A Republican governor’s Obama-like jobs plan

June 3, 2012, 7:30 PM UTC

Ohio Governor John Kasich

FORTUNE — Ohio Gov. John Kasich’s first public appearance with his party’s presidential nominee, former Massachusetts Gov. Mitt Romney, spawned something of an awkward moment. During the late April visit to Otterbein University, outside Columbus, Romney’s message was simple: Voters should fire President Obama for badly bungling the economic crisis and hire Romney to get the country back on track.

But in a roundtable discussion over hamburger lunches with students that day, Kasich suggested the recovery is already humming along in the Buckeye State. He told his lunch mates, including Romney, that a state government website lists 80,000 unfilled jobs. “You need to tell your friends,” he said.

It remains a nettlesome fact for Romney that swing state Republican governors from Nevada to Virginia are cheerleading nascent recoveries while he presses his case that Obama’s economic stewardship has been disastrous. But in Ohio, the disconnect between the GOP governor and the GOP nominee goes far beyond their diagnoses of the state’s condition. Indeed, Kasich is in the midst of implementing a sweeping job-creation strategy much more ideologically akin to Obama’s than Romney’s.

An iconoclastic, even populist, leader often confused for a conservative hardliner, Kasich is pushing as the centerpiece of his governorship a recovery plan that calls for aggressive government intervention in the market. The idea is to use public funds to support a handpicked list of tradable industries that already have a foothold in the state. It’s an approach Kasich has been developing since his 2010 campaign for the office. Through loans, targeted tax breaks, and investments in workforce training and infrastructure, Kasich and his team hope to accelerate the so-called reshoring trend that is already bringing manufacturing jobs back to the U.S. If it sounds like industrial policy — in which the state chooses private-sector winners and losers, an approach conservative economists deride as anti-free market — that’s largely because it is.

The strategy is noteworthy as a departure from a politician frequently lumped in with a freshman class of Republican governors considered Tea Party stalwarts. But it is downright striking for its similarities to what the Obama economic team has articulated in recent months.

When I spent a day traveling to jobs announcements with Kasich back in January, he told me he’s focused on reviving manufacturing because the sector “represents the middle class and we don’t want to give up on in it.” Compare that statement to what Alan Krueger, chairman of the White House Council of Economic Advisers, said in an April speech at Columbia University about the Obama administration’s focus on manufacturing as a key to “reversing the middle-class jobs deficit.”

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Kasich was fretting about a report in the New York Times about the loss of consumer electronics production to China. “Losing this kind of work in America is not a good thing,” he said, “and frankly I think we probably let it go too far.” That’s a concern shared by National Economic Council director Gene Sperling. “When we lost consumer electronics manufacturing, we gave up a claim on future innovation,” Sperling said in a March speech to the Conference on the Renaissance of American Manufacturing.

To reverse the slide, Kasich is focused on developing manufacturing hubs. The concept is to localize entire supply chains around anchor production facilities, so the savings from lowered logistics costs more than compensate for the American labor. Kasich also believes government can help in developing those hubs, telling me, “If we’re smart about the way we look at it, we can help them save money.” Krueger in his April talk made precisely the same point, if in more academic terms, explaining government has a role helping foster geographic concentration in manufacturing. “This requires smart offense,” Krueger said. Like Kasich, the administration advocates using targeted tax breaks and investments in infrastructure and workforce training to move the process along.

Kasich’s team doesn’t deny the kinship. “You learn in Economic Development 101 that you always grow first from the industries in which you’re strongest,” says Laura Jones, spokesperson for JobsOhio, the state’s newly privatized jobs agency. “If that’s something this White House has embraced, then it had plenty of good teachers since every state and local government in the country has been practicing it for probably half a century.”

Romney, meanwhile, prescribes a much more hands-off approach. In his economic platform, he devotes scant attention to manufacturing and outlines no tailored strategy for restoring jobs in the sector. Instead, he hews to a doctrinaire, free-market strategy: lower taxes across the board, cut regulations, and aggressively pursue free trade agreements.

Romney put a finer point on his critique of Obama’s approach last Thursday, when he held a press conference outside the Fremont, Calif., headquarters of Solyndra. The solar panel company filed for bankruptcy protection last year after receiving more than $500 million in federal loan guarantees — “a symbol of gross waste,” Romney argued, and proof that Obama erred in tinkering with the free market. But the man Kasich has tapped to head up JobsOhio, Silicon Valley venture capitalist Mark Kvamme, told me earlier this year that Republicans were wrong to vilify the White House for the company’s failure. “In fact, we looked at investing in it, and the company was doing a lot of good things,” Kvamme, who remains a special limited partner at Sequoia Capital, told me. “What killed us was China. Because they figured out ways to do low-cost manufacturing of these things, and push them out, and that drove the bottom out of the market… But if that’s the policy, yeah, we should invest in it.”

The seeming ideological ambiguity of Kasich’s economic program has garnered no attention nationally and barely any inside Ohio. That likely owes to the energy Kasich’s union-busting efforts consumed last year. Kasich came into office with Republican majorities in both chambers of the legislature, and while his top legislative priority was a bill to privatize the state’s jobs agency — to streamline the pursuit of his economic strategy — his first year in office was dominated by the fight over a plan that emerged from the state senate to limit the collective bargaining rights of unions. Kasich didn’t author the bill, but he signed it and became its public face as a union-led referendum drive forced the issue to the ballot and revived what had been a moribund Democratic base in the state. Kasich lost the fight and saw his popularity suffer in the process.

Now, as he tries to harness a brightening economic outlook in the state, Kasich is showing little appetite to confront organized labor again. He has been publicly skeptical of a proposed constitutional amendment to make Ohio a right-to-work state. And he’s pushing a severance tax on the oil and gas companies developing eastern Ohio’s shale play, proposing to put the revenue toward an income tax cut — a plan Republican lawmakers are resisting. Tea Party leaders in the state have started to notice. “It’s very odd in my opinion for a conservative to be taking this kind of approach to governing,” says Matt Mayer, former president of the Buckeye Institute for Public Policy Solutions, a free-market think tank.

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Kasich is hardly the only Republican governor in the country taking an activist approach to economic development. Free-market adherents who pan the approach struggle to identify state-level chief executives abstaining from offering incentive packages to attract or retain employers. For example, Veronique de Rugy, a senior fellow at the Mercatus Center at George Mason University who has written critically about the practice, says the best modern example of a governor who stuck to the free-market approach was Mark Sanford, the South Carolina Republican who left office under a cloud last year after admitting to an extramarital affair. And Kasich and his team are proud of the discipline they say they are applying to their efforts, touting the return-on-investment standard they apply to any targeted tax breaks. It requires most deals to make up their cost to taxpayers within two years.

But pinning Kasich down on his personal philosophy can nevertheless be tricky. He remains publicly agnostic about the auto bailouts that his Republican colleague to the north, Michigan Governor Rick Snyder, credits with saving the industry. “I don’t know about think tanks, I know about the real world,” Kasich tells me on the way to Findlay, Ohio, for the opening of a Danish-based Hamlet Protein plant that got a $2 million loan from the state. “I believe that government doesn’t create jobs, but there’s a legitimate goal for this state to help companies be successful… And I wouldn’t say we’re partnering with business. I would say we’re assisting them.”

It may be that the imperatives of governing are creating more consensus about the best path forward than ideologues on either side would like to admit. Viewed up close, the level of overlap between the Obama and Kasich approaches is certainly counterintuitive. And it feels like the starting point of a vigorous debate about government and jobs — a debate that is sure to spill into the presidential election.