Masahiko Aoki has been engaged with Stanford University for over four decades. He has witnessed the roots of Silicon Valley grow and seen the many successes of students who formerly passed through his classroom. Selected academic papers written over his 40-year academic career have recently been published.

Aoki is the Henri and Tomoye Takahashi professor emeritus of Japanese Studies in the department of economics and a senior fellow at the Stanford Institute for Economic Policy Research (SIEPR) and the Freeman Spogli Institute for International Studies (FSI), in residence at Shorenstein APARC.

You have been at Stanford since 1967 in different capacities – what has changed since then? Can you share some memories with us? 

I first came to Stanford as an assistant professor in 1967. Campus and the surrounding environment were different then – there were series of apricot orchards along El Camino to the south and my office was located in a wooden building – the old president’s house where the engineering buildings stand today. Changes at the university and in Silicon Valley have been fascinating to witness. I was away from Stanford in the 1970s, but when I came back in the 1980s, I had over 200 students at a time in my classes. This was because of widespread interest in Japan’s economic performance, which was then challenging American industries. Now students are inclined to be more interested in the rise of China. I share the same interest.

What has been most interesting for me is collaboration with graduate students and faculty to develop institutional studies. In the 1990s, I worked with Paul Milgrom, Avner Greif and Marcel Fafchamps among others, to initiate the field of comparative institutional analysis in the economics department. Greif and Fafchamps now have appointments in FSI like myself. Our research worked to understand why and how institutions matter to economic performance. However, my interests have expanded since then. I aim to understand relations between economic and demographic variables as well as institutional complementarities between economic institutions, social norms and political governance. As for my former students, many of them can now be found in important academic, government and private sector roles across the world.

What particular “lens” do you use to conduct your research?

Some influential economists understand that the nature of polity determines economic performance. They say this correlation is obvious if we compare the exploitative political regime like North Korea with that of a democratic political regime like South Korea. But this “lens” is a bit too simplistic for me. Why do ‘bad’ political regimes persist in some countries?  The relationship between political governance and economic performance is more complex than “the former simply causes the latter.”

To understand the relationship between political governance and the economy, I use game-theoretic concepts. While I am not a game theorist, I still believe that human interaction – whether economic, political or social – is a kind of game. People form beliefs based on how others play societal games. One of the important insights derived from these ideas is that political governance and economic institutions actually co-evolve. Furthermore, we need to look at the historical context to understand the present.

How have you applied these theories to the cases of Japan and the United States?

One of my major research interests has been the comparison of corporate governance across countries. Financial economists view the corporation as the property of stockholders. But we can also view the corporation as a system of distributed cognition. That is, the corporation is a group of people who have different cognitive roles and capabilities. Individuals can be organized to achieve economic value using physical assets as tools for respective cognitions.

By looking at corporations in this reversed way, we can identify different types of organizational architecture and their comparative advantages. In short, my research has found that managers’ cognitive assets are prioritized in U.S. corporate model, while workers’ entrepreneurial cognitive assets are prioritized in Silicon Valley’s model. In contrast, Japan favors a model where manager and workers’ cognitive assets are more interdependent.

You emphasize the connection between economics and demographics. What can be done about Japan and greater Asia’s rising demography problems?

Human capital is very valuable, but cultivating human capital is quite costly. Due to this constraint, the total fertility rate of women has declined as the economy develops. Scholars call this phenomenon the demographic transition. In addition, as economies further develop, people live longer and the working age population in the total population declines. Japan, Singapore and Taiwan are experiencing this phenomenon. Korea will follow this trend soon and at an even faster rate than Japan. Even if China modifies the one-child policy, the demographic dilemma cannot be escaped. And even for California, which is typically considered to be the youngest state in the U.S., a study predicts it will become the oldest state around year 2030.

So, what can be done to cope with this phenomenon? One option to raise the retirement age. Over two decades ago, Japan started this policy and has seen noted, positive effects. Another option is to increase and secure participation of women in the workforce. Across Asia, total populations are still rising due to immigration. Japan should consider liberalizing immigration. It is interesting to note that in the past 1,500 years Japan’s cultural development benefitted greatly from migration and assimilation of people, such as monks, political refugees and artists from Korea and China. 

With the recent execution of Abenomics, what performance can we expect to see from Japan’s economy in year 2014?

