Southeast Asia is home to half a billion people, and the United States has significant political and economic interest in the region. In response to U.S. Secretary of State Hillary Clinton's Myanmar -- the first major U.S. visit in more than 50 years -- Donald K. Emmerson spoke with the International Business Times and LinkAsia about what the trip potentially means for the United States, for Southeast Asia, and for China.

From November 14^th to 22^nd, the Stanford Program on Regions of Innovation and Entrepreneurship (SPRIE) welcomed a delegation of leaders from Shanghai for intensive training on “Leading Innovative and Entrepreneurial Firms and Regions in the Global Economy”.  The 20-member delegation was composed of officials and senior managers with responsibilities over high tech parks, human resources, finance and urban planning in Shanghai, which has a total population over 20 million, and burgeoning investment in banking and finance, IT, bio science and media.

The weeklong program included more than 30 hours at the Stanford Graduate School of Business’ state-of-the-art Knight Management Center, the Bay Area Council and Department of Environment in San Francisco. The Chinese leaders engaged in dialogues and exchanged ideas with Stanford faculty, policy experts in the Bay Area, venture capitalists, entrepreneurs, and NGOs on the key strategies to drive innovation and entrepreneurship. 

Teaching sessions drew on the expertise and experience of 13 thought leaders who shared innovative strategies, current data, and lessons from Silicon Valley, and regions in the US, Europe and Asia.  From the GSB, Professor William F. Miller, Professor William P. Barnett and SPRIE Associate Director Marguerite Gong Hancock, each led sessions, ranging in focus from the ecosystem of Silicon Valley to strategies for discovering successful business models.

The classroom experience culminated in team presentations to translate what was learned into the context of the Chinese leaders’ own experiences and responsibilities in the Shanghai region.

“During the seven-day training program organized by SPRIE, we have learned several insights…especially under the theme of Engines of Innovation and Entrepreneurship,” said one group. The culture of innovation and entrepreneurship, the driving force of linking universities and industry, and the support of non-profit organizations could all play an increased role in Shanghai, another group concluded in a written report.

While appreciating the differences in cultures, systems, and the roles of government between Shanghai and the Valley, the Shanghai leaders also discussed how the Valley’s culture of risk taking and tolerating failure, and empowering creativity and productivity in talent had inspired them to apply lessons learned to Shanghai.

This program on “Leading Innovative and Entrepreneurial Firms and Regions in the Global Economy” is one of a series hosted by SPRIE to welcome international policymakers to Stanford at the heart of Silicon Valley to explore what leaders in successful high-tech regions around the world do to foster innovation and entrepreneurship and become engines for economic growth. Classes are offered by an interdisciplinary team of experts comprised of Stanford University faculty, Silicon Valley thought leaders, and other regional decision makers.  Previously, SPRIE hosted a three-day training program for 20 central, provincial and municipality government officials from China, featuring distinguished speakers such as George Shultz (right in the photo), former U.S. Secretary of State, and Burton Richter, a Nobel Prize Laureate in Physics.

As the world holds a collective breath waiting to see whether China’s white-hot economy blazes ahead or fizzles, Stanford economist Scott Rozelle is talking up a plan to protect the country’s future.

“China needs to make sure every kid goes to high school so they have the skills and training they’ll need to be productive workers,” he says.

With only 40 percent of the country’s poor and rural children now receiving a formal high school education, that’s a tall – and expensive – order to fill. Rozelle figures China needs to invest at least $500 billion during the next decade to make sure nearly all the country’s children have the support they’ll need for a quality education.

But he warns the price will be even higher if the country falls short of that goal.

Hourly wages – now about $2 – rose by 19 percent in the past year. If China’s growth pattern continues, those wages can hit $10 to $15 by 2030. That trend is pushing China to shift from an economy based on labor-intensive, low-skilled manufacturing to one needing smarter, more literate workers.

Facing increasing payroll costs, employers cannot afford to hire workers who don’t have a set of basic skills and an ability to master complicated tasks. If the labor force cannot measure up, businesses – and the jobs they promise – will go elsewhere.

And if that happens?

“Then,” Rozelle says, “You have Mexico and the crisis that country is facing today.”

China is now in much the same situation as Mexico during the late 1980s and early 1990s, when wages began to skyrocket and the country planned to attract and create high-skilled jobs to support them.

The idea was to move Mexico from a middle-income nation to a rich one. But there wasn’t a deep enough labor pool to sustain the shift. While just over 80 percent of kids in Mexico’s well-off cities were going to high school, only about 40 percent of those living in rural and poor urban areas were getting a secondary education.

