John Mackey opened a small health food store in Austin in 1978, which in 1980 merged with another local natural foods store to form the foundation on which Whole Foods Market was born. Mackey has led Whole Foods Market since the beginning through mergers and internal development to create a FORTUNE 500 company. Whole Foods is now one of the top 12 supermarket companies in America and the world's largest natural foods retail chain.
Mackey says his business philosophy is to act with care and responsibility toward all of the various stakeholder groups of the company and to operate Whole Foods Market with social and environmental responsibility. He was named 2003 Entrepreneur of the Year by Ernst & Young.
Question: How has your economic worldview evolved since you first got into business?
John Mackey: Of course there is the old saying. I forget who said it, but I think it was true in my life, which is: "if at the age of 21 you’re not a socialist then you don’t have any heart and if by the age 30 you still are then you don’t have any brains." So that was kind of my experience. I started out young and idealistic and social justice and fair distribution of resources and we were… I didn’t understand why everybody couldn’t be equally prosperous.
And starting my own business was kind of a wakeup call in a number of different ways. I had to meet a payroll every week and we had to satisfy customers and we had competitors that we had to compete with in order to have those customers come into our stores. And we had to compete with other employers for our employees. We had to... The wages were under competitive pressures, so there was all this competition on us that of course made operating the business successfully difficult. And it’s kind of like having to meet a payroll and having to meet the demands of our customers is a great destroyer of utopian fantasies and utopian ideologies. You’re in the real world and you have to meet the market test every day and every week.
And I just found that the belief system that I had going into operating that business was inadequate to explain the experiences that I was having in business and I began to look around and read other books and other philosophies to try to make sense out of my life and out of my business experience and it was really through encountering the free market capitalist philosophies of Milton Friedman and Friedrich Hayek and Ludwig von Mises and many other free market philosophers that I came to realize that this explanation made a lot more sense in my business experience and made more sense in terms of how the world really operated and so that is when my worldview began to shift and I began to let go of being sort of a democratic socialist.
Question: Why are there such divergent opinions among libertarians?
John Mackey: Any type of political ideology is going to have a lot of different variants of it, a lot of different.... Libertarians are constantly arguing with each other who is the most pure libertarian and who is most ideologically pure. I have no real interest in those types of discussions or arguments. And what I resist... one of the strains of libertarianism and that I reject: I reject the idea that human kind is essentially selfish, not only as an observation that we frequently are selfish, but there is a strain of belief, particularly in the Ayn Rand part of the movement that believes people ought to be selfish, that that is a virtue, that humans are always self interested and altruism is evil and love is something that makes us weak. And so I reject that aspect of libertarianism. I'm a caring, compassionate person and I believe that free markets and free minds leads to the greatest human flourishing, so I really want humans to flourish and I believe liberty and market economies and capitalism are the best strategies for full human flourishing. So I don’t identify with that strain of libertarianism that is sort of uncaring and kind of a social Darwinian variant of it. I'm very uncomfortable with that. I'm not that way myself.
Question: What ideas are at the core of libertarianism?
John Mackey: I do believe that many libertarians are animated by human flourishing. They... we sincerely believe that human flourishing... That we need to be free and that we need to be creative, and that through human freedom entrepreneurship that humans are creative; they create new ways of creating value for each other that expresses the self through the economic system and leads to greater prosperity, not for a few, but for most people and eventually all people. So there is a strain of deep idealism in the libertarian movement. It’s again sometimes masked over by that ideology of selfishness, but the human flourishing element is definitely a big aspect of I think of the motivational structure of many libertarians. Certainly it is for me.
Question: Is capitalism a zero-sum game?
John Mackey: I think the zero-sum worldview is the predominate one. I think it’s something we’ve evolved with this idea that there is a limited fixed pie and we have to distribute that pie in an equal fair way, that no one should get unfair large pieces of that pie and if someone is getting a bigger piece, necessarily someone else may be getting a smaller piece since there is a finite amount of pie to go around. I also think it comes from our competitive sports, in that in competitive sports there is a winner and there is a loser. And so we play games, we play sports all our lives, so we’ve come to believe that in the zero-sum worldview that some are winners and some are losers and then we... in a just society then there should be no losers. There should be... so we need to limit the pieces of the pie anyone gets, so that everyone can have a fair and just piece of the pie.
