Govs. Tim Pawlenty (R-MN), left, and Phil Bredesen (D-TN), co-chairs of the U.S. Chamber’s May 3 Governors Summit, spoke to Free Enterprise about small business needs and job growth.

Free Enterprise: What are the biggest challenges facing small businesses in your state, and what is your solution?

Bredesen: One issue is the complexity of dealing with regulations. What is easy for a big company to do becomes very difficult for small business. If you take a small, innovative business and lay requirements on it that are more suitable for a business with 3,000 employees, you’re going to get it in trouble. And we try to avoid that. So we’ve tried to clean up the regulatory environment, simplify it, and get quick answers to things that people need.

We have what we call the Jobs Cabinet. It brings a bunch of our commissioners and secretaries into the process of supporting job creation. There has been a genuine attitude shift that says, ‘We have a job to do from a regulatory standpoint, but we’re here to help people meet those requirements, not punish them when they don’t.’

Pawlenty: What I hear now is access to capital. [Small businesses] continue to tell me that they need access to capital at the angel investment and seed capital stage. So last session we adopted an angel investment tax credit. It gives individuals and investment funds a tax credit up to a certain amount for early-stage investing for startups.

Another challenge is the high cost of doing business in Minnesota. The state continues—although we’ve made good efforts to change it—to have cost structures that need to be more competitive. And costs are not just measured by taxes, but also by health care costs, workers comp, unemployment insurance, energy costs, and regulatory costs. To control costs, we have proposed reducing the corporate income tax, creating an additional exemption for active business income on individual returns, and creating preferential treatment for capital gains.

FE: What is your plan for creating more jobs in your state?

Bredesen: It’s about creating the right conditions … have a supportive environment for business in terms of taxation and the like. Second, there is a salesmanship job to do, and having a good focused department of economic development is important. Third, we’ve employed a strategy of looking for what I call anchor businesses—a 1,000-person business that can be the center of a halo of other businesses. One of the reasons we worked so hard to get Volkswagen in Tennessee was not just for the employees at the assembly plant. Volkswagen has a huge halo of suppliers that are now locating to the state. We made considerably more land available to them than what they needed so that they could put tier one suppliers on their premises.

Pawlenty: When I talk to job providers and entrepreneurs, it really keeps coming back to two basic things: costs and talent. Cost competitiveness matters, and talent matters. There are some things in Minnesota we need to do to improve our talent organically, from within. But we also want to be a place where we draw talent from outside. So there are certain amenities, quality of life things that have a magnetic effect for talent. One is research and higher education institutions like the University of Minnesota. We want to keep them competitive and attractive both globally and nationally so that they continue to be a magnet for talent.