Factories paying low wages soon moved to other countries. Job opportunities dried up. Unemployment soared, and so did the power and presence of drug cartels and organized crime. Gang violence is scaring away tourists, foreign investment and domestic business plans. More than ever, Mexico is now swamped with crime and corruption instead of the spoils of an economic windfall that seemed within reach just three decades ago.

Should China fall into the same trap, Rozelle warns of a destabilized Asian behemoth that would put a crimp in worldwide trade and global prosperity. And without a strong economy to assure its own population of a rising quality of life, China might begin to assert its military to increase a sense of nationalism, he says.

“The world is much better off with a stable and growing China,” says Rozelle, co-director of the Rural Education Action Project at Stanford’s Freeman Spogli Institute for International Studies.

And he says China can avoid Mexico’s mistake by following the path of countries such as South Korea.

While Mexico’s fortunes and wages were rising, so too were South Korea’s. But China’s neighbor made a smooth transition from a low-wage, labor-intensive economy to a highly productive, innovative and service-based workforce.

They pulled it off because of a strong commitment to education. Even in the years when South Korea’s economy was fueled by low-wage, labor-intensive manufacturing, nearly everyone went to high school. Whether or not South Korean officials were betting that education and economic success went hand-in-hand, it turned out that a strong education system was one of the key factors in the country’s growth, Rozelle says.

“In the 1970s and early 1980s, you had young women who were making shirts and socks in sweatshops transform themselves into highly skilled workers doing high-fashion design and other high-wage, high productivity jobs in the 1990s and 2000s,” Rozelle says. “And the key to it all was that those women went to high school and learned the skills that high-wage paying employers demanded. It was mandatory and free, and those women learned how to read, write and do math.”

China has a lot of catching up to do if it aspires to South Korea’s model. With up to 60 percent of children in poor rural areas missing out on high school, China’s education system in those regions now looks more like Mexico’s.

But if China begins investing heavily, the country stands a good chance of hitting a sustainable economic stride. That means spending about $50 billion a year on services like early childhood education and computer-assisted learning while making sure schoolchildren have the health care, vision care and nutrition they need to pay attention and perform well in class.

“China has the money and the resources to contain the problem,” Rozelle says. “But it needs to do something right now, because time is running out.” 

Kenjiro Takenami, Director of Ruby Software Business Development Project at Fukuoka Prefectural Government, spoke to an audience at Stanford about the government’s success in promoting entrepreneurship in the Fukuoka region of Japan, at a seminar organized by the SPRIE-Stanford Project on Japanese Entrepreneurship (STAJE) on November 3^rd, 2011.

In Takenami’s presentation, he discussed that Fukuoka now has over 800 local software and digital content companies with the number of companies increasing 20% annually. It is ranked 5^th in Japan for the total number of software businesses and total software sales revenue. He described that in the past, Fukuoka had faced challenges in promoting entrepreneurship because of the lack of investment, mentors, and innovators. In an attempt to solve these challenges, the Fukuoka government created new programs that financed local start-up companies and supported venture capital funds. However, these programs failed to boost entrepreneurship and regional development.

Takenami revealed that the turning point for the Fukuoka government’s success was the decision to support research and development for Ruby, a dynamic, open source programming language developed in Japan. The government committed to build a community around the programming language and helped entrepreneurs and businesses develop new technologies that used Ruby. They launched multiple incubators for developers and held periodic conferences for the community members to inspire and learn from each other.

Fukuoka prefecture has a population of five million and a GDP of over 180 billion US dollars. The city of Fukuoka, which was selected as one of the “Hot Cities The Top 10” by Newsweek in 2006, has been attracting the attention of foreign investors. It is located on the northern tip of Kyushu and is geographically closer to China and South Korea than any other major Japanese city. Historically, it has been the hub for business and trade to continental Asia. The prefecture is ranked 2^nd in Japan for the number of universities and colleges specializing in science and engineering, with approximately 7,000 graduates every year.

Takenami concluded the seminar by highlighting that eight times as many local companies in Fukuoka develop using Ruby since they began in 2008. He also shared success stories of companies which began in Fukuoka, but are now internationally known, such as Nautilus Technologies.

ABOUT THE Speaker

Kenjiro Takenami is Director of Ruby Software Business Development Project, Commercial and Industrial Policy Division of Fukuoka Prefectural Government and is responsible for the Fukuoka’s software industry development efforts. Takenami is the former Executive Director of the Fukuoka Center for Overseas Commerce in America, based in Silicon Valley.

Following the seminar, SPRIE-Stanford Project on Japanese Entrepreneurship (STAJE), Stanford Graduate Business School and US-Asia Technology Management, Stanford School of Engineering co-hosted the Fukuoka Ruby Night Event, an annual Ruby developer conference, organized by the Fukuoka Center for Overseas Commerce in America (FCOCA).

The video clips for the keynote presentations of this event can be found here.