So I reject that. I don’t think there is a necessarily a fixed pie. The beauty of capitalism, the beauty of "conscious capitalism" is the realization that the pie can grow, that through voluntary exchange and through the value creation that happens when the stakeholders voluntarily cooperate and voluntarily exchange with each other is that the pie grows larger. And so there is more to distribute and that distribution takes place through the market processes, through the exchange process as each of the traders of course wants to get a bigger piece for themselves and competition sort of ultimately determines the percentages that each of the different constituencies or stakeholders gets in the exchanges.
But that is a growing pie and it’s a win, win, win, win, win game and that turns me on. I'm very fired up and excited about that because it means human flourishing isn’t trapped in some type of a limited set of constraints. It means we can innovate and create our ways out of any of these traps, any of these sort of… I can’t remember or think of the phrase right now. I'm trying to recall, but.... this idea that we’re in some type of trap of limited resources and the only limitations we have are the limitations of human creativity, human imagination and intellectual capital that has been accumulated. As we continue to gain intellectual capital and as human creativity is unleashed and human entrepreneurship is unleashed then the new innovations, the new creativity that expresses itself through the marketplace, through capitalism allows us to solve problems that previously were thought to be unsolvable and humans continue on the upward spiral.
I mean, a great example of this is people are very focused oftentimes on the fact that there is still a billion people on this planet that, say, live on less than a dollar a day. And that is certainly is a terrible tragedy, but if you put that in historical context that is about 15% of the people, 15, 16. 17, less than 20% of the people alive on the planet live on less than a dollar a day whereas 200 years ago 85% of the people alive on the planet earth lived on less than a dollar a day and that is in today’s dollars adjusted for inflation, so poverty has always been the default condition of the human race. What is unprecedented is not poverty—what is unprecedented is wealth. Wealth for not a few, but prosperity for literally billions of people. Every year now we see hundreds of millions of people escape from poverty just in two countries, China and India. It is the greatest revolution in human prosperity in all of human history. It’s all occurred in the last 20 years and it’s a fact that you almost never see reported in the media. Instead we tend to focus still on the remaining people that are poor and we’re back on our zero-sum game that somehow or another that is because other people are greedy and selfish and they’re keeping these poor people down. Rather than seeing poverty lessen through capitalism and through free market expansion, we tend to condemn the very thing that is allowing people to escape from poverty as the cause of the poverty. And it’s ridiculous. Capitalism and free markets are what is going to allow us to escape from poverty.
Mohammad Yunus likes to say that by the end of the 21st century poverty will be something that we only see in museums, that it will be something people look back and say, “Gosh we used to have poor people, how is that even possible?” And I do think that is the future of humanity if we don’t totally mess it up. That we are going to continue to learn, we’re going to have our intellectual capital spread, we’re going to unleash the human creativity—because I do believe humans have limitless creativity—and we’re going to solve a lot of these problems that are holding us back now and humanity is going to continue its upwards spiral and we are going to eliminate poverty. I think there are people alive today—I perhaps will not live to see the end of it—but there are young people alive today that will probably see the virtual end of poverty in the human race in the 21st century.
Question: What is "Conscious Capitalism?"
John Mackey: From a macro perspective conscious capitalism is becoming conscious of the framework that capitalism has to exist in, in order to be successful, in order to flourish. There are certain key principles that have to be in place and we have to nurture those principles or we won’t have a capitalistic order. It’s not something that automatically exists. It has to have principles. It has to be grounded in those principles. And some of those principles include property rights: that we have to have the right for people to be able own property. At the same time there needs to be the freedom to exchange property. We need to be able to trade it. We need to be able to create something and then trade it or sell it to someone else. We need a rule of law. There needs to be laws that are just and laws that are predictable and laws that apply to everyone in the society, including the government. A rule of law is essential. You cannot have a capitalistic order without the rule of law. And whenever that comes into doubt or if there are not stable property rights you don’t really have the basis for the capitalistic order.
And finally you need a freedom to trade. Usually the greater the... the fewer restrictions on the freedom to trade across the… between people, but also between people in different states, people in different countries, the greater value creation that occurs. So anytime you see a society that is beginning to restrict the ability to trade, you see a society that is going to lessen its prosperity. It tends to happen when people get preoccupied with the loss of jobs, not understanding that you may lose some jobs to a foreign country if you allow freedom to trade, but you’re gaining jobs at the same time. You gain more net jobs because the people won’t give you their goods for free. They want to trade with you as well and so those jobs and the goods that they want to trade for are the goods and services they want. That will create greater employment at home. But that is very hard for the average person to understand.