Abenomics has only been assessed in terms of short-term effects on the economy. Instead, my view is that Japan is now in the process of longer-term institutional change. Lifetime employment was the core of Japan’s overall institutional arrangement until some twenty years ago. The main banking system and government-industry relationship complemented and mutually reinforced lifetime employment. Though, with the demographic transition, the Japanese government has found it increasingly difficult to sustain. However, Japan’s institutional arrangements are normally very resilient. I think institutional transformation fitting this new demographic phenomena will require the duration of one generation. Institutions cannot be changed overnight by a revolution or government decree.

Of course, Abe could accelerate institutional adaptation by expanding the roles and opportunities for women and young people and creating more open foreign policy. This policy agenda may be related to the so-called “third arrow” of Abenomics, a period of structural reform following monetary easing and fiscal stimulus. But what Abe can do and has the willingness to do has yet to be fully seen. Thus, if we believe that Japan started the process of institutional change in the early 1990s and requires one generation to attain visible outcomes, the next several years are crucial. Tokyo has been chosen as the host city for the 2020 summer Olympics. I hope this event will act as Japan’s opportunity to display its changes to the international audience. 

The Faculty Spotlight Q&A series highlights a different faculty member at Shorenstein APARC each month giving a personal look at his or her teaching approaches and outlook on related topics and upcoming activities.

Japan’s first decade of the twenty-first century was both disappointing and bewildering, producing wildly contrasting evaluations. Many have come to call this period the “second lost decade,” characterized by policy paralysis and overall lackluster economic growth.

For those studying Japan more closely, however, the same decades reveal nothing short of a broad transformation in numerous core tenets of Japan’s postwar political economy. How can we best capture this transformation?

Each chapter in this volume examines a different aspect of Japan’s political economy within a longer historical trajectory, from multiple angles, to depict a flexible but resilient system. We characterize Japan’s process of change as syncretism—practices foreign, domestic, old and new were selectively adopted, mixed and matched, along the way creating a new and unique hybrid system.

Syncretism: The Politics of Economic Restructuring and System Reform in Japan, edited by Kenji E. Kushida, Kay Shimizu, and Jean C. Oi, is available for purchase from Brookings Institution Press.

Scholars, policymakers and business leaders from Japan and the United States recently gathered at Stanford to analyze energy innovation and build new bilateral endeavors.

“With rapid economic growth in emerging countries, world energy consumption has been and will be increasing, everyone has been wondering if there are enough energy resources for this growth," said Hideichi Okada, a former vice minister for International Affairs at Japan's Ministry of Economy, Trade and Industry.

Panelists weigh in on the changing energy picture in the U.S. and Japan.

Okada said Japan and the U.S. share concerns about world geopolitical change in energy supply and demand, and nuclear policy. Okada is at Stanford as the Sasakawa Peace Fellow at the Walter H. Shorenstein Asia-Pacific Research Center (Shorenstein APARC) this year.

Okada's remarks came during the the New Channels Dialogue, a two-day conference organized by the Japan Program at Shorenstein APARC and the Sasakawa Peace Foundation. It is the first of three annual conferences aimed to stimulate debate on 21st century problems faced by both nations. 

“In the aftermath of the disaster at Fukushima, Japan has reinvigorated its search for cutting-edge technologies and alternative sources of energy,” said Yuji Takagi, president of the Sasakawa Peace Foundation. In parallel, the U.S. has increased its production of shale gas as a viable alternative of natural gas.

Confluence of national interest and demand, and shared historical connections between the U.S. and Japan, suggest an ideal environment for further partnerships between the two countries.

“We have entered an especially important period in bilateral relations between the Asia-Pacific [and the U.S.] – it is undergoing such rapid change and technology is transforming. In this context, I believe the U.S.-Japan relationship will only become more important,” Takagi said.

Experts and Stanford scholars discuss electricity systems in California and Japan.

Okada cited the joint U.S.-Japan wind power project in Hawaii as an example of recent cooperation. Last December, Maui became the site of a multi-year renewable energy project between the American and Japanese governments.

