The Ties That Really Bind

By Stephen Handelman

Around the turn of the century, a little girl named Evelyn Dougherty migrated with her family from a hardscrabble farm near Sarnia, Ont., to central Michigan. The journey looms large in the consciousness of her grandson, Michigan Governor John Engler. "We should never forget how much of this state was settled by immigrants from the north," he observed in his airy office across the street from the state capitol building in Lansing. Engler is not about to develop amnesia. His ambitious economic plans for Michigan depend in no small part on the intimate connections forged between his state and the bordering Canadian province of Ontario. In fact, the struggle to thrive in the globalized economy of the next century is likely to bring both jurisdictions closer together than they have ever been.

This is still hard for many to acknowledge. Ontario Premier Mike Harris raised Canadian eyebrows last month when he suggested that his province placed its highest priority on relations with the states of the U.S. Midwest. "I really see you as very, very strong allies," he told a meeting of Great Lakes Governors in Cleveland. "More so than many parts of Canada." The implication that Ontario might line up with Michigan, Wisconsin or Ohio against sister provinces--or even Ottawa--if economic interests required it was hard to miss. Was this sedition?

Not really. Political boundaries have not defined economic relationships on this continent for decades, and the Michigan-Ontario relationship is the paramount case in point. Since the Canada-U.S. auto pact was signed in 1965, the two places have been economically intertwined. Last year two-way trade between Ontario and Michigan amounted to an astonishing $52 billion, much of it related to the automotive industry. The so-called automotive alley of assembly plants and partsmakers that stretches from Toronto and London, Ont., to Detroit is one of the world auto industry's most productive centers. But autos are nothing like the whole picture. Energy exports, shipping and other transportation links across the Great Lakes and a growing e-commerce further cement the relationship. "There is no place else in the world where there is a greater integration of economies," says Doug Rothwell, head of the Michigan Economic Development Corporation, a newly created state agency.

All this has occurred with a minimum of government planning. But that may have to change. An early sign of the complications ahead is the expected demise of external tariffs sheltering the auto pact, after last month's World Trade Organization interim ruling that they discriminated against Japanese and other automakers. While Ottawa ponders whether to appeal the ruling, doomsayers are predicting the end of the "sweetheart" tariff holiday that they claim has underwritten Great Lakes prosperity for the past three decades. But the tariff ruling is probably irrelevant.

The true long-term challenge is the steady decline of manufacturing in the Great Lakes regional economy. Having recovered from the Rust Belt doldrums of the 1970s and '80s, when the unemployment rate soared to 15% annually--the highest in the U.S.--Michigan is struggling to diversify. Manufacturing jobs once accounted for 30% of Michigan employment; now they make up a little over 15%. A report published last month by medc argues that Michigan needs to move beyond "traditional economic development activities." Engler sees Ontario as a partner in this strategy: "We're talking about transforming ourselves into a smart economy for the 21st century, a high-performance heartland, and Ontario is part of that heartland."

Earlier this month the Michigan Governor floated some intriguing ideas for tightening the cross-border economic partnership even further--a high-speed rail link connecting Toronto, Detroit and Chicago, for example, or a common educational standard for university graduates on both sides of the border so as to create a regional pool of high-tech specialists attractive to foreign investors. Yet another is development of a health-care market that combines medical resources and services in both jurisdictions.

All well and good, but Engler admits that he should be talking more than he has to his counterpart in Toronto. "It's an absolute requirement," he says, for the Governor of Michigan and the Premier of Ontario to engage regularly with each other, yet his last formal meeting with Harris was nine months ago. "I guess we've both been too busy," Engler says. For his part, Harris has been silent since his extraordinary statement last month about Ontario's cross-border alliances.

But allies they are, and should continue to be. Both leaders need to set staff members to work on a common industrial strategy for their region. All it takes is a leap of faith on both sides of the border, just like the one taken long ago by the Dougherty family.