Letters

From the January 2006 issue

The Social Responsibility of Business

John Mackey's "new form of capitalism" ("Rethinking the Social Responsibility of Business," October) is as suspect as an organic label on a Whole Foods apple. Before we concede that Mackey has somehow superseded the Darwinian forces that shape all free-market businesses, let's remember this: Social responsibility is a defining feature of the niche that Whole Foods has carved out of the cut-throat grocery business.

Consumers can buy an apple anywhere. They go to Whole Foods to buy a Socially Responsible Apple. A small but loyal segment of mostly rich liberals have sustained Whole Foods because they buy into this larger "value proposition." Thus for Mr. Mackey, social responsibility is not an option, or even just good PR. It is a mandatory cost of doing business, without which Whole Foods would become just another commodity retailer.

T.J. Rodgers is guilty of a different offense. He argues that irrational value propositions, like organic labeling, are scams unworthy of the free market. Not so fast: If both sides of the transaction derive value, who are we to tell them otherwise?

Businesses like Starbucks, REI, and Whole Foods--who sell upscale commodity products to affluent, urban, white, liberal consumers--engage in overt social responsibility because it gives them a Darwinian advantage. This only reaffirms the rules of capitalism; it does not supersede them.

Tony Lazar
San Carlos, CA

I like John Mackey's refreshing approach to business. Last year I invited him to speak at Columbia Business School on "A New Business Paradigm." It was the biggest event on campus that year, attracting a standing room only crowd of nearly 300 MBA students. It was clear that the "best of the brightest" were hungry for the new "stakeholder" brand of capitalism that Mackey and Whole Foods Market offer.

Being in the trenches in academia, I can tell you that Mackey is on the right track. The old-style Randian philosophy of capitalism, that "greed is good" and "selfishness is a virtue," does not resonate well with future business leaders. Today's students are more attracted to the Smithian virtues of sympathy and friendship than the Randian virtues of selfishness and greed. If Mackey can successfully build this new business model without force or fraud, I say more power to him.

My only concern is how well Mackey's stakeholder methodology will work during a downturn in his business. Everything looks great right now as the company expands, but he may find his concessions to employees and the community may be too generous when consumers stop buying at Whole Foods.

Mark Skousen
Adjunct Professor
Columbia Business School
Editor, Forecasts & Strategies
New York, NY

John Mackey says Whole Foods' mission statement calls for donating 5 percent of the company's net profits to philanthropy and that they hold "5 percent days," during which they donate 5 percent of a store's total sales to a nonprofit organization. I object to this: How do I know that the organizations that the money is going to are groups I would choose to support? I would prefer that Whole Foods cut its prices by 5 percent and let me donate the money I save to the groups I choose.

David Husar
Arlington, VA

Milton Friedman argues (correctly) that there is no particular reason why being good at high-end food retailing or producing semi-conductors is a qualification for making decisions about the disposition of society's resources, and that trying to make firms do both tasks just means that one or the other is likely to be done badly. I would add that business firms not only are unlikely to be particularly good at advancing the general welfare in any way other than through being good at their businesses, but are likely to be a menace to it.

Any "business leader" who gets an opportunity to be seen as a guardian of social welfare will have every incentive--the fact that John Mackey seems like a really nice guy notwithstanding--to advance a vision of social welfare that is good for rich guys who own or run businesses. It would be a shocking coincidence indeed if this bore any resemblance to be the vision that actually maximizes society's well-being. Firms should be viewed as what they (usually) are: very efficient but completely amoral institutions that are totally indifferent to society's welfare, and that will be very effective in doing what they have incentives to do.

The trick, therefore, is to make sure that they have proper incentives to turn that effectiveness to productive ends. This must be done by the other "stakeholders" in society (government, consumers, employees, and others), but in no way should the firms themselves be seen as partners, much less leaders, in this endeavor.

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