Other panelists offered different perspectives on energy opportunities from across sectors, included among them were Julia Nesheiwat, the State Department’s Deputy Assistant Secretary at the Bureau of Energy Resources; Hirofumi Takinami, a member of the Japan’s House of Councilors and former visiting fellow at Shorenstein APARC; Thomas Starrs, SunPower vice president; Nobuo Tanaka, former IEA Executive Director; and Frank Wolak, Stanford economics professor and director of the Program on Energy and Sustainable Development.

Topics discussed included:

• Energy constraints experienced by Japan since the Fukushima nuclear disaster, and challenges facing Japan’s electricity industry liberalization.
• Regional implications of China’s rise as a major energy consumer and producer.
• Geopolitical and trade balance effects on the United States and Japan resulting from the shale gas revolution transforming the U.S. into a major energy producer.
• Broad impacts to the energy industry caused by geopolitics and financial instability.
• Lessons learned from California’s experience with electricity industry liberalization.
• Multilateral partnerships for energy technology and innovation.

The second day of the conference was a closed session in which candid, in-depth discussions were held. Participants also went on a site visit to Bloom Energy led by principal cofounder and chief executive officer K.R. Sridhar.

The New Channels Dialogue highlighted energy imperatives and created a network of exchange anticipated to continue beyond the conference. A report that encompasses major points and policy recommendations will be published in the forthcoming months. 

  

Warning against the “dangers of excessive hubris,” former U.S. Ambassador Stephen W. Bosworth emphasized the intricacies and complexity of creating American foreign policy and called for the government to exercise greater restraint and better understand the countries it engages with.

The veteran diplomat and visiting lecturer at Stanford’s Freeman Spogli Institute for International Studies called for the United States to exercise greater self-restraint and better understand the history and current circumstances of countries it engages with. 

“The making of U.S. policy is inherently a very, very difficult enterprise,” said Bosworth, positioned at Stanford for winter quarter.

“The issues tend to be complex, and they frequently pose moral as well as political choices,” he said. “I found that perfection is usually the enemy of the good in the making of foreign policy and is, for the most part, unattainable.”

Foreign policy can be ambiguous and difficult at times; it is a process that can be compared to gardening because “you have to keep tending to it regularly,” Bosworth said, referencing former Secretary of State George Shultz’s well-known analogy.

Bosworth, who served for five decades in the U.S. government and for 12 years as dean of Tuft’s Fletcher School of Law and Diplomacy, delivered these thoughts in the first of three public seminars this quarter. He is the Frank E. and Arthur W. Payne Distinguished Lecturer in residence at FSI’s Walter H. Shorenstein Asia-Pacific Research Center (Shorenstein APARC).

He cautioned against America’s tendency to revert to military power when crisis occurs. “I believe that when at all possible, we need to choose diplomacy over force,” Bosworth asserted, “although it is sometimes true that diplomacy backed by potential force can be more effective.” 

Citing Afghanistan, Iraq and Southwest Asia, Bosworth noted these among other examples as situations of excessive power projected by the American foreign policy arm. In some cases, pride may have gotten the better of policymakers who sometimes “want to be seen as doers and solvers.”

Bosworth pointed out that the nature of our actions speaks loudly – both at home and abroad – thus sensitivity and sincerity are important in any international exchange.

Since the Vietnam War, American values and the push for democracy are not always well received by other countries. And there’s often good reason for that, he said.

“It is awkward for the U.S. to campaign for more democracy elsewhere when our own model seems to have increasing difficulty in producing reasonable solutions for our own problems,” he said.

Democracy is “not a cure-all” for every nation and this is reflected in the amended model adopted by countries such as Singapore, Indonesia and Burma. However, Bosworth said he remains confident that the American democratic system “will prevail and eventually work better than it seems to be working now.”

Bosworth will explore the challenges of maturing democracies in Japan and South Korea and negotiations and management of relations with North Korea in his two other Payne lectures. The Payne Lectureship brings prominent speakers to campus for their global reputation as visionary leaders, a practical grasp of a given field, and the capacity to articulate important perspectives on today’s global challenges.

Bosworth entered the Foreign Service in 1961, a difficult yet “exciting time to join the government,” he said.

“At the age of 21, I was the youngest person entering my class,” he said, “and of the 38 people, there were only two women…and were zero persons of color and only a handful who were not products of an Ivy League education.” The State Department of then is very different compared to the one that exists today; this signals positive, necessary change in the diplomatic corps.

