For the people: how is your governor treating small business?

Entrepreneur, August, 1997 by Janean Chun

While the federal government often seems content to dangle its usual carrots before small-business owners, state governments are taking tangible steps to make life easier for entrepreneurs. "There's no question that this current crop of governors has been about as pro-small business as any group we've seen in 20 years," says Stephen Moore, director of fiscal policy studies at The Cato Institute, a Washington, DC, think tank, which publishes a bi-annual Fiscal Policy Report Card on America's Governors. "Whereas the federal government in recent years has been raising taxes, in 1995 and 1996, we saw more tax cuts for small business [on the state level] than in any period since the late 1970s. More than 28 states enacted tax-rate reductions that will improve businesses' bottom lines and help attract entrepreneurs and small-business owners to their states." Moore reports that governors have also excelled lately in cutting the costs of workers' compensation systems, reforming product liability laws, and cutting or even eliminating capital gains taxes.

This strengthening of support comes at a time when governors are arguably wielding more power than ever. With California and New York state budgets both exceeding $60 billion, The Cato Institute's report likens state governments to large-scale enterprises and the '90s governor to a state CFO. Also, Congress continues to promote a new federalism that relies more on states, giving governors the opportunity to become leaders in future public policy innovations and government programs.

Why are governors cozying up to entrepreneurs? Moore points to the "Whitman wanna-be" factor. Christine Todd Whitman of New Jersey "was really the first of this new wave of pro-business governors to come into office," Moore explains. "Because of her economic and political success, a lot of governors have pledged to do the same thing: Cut taxes, and make their states places where [entrepreneurs] would want to do business."

Quite a contrast to the logic of the 1970s and early '80s, in which many states competed for large companies like Toyota, Nissan and United Airlines. "Everyone who played the game of going after the big companies eventually played one in which they lost," says Jay Kayne, director of economic development and commerce policy studies for the National Governors' Association. "States that spent a great deal of money trying to attract major companies found that, in terms of cost benefits, they were getting a much better return from working with smaller businesses and entrepreneurs. What the governors collectively realized is that you need to focus on the macro issue because then the whole pie will get bigger."

It will be interesting to see whether governors cling to this state of enlightenment as their political careers progress, perhaps along the same path as that of former governors Bill Clinton, Ronald Reagan and Jimmy Carter. With the emergence of strong leaders on the state level, many expect one or two of today's governors will be tomorrow's presidential candidates. "There's no question that these governors tend to have the best experience for being elevated to the White House," says Moore. "And their experience of what works on the state level will be very valuable to them if they become president."