Whole Foods Health Care
Organic-foods magnate John Mackey talks about his controversial health care proposals, why he was investigated by the feds, and "conscious capitalism."
On August 11, 2009, Whole Foods co-founder and chief executive officer John Mackey published an op-ed in The Wall Street Journal recommending "eight things we can do to improve health care without adding to the deficit." The ideas, many of them familiar to market-oriented health policy wonks, ranged from malpractice reform to eliminating the tax incentives that tie insurance to employment. "The last thing our country needs," Mackey warned, "is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us much closer to a government takeover of our health-care system."
It was as if a bomb had gone off in the arugula line. Some of Mackey's customers, who tend to be urban, upscale, and left of the political center, went ballistic. Protests were held outside and occasionally even inside several Whole Foods outlets. A Boycott Whole Foods group on Facebook attracted more than 34,000 members. "Mackey's campaign," warned one boycott leader, "results in the deaths of 60 Americans every day due to lack of health insurance. Mackey is responsible for these deaths as much as anyone."
The "intense" reaction took the soft-spoken 56-year-old by surprise, but the protests quickly faded away. What remained after the hubbub died down was a contentious White House health care plan still very much up in the air and a businessman still eager to have a calm policy conversation with people who now regarded him as a libertarian traitor to his customers' political beliefs.
John Mackey is used to confounding conventional political categories. A cutting-edge entrepreneur who is comfortable quoting both Ludwig von Mises and astrology, who both practices veganism and sells some of the best meat in America, and who both chases profits and is an outspoken advocate of charitable giving, Mackey is an advocate of what he calls "conscious capitalism." He is that rarest of businessmen: an articulate and passionate defender of free enterprise and free individuals.
Mackey—who has contributed in the past to the Reason Foundation, the nonprofit organization that publishes this magazine—sat down with reason Editor in Chief Matt Welch and reason.tv Editor Nick Gillespie in September. For a video version of the interview, go to reason.tv/mackey.
reason: In your Wall Street Journal op-ed, you wrote, "While we clearly need health care reform, we should be trying to achieve reforms by moving in the opposite direction of more government control toward less government control and more individual empowerment." Why do we need health care reform and why should the government not be a part of health care?
John Mackey: We need health care reform because the current system, in the way it's structured and regulated, is becoming more and more expensive. We've gone from spending 4 percent of our gross domestic product on health care in 1960 to almost 17 percent today, and the trend lines aren't really slowing down.
reason: Were you surprised by the vociferous reaction to your op-ed?
Mackey: I was surprised. I mean, CEOs write op-ed pieces all the time. Steven Burd, the CEO of Safeway, had written an op-ed piece in The Wall Street Journal on health care reform just a month or two before I did, and nobody reacted at all to it. So it was rather bizarre.
reason: Do you think employer-based health care is a right, or even a good idea?
Mackey: Well, if you look at the history of it, it came about in World War II when the government put wage and price controls on but exempted insurance. So employers began paying for insurance because that was a way they could compensate people. After World War II, it continued to be a special tax exemption that encouraged employers to be picking up the insurance. It sort of spread through the culture.
I'm not sure that's the best way to do it, primarily because as long as you work for Whole Foods, we've got this great health insurance program, but what if you want to leave? What if you get a better job offer someplace else, or you're ready to do something else? It's not portable. So that restrains people from maybe leaving because they're not sure they can get as good a health care program. I think it'd be better if individuals did it themselves.
reason: Let's say you suffer from Down syndrome. You're going to live to age 50; you probably won't work very well. Where do you get your health insurance under the John Mackey plan?
Mackey: Obviously, there are always the tough cases, the marginal cases, and what we're suggesting for reform wouldn't necessarily be a solution for them. The reforms that I advocated would help tens of millions of people have better health care and health insurance. It may not solve everyone's problem, and so maybe those need to be solutions that are provided elsewhere, either through the not-for-profit sector or through some type of government voucher program.
reason: You started out in 1978 as Safer Way in Austin, Texas. What were your goals in creating that original outlet and then becoming Whole Foods in 1980?
Mackey: That question kind of assumes I knew what the heck I was doing back then. I mean, I had just turned 25 when we opened Safer Way. My girlfriend who co-founded the company with me, Renee, was 21, and we didn't have any grandiose plan. We thought opening our own store would be fun. We could make money to support ourselves and we'd be providing food that would nurture and help people be healthier.