Bosworth, having served three tours as a U.S. ambassador in South Korea (from 1997 to 2001); the Philippines (from 1984 to 1987); and Tunisia (from 1979 to 1981) and twice received the State Department’s Distinguished Service Award (in 1976 and 1986), has a long established career.

He brings great wisdom on foreign affairs given his extensive engagement as a practitioner and a writer, said former colleague and Shorenstein APARC distinguished fellow Michael H. Armacost.

“To say that Steve has had an extraordinarily distinguished career in the Foreign Service doesn't quite capture the range of his accomplishments, I can’t think of very many Foreign Service officers in this or any other generation that have left a footprint on big issues in three consecutive decades,” Armacost acknowledged. 

During his time at Stanford, Bosworth will hold seminars and mentor students who may be interested in pursuing a career in the Foreign Service, in addition to the two upcoming public talks.

A student seeking this very advice posed a question in the discussion portion following Bosworth’s talk.

Speaking to anyone considering a Foreign Service career, Bosworth said one must “think about it hard, and think again.” He said public service is a privilege, not so much a sacrifice as the typical notion holds. “It can be a great career as long as you have the right perspective on it,” he ended.

The coastal seas of East Asia, particularly from the East China Sea down to the South China Sea, have become an arena for growing tension and even the threat of military conflict, sparked by contention over maritime freedom, territorial disputes, and great power rivalry.

The East China Sea has developed into a major theater for these tensions, driven by the larger strategic rivalry between China and Japan. The two countries continue to clash over competing claims to uninhabited islets currently administered by Japan, the Senkaku/Diaoyu Islands. That dispute gained added steam recently when China declared an Air Defense Identification Zone (ADIZ) that overlapped those islands.

As both countries assert their presence, American policymakers worry about the maintenance of peace and security in the region, as well as ensuring freedom on the seas and of the air, including for U.S. military forces.

Two important seminar series at the Walter H. Shorenstein Asia-Pacific Research Center this winter quarter—one examining the future of China under the new leadership of Xi Jinping, and a second looking at the Sino-Japanese rivalry—explore these issues in depth and examine the dynamics of China-Japan-U.S. relations in the region, delving into the territorial and security tensions between China and Japan, the U.S. role and the implications of this for long-term stability. 

Andrew Erickson, an associate in research at Harvard University’s John King Fairbank Center for Chinese Studies, offered a detailed account of China’s maritime and military development and how it fits into long-term Chinese strategy. Erickson, who recently deployed with the USS Nimitz in the Asia-Pacific, painted China’s development as rapid yet uneven.

Erickson argued that China is much more intensely focused on advancing its interests in the “Near Seas,” an area that groups the Yellow Sea, East China Sea and South China Sea, than in the more distant “Far Seas.”

Erickson said, “Washington must redouble its efforts to communicate effectively with Beijing and cooperate in areas of mutual interest, particularly in the 'Far Seas,' he recommended, “while maintaining the capability, credibility, and determination to ensure the bottom-line requirement for Asia-Pacific peace and stability: that no one can use force, or even the threat of force, to change the status quo.”

In a separate lecture focused on Sino-Japanese rivalry in the East China Sea, Richard C. Bush III, director of the Center for East Asia Policy Studies at the Brookings Institution, said our concern should be focused on how Japan and China seek to assert their conflicting island and maritime claims. Even though the likelihood of war between the two countries is low, Bush argued that the climate still deserves careful attention because history shows territorial issues can be a casual factor for conflict.

Further to this point, Bush said the Diaoyu/Senkaku Islands and ADIZ disputes are “exposed lightning rods for domestic politics” that could encourage each nation’s leadership toward hasty and perhaps regrettable decisions. He asserted that risk reduction measures in the region should be improved including reestablishing communication channels and creating “rules of the road” for the ADIZ and island territories.

The Sino-Japanese Rivalry and China under Xi Jinping seminar series will continue through spring quarter. Please consult the events section for further detail.

China’s declaration of the ADIZ and territorial disputes in the coastal seas of East Asia have led to growing tensions. Karl Eikenberry recently joined an expert panel at the Council on Foreign Relations to consider the regional dynamics, their impact on U.S. interests, and recommendations for preventing a crisis and how to react if prevention measures are unsuccessful.