In some respects our Asia policy has become something of an adjunct of our policy toward the Middle East-where we confront perhaps more urgent, if not more consequential, concerns. Asia is still the most dynamic economic zone in the world; it is the region in which the most significant new powers are emerging; and it is where the interests of the Great Powers intersect most directly. Also, it is an area where profound change is taking place swiftly. We are adapting our policies in Asia to accommodate current preoccupations in the Muslim world, rather than with an eye to preserving our power and relevance in Asia.

HARRY HARDING: It is striking how much Asian nations still want us around- as an offshore balancer and a source of economic growth. Yet they want us to understand the priorities on their agenda as well as our own. We are seen as obsessed with terrorism and China. We should exhibit more support for Asian institution building, as we have with the European Union. We also need to get our own economic act together-promoting education, stimulating scientific research and technological innovation, and reducing our budget deficits-and quit resting on past laurels. Requiring Japan to accept U.S. beef exports and then sending them meat that did not meet the agreed-upon standards has been a setback for our relations, since the Japanese public regards the safety of its food supply as critically important.

DONALD EMMERSON: Most opinion-makers in Southeast Asia are tired of Washington's preoccupation with terrorism. To be effective in the region, we must deal-and appear to be dealing-with a wider array of economic, social, and political issues, and not just bilaterally. The United States is absent at the creation of East Asian regionalism. For various reasons, we were not invited to participate in the recent East Asia Summit. Meanwhile, China's "smile diplomacy" has yielded 27 different frameworks of cooperation between that country and ASEAN. We need to be more, and more broadly, engaged.

MICHAEL ARMACOST: The establishment of today's European community began with the historic reconciliation between France and Germany. I doubt that a viable Asian community can be created without a comparable accommodation between China and Japan. Some observers believe that current tensions between Tokyo and Beijing are advantageous insofar as they facilitate closer defense cooperation between the United States and Japan. I do not share that view. A drift toward Sino-Japanese strategic rivalry would complicate our choices as well as theirs, and I hope we can find ways of attenuating current tensions.