Safer Way was a vegetarian store; we didn't sell any meat. We sold a lot of bulk foods, produce. We had a little vegetarian cafe on the second floor. We had an office on the third floor which also served as where Renee and I lived because the office couch was a futon that we could fold out at night. So we literally lived above the store, and it was fun.
reason: What were the guiding principles or ethics as they evolved in the first couple of years?
Mackey: We were selling food that you couldn't find in conventional supermarkets back then. We were selling lots of organic produce. We did a huge business in bulk foods in the early days. We had tofu. I mean, nobody sold tofu in Austin, Texas, in the 1970s.
We sold bulk honey and maple syrup. You have to remember that in the late '70s the industrialization of the food process was pretty well complete, and most people just ate foods out of frozen dinners, TV dinners, and macaroni and cheese out of boxes or cans. The whole idea of eating a whole food natural diet was kind of a revolutionary act back in the late '70s and early '80s.
Now that's changed as we've become more successful. All our competitors picked up a lot of the foods that we sell, which forces us to innovate and come up with new value propositions for our customers.
reason: How do you decide to site a store?
Mackey: Well, there's no more important decision that you're going to make than where you locate a store. If we're going to invest, depending on the size of the store, anywhere from $8 million to $20-plus million in capital for a new store, and sign a lease of usually 20 years or longer, we're making a long-term commitment and putting up a lot of capital. So we spend a lot of time and energy sorting through that. We do site analysis. We analyze our competition in an area. We look at the demographics of who's living there. We look at education levels, income. There's a whole bunch of variables, but I think by far the most important variable is the number of college graduates within a 16-minute drive time.
reason: Why is that?
Mackey: I don't know exactly why. I can tell you that about 80 percent of our customers have college degrees. I can speculate that our customers, on average, are better educated and better informed. And a college degree, while not a perfect proxy for that, is the best we have in terms of demographic data that we can get. If people are going to change their diets and become more health conscious, they need to be generally better informed. Otherwise, you tend to eat the diets that you ate when you were a child. Most Americans don't eat diets that are particularly healthy, so it takes conscious effort to alter your diet and your eating and shopping patterns. And that correlates with education.
reason: You recently completed a merger with Wild Oats, another national chain of organic stores. You had to go through the Federal Trade Commission, and they blocked it. Why?
Mackey: The FTC argued that Whole Foods Market had a monopoly position in a narrow market, which they called the "premium natural and organic supermarket market," and that if Whole Foods and Wild Oats merged, there really would be hardly anybody left in that category. And of course our position was that we don't compete against just stores in the premium natural and organic supermarket market; we compete against everybody retailing food. We compete against Safeway and Kroger, Trader Joe's, Wegman's—we've got more competition than we've ever had before. So it's all about how you define the market. They chose to define it in a very narrow fashion, and we define it in a much larger fashion, and that was what the argument was about. We've done a lot of mergers in our history, and this is the first time we've ever had one challenged.
reason: Isn't that a sign of success, when you finally get challenged?
Mackey: Is it a sign of success when the government starts hassling you? I don't know. I guess so. I mean, it was a bizarre experience. It's not one I want to go through.
It wasn't a good experience, I'd have to say. We received a lot of negative publicity about it. They downloaded all my emails and a lot of stuff I'd prefer that nobody read, particularly the government lawyers, and they basically treated us as if we were criminals or guilty of some horrible crime for just being successful. So it cost us tens of millions of dollars in legal fees and countless hours of management time. We had to prepare millions of documents. It's not possible that they could have read all those documents.
reason: You also had an SEC probe that ended up looking at whether or not you had tried to manipulate Whole Foods' stock price by posting on Yahoo! message boards.
Mackey: One of the consequences of the FTC getting all my emails is they discovered that I had been posting on Yahoo! bulletin boards under Whole Foods and on other bulletin boards, and then the SEC wanted to launch an investigation to see whether I'd been doing anything illegal in terms of trying to manipulate the stock.
They were asking me questions like, "In this posting, were you trying to signal people in special code?" I was just playing, frankly. Millions of people post on Internet bulletin boards; it's fun. And I didn't at the time see any reason why I was outlawed from doing so. It turned out in retrospect to have been, I think, a mistake in judgment. Somewhere along the line between when I started posting and when I stopped posting, I'd become semi-famous, and this became sort of a scandal.
I am happy to say that it had a happy ending. They did their investigation and decided to take no action. I might have been foolish to make such postings, but I hadn't done anything that they considered to be against the law.
reason: One of the ways that you add value is by tracing your foodstuffs from origin to the market to the shelf. Why are your customers interested in that?
