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How a Small Mid-Western State Could Change Canada's Future

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One of Ohio's claims to fame is the fact that it regularly makes or breaks U.S. presidential campaigns. Now it's also part of the shale gas frontier. Even President Obama in his recent State of the Union speech talked about Ohio. Americans and Canadians should take note -- beyond the surface in Ohio lies an incubator and perhaps even a model for what a future energy self-sufficient North American economy might look like. Add to that the most recent data from the IMF and Nanos tracking on economic sentiment in the U.S. and Canada and an interesting potential narrative emerges.

The Great Recession has battered and beaten the markets, consumer confidence and economies around the world. Labour competitiveness gave an advantage to other countries such as China and India. Although not all experts agree on the scope of the U.S. shale gas, the estimates from the Energy Information Administration in the U.S. suggest that, along with Canadian oil and natural gas, it could be one of the pillars of possible energy self-sufficient North America. Cheap for now, natural gas, if it can be priced at a level that will at least encourage production, can be a strategic advantage for North American manufacturing -- overturning the competitiveness applecart that has been besieged by low-cost offshore labour.

What's interesting about Ohio, is that its state government job creation policy, led by Governor John Kasich, leverages energy to attracted advanced manufacturing. Looking at Ohio's world class research facilities in its university system and the Battelle Memorial Institute, a non-profit research center, you get a glimmer of a potential new North American economic value proposition founded on low-cost energy and a renewed manufacturing base with a knowledge-based economy.

Canadians in particular should take note. As traditional exporters of a number of unfinished resources, without leveraging the benefits of energy, they risk being a spoke as opposed to a hub in the emerging new North American economy. This could be particularly poignant for Canadians who have been enjoying the benefits of the country's energy wealth and the boom spawned by the Alberta oil sands while avoiding much of the torment its main trading partners have endured through the recession. The Canadian Harper government's focus on sound fiscal stewardship has been a key political advantage over Canada's opposition parties. In essence, the message has been more along the lines of "Canada is doing better than others" rather than "Canada is doing well."

Looking at the latest economic sentiment in the U.S. and Canada, and the IMF growth projections, should be sobering for Canadians and provide hope for Americans. The latest Nanos tracking on the economic sentiment in the U.S. suggests that a higher percentage of Americans believe their economy will get stronger in the next six months than do Canadians. Recent IMF estimates on growth suggest that the U.S. economy will grow at a faster pace in 2013 and 2014 than Canada. In his most recent briefing, Mark Carney, the outgoing Governor of the Bank of Canada and incoming Governor of the Bank of England, had to lower growth projections for the Canadian economy.

Could we be witnessing a reversal of fortunes -- where the U.S. economy outpaces the Canadian economy in terms of growth? Might the new narrative in the U.S. be the replication of what could be the Ohio intersection of low cost energy, advanced manufacturing and a knowledge based economy with a highly skilled workforce?

Just last month, Columbus, Ohio, (you heard me right), was named one of the top seven intelligent communities in the world by The Intelligent Community Forum (Toronto Canada was also on the list). Americans and Canadians should think of the changes in the energy landscape beyond just the notion of a new supply of low cost energy and in addition in terms of a fundamental new North American economic value proposition.

Watch Ohio as well as those country economic growth numbers. Ohio may be more than a political king (or President)-maker for the Democrats or the Republicans come the next presidential election. It should cause Canada to worry about moving from leader to laggard economically. A new North American energy strategy that converts energy into a truly strategic economic advantage could be a game changer for both Canada and the United States.