But anyway, conscious capitalism is understanding these basic core economic values and becoming more conscious of them. Conscious business, there are certain principles behind that and one principle is that business has the potential for higher purpose, that maximizing profits... If you ask people what the purpose of business is they usually say... if you go to a cocktail party and ask that question they’ll generally say "Well, everybody knows that, the purpose of business is to maximize profits, it’s to maximize shareholder value." But that is a very odd answer because that is not the answer we would give is you ask what the purpose of a doctor is—it would be to heal the sick. Or what the purpose of a teacher is, to educate people. Or what the purpose of a lawyer is or what the purpose of an architect is or what the purpose of an engineer is, so why is that we would come to this odd answer that the purpose of business is to maximize profits when I have known literally hundreds of entrepreneurs in my life and with very few exceptions very few of them actually created their businesses to try to maximize profits. Of course they need to make money, but that is I need to eat in order to live. I need to breathe in order to live. I need to create red blood cells in order to live, but that is not the purpose of my life to eat, to breathe, to create red blood cells. I have a much more transcendent purpose in my life that gives my life meaning and value to it. Business is no different. A business has the potential for a higher and deeper purpose and that is the first principle of a conscious business.
The second principle is that there is a variety of stakeholders that are interdependent, that are connected together, customers, employees, suppliers, investors, communities—both local and larger communities—and then the larger environment that we’re part of. Those are the most important stakeholders. There are other stakeholders that form a wider circle such as the government, labor unions, the media, activists of various kinds, but the idea being that these stakeholders are interdependent on one another and that the conscious business attempts to create value simultaneously for all of these interdependent stakeholders. It seeks the win, win, win business strategy that… Maybe a way to explain that in a simple model version is a retail business—which Whole Foods is—is that management’s job is to help our... is to hire good people, train them well and help them to be happy and fulfilled in their workplace, in their work, in their jobs. And then the team member’s job is to satisfy our customers, help the customers to be happy in their exchanges with the business.
So happy team members leads to happy customers and happy customers do more business with the company and that leads to happy investors. So you have a virtuous circle of happy team members, happy customers, happy investors. That reflects in a simplified version this idea of the interdependent nature of the stakeholders and why you can’t just focus on creating value for the investors alone because you must create value for the team members who then create value for the customers who then create value for the investors, so the conscious business recognizes this, is conscious of it and works to optimize value for all of the key interdependent stakeholders.
The third principle of the conscious business is what we call a conscious leadership, or you might also think of it as servant leadership. That the leaders of the organization they’re not there to line their pockets and try to maximize their own personal gain. Instead, their job is to fulfill the higher purpose of the business, recognize and fulfill the interdependent stakeholder model, and, in a sense, to serve the organization, to sublimate their own ego and their own ambitions for the good of the organization. And again, it’s not self-sacrificial or I'm not talking about altruism. I'm talking about recognizing that in the long term they will also gain the most through the flourishing of the business and through the flourishing of all the stakeholders. They too will flourish. That their identity is linked and their own gain is linked to the gain of all these other stakeholders.
And then the fourth principle is that to realize these first three principles you have to create a culture, a conscious culture that has strategies, structures and processes that create a culture that optimizes the stakeholder model, fulfills the purpose and allows the conscious leadership to do their jobs. So the culture provides that background and the processes and structures that the conscious business needs in order to achieve its highest potential.
So when you add those four principles together you have a conscious business. When you add the conscious business with the key principles of conscious capitalism you truly have the larger ecosystem of the conscious capitalistic society, one with conscious businesses that are exchanging in a consciously capitalistic way.
Question: Will focusing on the long term reduce short-term profits?
John Mackey: You’ve just articulated what I call the trade off myth. The belief that all this sounds very good, very idealistic, but it won’t compete well in the marketplace and when it runs up against a business that is not handicapped with this idealism then it will be in trouble. Nothing could be further from the truth. It’s the exact opposite... that in fact the conscious business has competitive advantage. When you work from a higher purpose you unleash greater degrees of commitment, greater degrees of loyalty and greater creativity in the workplace and that gives competitive advantage. When you work from the stakeholder model, you understand that you’re trying to optimize the entire system. You are able to do that in such a way as when you optimize the entire system you also optimize the value that you’re creating for the investors as well. The business tends to flourish at a higher level, so in fact, the conscious business will win in most instances, all other things being equal. It will win in competition against less conscious businesses and that is why I'm confident that over the long term conscious capitalism is going to triumph. I believe it will become the new paradigm in the 21st century, not because it’s more idealistic or it sounds better—it will become the dominate paradigm simple because it will win. It will win in the marketplace. And nothing succeeds in capitalism more than success itself, so good ideas that work spread. And the competitive nature of the marketplace is going to lead to these competitions between conscious businesses and less-conscious businesses and the conscious businesses, all other things being equal are going to win most of those battles and so fairly quickly meaning when I say quickly I mean 25, 30, 35 years we’re going to see more and more and more conscious businesses and we’ll make this shift towards conscious capitalistic society.