Mackey: We're so intimate with food. We eat food, we consume it, it becomes a part of us. Many people are intensely interested in where the food is grown, how it's grown, what was the farmer's philosophy. Is it a local product? If it's coming from a Third World developing nation, is it fairly traded? Is it ethically traded? Is it organically grown?
If you think about what a retailer is, he's a middleman, a broker between the farmer or the producer and the consumer. So the more information we can provide about how that food is produced, where it comes from, what the philosophy of the farmer or the producer is, the better we're serving our customers. Particularly in an Internet-linked world, where you can provide all that information, I really can see over time that all that information will be available at our stores and online for people so you can get total transparency of the food system.
reason: Some critics argue that you are consciously building or catering to some kind of irrationality, or self-flattering tendencies, among your customers. What's your response to that?
Mackey: I don't completely understand the question. Or if I do understand it, I think it's an odd question. If people want to buy produce that's locally raised, I don't understand what would be wrong with that. If it's grown nearby, that food's going to be incredibly fresh; it's going to be at the peak of nutritional value. There's less transportation mileage, obviously, from where it was produced to getting into our store and into the consumer's stomachs. So I don't think it's irrational. People have preferences, and the great thing about a market system is that there's a diversity of preferences and you compete to satisfy those preferences. Why judge other people's choices? If you don't value that, then you don't. But other people do value it, and I don't see any good reason to judge it.
I think that's what business—every business—should do. You're in business to satisfy the needs, desires, of your customers, and if you don't have that philosophy, you're not going to be successful. It's not very good or smart business to be going around judging why people want what they want and telling them that they're irrational for wanting that.
reason: How you would describe your politics?
Mackey: I'm a conscious capitalist. I have a great passion for capitalism, but the capitalism I see that we need to evolve in the 21st century is a little bit more conscious of what it is and why it exists. I think capitalism has done a very poor job of branding itself to people. In the 20th century, we had a great, titanic struggle, and capitalism won that struggle. Except it didn't capture the minds of the intellectuals or the hearts of the people. I think that's because it's done a poor job of marketing itself and branding itself.
I believe in capitalism. I believe in markets. I believe in individuals—individual empowerment and individual choice. So that's my philosophy of politics.
reason: Where did that come from?
Mackey: These ideas have been evolving for me for many years. There are many sources for the ideas, many classical liberal thinkers, from Adam Smith to John Stuart Mill, from Friedrich Hayek to Ludwig von Mises, Milton Friedman.
The philosophy that I had prior to starting Whole Foods was just kind of "business is evil and government's good." Then I started a business and was trying to meet a payroll and realized that a lot of people thought now I'd become the bad guy because I had become a greedy businessperson. And so I had to throw out my worldview. It might have been Milton Friedman's Free to Choose; that might have been the first book. Or it might have been Ayn Rand's Atlas Shrugged. It's kind of fuzzy, but I started reading a whole bunch of books that are part of the freedom movement, and I read them voraciously. I don't know the order I read them in, but somewhere along the line I started reading Mises, and I thought his book on socialism and his book on human action were just brilliant.
reason: Define "conscious capitalism."
Mackey: There are three key principles. One is that business has the potential to have a deeper purpose. If you ask the ordinary person what the purpose of a business is, they'll say, "Well, it's to make money." Which is kind of a strange answer, because you don't get that answer if you ask what the purpose of a doctor is or what the purpose of a teacher is or an architect or an engineer or any of the other professions, yet they all have to make money. To be a doctor, you can't operate at a loss, at least not for very long.
Most entrepreneurs I've known—and I've known lots of them—none of them started their businesses primarily to make money. Instead, they were pursuing some type of dream, some type of passion. They wanted to make the world a different place, or they had an idea that they wanted to test out. Bill Gates wouldn't tell you that he started Microsoft to become the wealthiest man in the world. He was on fire about software and about personal computers, and he could just see in his mind's eye that this could be a transformative technology. Everybody could have a computer; can you imagine? When he was doing that in the '70s, that was the utopian idea. Now we take it for granted. So he followed that passion, and obviously he changed the world.
It's not why I started Whole Foods Market, to make as much money as possible. It was to sell healthy food and help people earn a living, do something I felt good about. I was on fire about eating healthy food; I had passion about that.
So we become conscious that business has the potential to have a deeper purpose. That is key to this.