Question: Will "conscious capitalism" take hold in certain industries sooner than in others?
John Mackey: My first instinct is to tell you that I do think retail is one of the first areas to shift possibly because they’re dealing with their customers on a day-to-day basis and they’ve got... they’re more labor intensive as well. They tend to hire and employ more people like Whole Foods Market employs 57,000 people, and we have millions of customers. So, in a sense... and we’re in an extremely competitive marketplace food retailing and we don’t have any patents. We don’t have any... and the government is not protecting us in some way from competition, so... and we have formidable competitors are much larger than us, so like Wal-Mart, Kroger, Safeway, companies like that, so retail is one of the first areas to shift and many of the conscious businesses that I know tend to be either retailers or service businesses, companies like the Container Store or Costco or Starbucks or the Southwest Airlines. These are businesses that... Trader Joe's, these are businesses that are retailers or service oriented. So I don’t think maybe the conscious business revolution, conscious capitalism revolution will see that take hold in a more large scale way in the retail and service first. I can predict also possibly what will be last. I predict possibly Wall Street will be last or the pure financial part of our economy, which to a greater extent it doesn’t have as much of a stakeholder model. It does tend to be dominated by the profit maximization model and shareholder return model to a greater degree than other segments of our society, so I suspect retail and services will be first and the financial sector will be last.
Question: How is the new economy changing existing industries?
John Mackey: I do think that the economy is going to continue to evolve towards more service. Human beings are doing more things to serve one another in terms of services, but the new things are... If you think about the whole technology area so much of that didn’t even exist 10, 15 years ago. There was no Facebook. There was no Google. There was no iPods. There were no iPhones. Really, Blackberrys didn’t even exist 15 years ago. So, so many different things changed so rapidly and new industries, whole industries can be created fairly quickly. I think it’s safe to say that we’re going to see greater innovations in education that here is an area that needs radical innovation that we don’t allow competition. We don’t allow... we haven’t unleashed human creativity, so education potentially if we could un-monopolize education and truly allow entrepreneurs to get going on that I can’t think of hardly... Health care and education are the two most regulated areas in our society and they’re also the ones that are most... or least satisfactory to people. Those are areas that we need to de-monopolize and allow more competition to occur, so those are two huge areas. Education and health care are both service areas so those are growth industries.
I also think all types of leisure. Travel is a... as a society becomes more fluent its desire to travel increases and to explore. The younger generation today, people that are in their 20s for example they have traveled so much more than my generation had. I mean for me a big deal when I was in my 20s going down to Mexico and that was like the foreign country or maybe get up to Canada. But today people haven’t just gone to Europe, but they’ve gone all over the world by the time they’re 30 years old if they’re young and well-educated. World travel is going to be... continue to be... and particularly as globalization continues to occur we’re going to continue to explore.
I also think huge possibilities in entertainment. I mean look how much entertainment has evolved and shifted. In a sense, something like Big Think: it’s education, it’s entertainment and it is a synthesis of those two and it probably has got lots of other things in it as well that I haven’t just picked up yet. I do see lots more creativity, lots more innovations, lots more entrepreneurship around entertainment and humans educating one another, entertaining one another, serving one another, new ways for humans to enjoy life, new ways for humans to learn and grow. We're going to continually try to figure out ways to serve ourselves better and it’s amazing how even... Think about something like pilates. It didn’t exist on any kind of scale 25 years ago. Yoga existed, but hardly anybody did it. Now you see those are activities that are also leading to greater human flourishing through helping humans to be more fit and stronger and more flexible, so it’s fascinating watching the world and watching humans evolve and watching our society evolve. It’s I love it. I'm so glad to be part of it and to have contributed a little bit to it myself.
Recorded on October 28, 2010
Interviewed by Peter Hopkins