We've created this wall in the world. On the one hand, we believe that not-for-profits and government are motivated by a deeper purpose—public service—and then on the other side of this wall, we have corporations and businesses, and they're motivated strictly by selfishness and greed. And frankly, most young, idealistic people are more drawn toward the one that's not motivated strictly by selfishness. I just think that's a false dichotomy. I want to tear that wall down and get people to see that business is motivated by, or has the potential for, a deeper purpose.
The second principle of conscious capitalism is that the best way to think about business is in terms of a complex system with stakeholders who are interdependent: customers, employees, suppliers, investors in the larger community. If the business flourishes, the individual stakeholders that are trading and exchanging with that business are also going to flourish. Too much time is spent focusing on the tradeoffs in business, the conflicts of interest, rather than the synergies and the harmony of interest. Capitalism is creating value for all of these people, creating value for customers, creating value for employees by providing jobs, creating values for our society through taxes, creating value for investors. It's creating prosperity. It's wonderful, and yet how poorly we do articulating that.
The third principle is a different philosophy of leadership. What greatly harms the brand of capitalism is to read about Wall Street executives taking home $100 million or—
reason: Aren't they worth it?
Mackey: I don't think markets are largely deciding that. I think you've got a rigged game here, and I could go into that in some detail if you want to. An organization has to think about not only compensation in terms of the external equity, what other competitors might be paying, but also internal equity, what everybody else in the organization is getting paid, and you have to balance that out. Leadership should be serving the deeper purpose of the business.
I don't think the government should be determining that, by the way.
reason: Do you pay yourself?
Mackey: I have paid myself, but right now I've cut my salary to a dollar a year.
reason: It's useful, especially when you're under fire for being a greedy capitalist who smashes unions with his boot heel, to say, "I pay myself one dollar." It's very disarming.
Mackey: Well, it fits into that third principle of conscious capitalism, that the leader should be serving the purpose of the business. By not taking any money, it's pretty obvious that I'm not trying to get as much money out of the company as I can. I mean, I was a co-founder. I have enough money. I'm not superwealthy the way Bill Gates or Steven Jobs is, but I have plenty of money. On Maslow's "hierarchy of needs," once you get past a certain point, money is less satisfying and other needs—self-esteem, self-actualization, self-transcendence—become more important. So I would say it's good for the morale of our organization that the CEO only makes a dollar a year.
reason: Do you have any political team that you root for?
Mackey: A political team? It's funny that you would say that. I think part of the polarization that exists in America is that people try to size you up for what team you're on. If you're on their team, they love you, and if you're the other team, they hate you.
I'm not on either one of the big teams. I really feel like I'm independent. I think for myself. If there are good ideas that the left or liberals or Democrats have, then I'm going to embrace those ideas. If there are good ideas that Republicans or conservatives have, I'm going to embrace those ideas. If libertarians have good ideas, I'm going to embrace that. I believe people need to think for themselves.
reason: Who did you vote for in the 2008 election?
Mackey: I voted for Bob Barr, Libertarian candidate. Ron Paul didn't get the Republican nomination, regretfully.
reason: How do you think the 21st century is going?
Mackey: Well, entrepreneurs tend to be very optimistic people, and I'm a very optimistic person. I never would have started a business if I wasn't.
If you just watch the news at night or read reports on all the things that are going wrong, you can really become frightened with all the problems that are out there. I do think we have enormous challenges right now. You've got to make a distinction between the short term and the long term, because I think things move in spirals, and if you look at a spiral, sometimes it loops back on itself. It's kind of like it takes three steps forward and one step back. In some ways, I think we're taking a step back right now, but I've got great hope that we'll take three steps forward over the next several years.
I feel like I've been in the jungle with a machete hacking out a path for organic food, conscious capitalism, the freedom movement, animal welfare, all the different causes I'm involved in. And sometimes people come up and they say, gosh, haven't you gotten any further? I mean, they're driving up an air-conditioned SUV to where I'm still in the jungle hacking away.… I like the quote by Michelangelo. He said, "Criticize through creating." It's easy to be a critic. It's much harder to create something. I always want to encourage young people to take their passion for making the world a better place and channel it to help us create new solutions to our challenges.
I've devoted my life to trying to build a business that makes a difference in people's lives and in the not-for-profit world, in ways that I think also serve our society and culture. So I'm optimistic, because I've seen how much progress we've made. If we can just get people to become more conscious about what capitalism is, because I think capitalism is a tremendous force for positive change in the world, and take the collective human intelligence and creativity and begin to channel it in constructive ways, there's really no limit to where humanity will be in the 21st century.