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 Before we concede that Mackey has somehow superseded the Darwinian forces that shape all free-market businesses, let's remember this: Social responsibility is a defining feature of the niche that Whole Foods has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.

David J. Balan
Washington, D.C.

Thank you for publishing the comments of Friedman and Rodgers, who are two of my heroes. But John Mackey has only my profound contempt. He talks about "responsibility," but his Whole Foods stores devote approximately one quarter of their floor space to an incredible collection of worthless pills and nostrums, located so that the customers must walk through them to reach the checkout area. The customers who shop there belong to that same class of Americans who are incapable of accepting the overwhelming evidence for evolution. They are a tribute to the profound failure of our educational system.

Robert Gilchrist Huenemann
La Honda, CA

Milton Friedman is correct that much of corporate philanthropy might just be good business rather than actual philanthropy. But what about corporate philanthropy that does not increase the cash flows of the firm? Is there any moral justification for it in a free society?

The responsibility of the corporation is not to maximize the wealth of the investors. The responsibility of the corporation is rather in line with the goal of economics–to maximize the utility of investors. Investors come in many types. Some want to maximize profits and others want to get a good return and a warm feeling from contributing to charitable causes–defined however investors define "charitable."

What is interesting is that, if and only if all the investors are on board with the company's social initiatives, the stock price will be unharmed by these social initiatives, even though these investments might decrease profit. In our forthcoming article in Academy of Management Review, we argue that the potential exists for a firm to maximize its stock price, but not maximize the profits of the firm, by engaging in socially conscious behavior.

In our model, investors who value socially conscious business practices congregate their investment dollars in firms that implement the practices their investors believe in. These socially conscious investors must value their socially conscious stock as highly as wealth-maximizing investors value their wealth-maximizing stock, or else wealth-maximizing investors will lead a hostile takeover of the socially conscious firm, changing its management to a wealth-maximizing management.

All parties act in their own rational self-interest, but the two different kinds of investors have different interests. In fact, this scenario is no different from the case in which both firms are run to maximize profits, and the socially conscious investors get together on their own to fund some worthy cause, except for the tax benefits, as Friedman mentioned, and the costs of the investors getting together to agree upon where to donate their money. Whole Foods seems to follow this model, as the initial investors bought in to the vision articulated by John Mackey (no relation).

If Mackey's vision of corporate philanthropy takes hold, it will not be because it makes more money than wealth-maximizing firms, but because investors demand it of the managers they pay.

Jay Barney, Alison Mackey, Tyson Mackey
The Ohio State University
Columbus, OH

In Defense of Happy Pills

Maia Szalavitz took heroin to stop depressing herself, and she now takes Zoloft for the same reason. She argues that the rewards of self-examination –and psychotherapy is not the only way to know oneself–are no different from the happiness she feels after ingesting Zoloft, and she seems bothered by statements in my book, Addiction Is a Choice: "I oppose the use of heroin for the same reason I oppose the use of Prozac. I think relying on these is an existential cop-out–a way of avoiding coping with life."

Yet Szalavitz never actually responds to what she considers worth quoting. She has chosen to take issue with me for criticizing the use of heroin and cocaine, and for pointing out the similarity with using Zoloft.

I believe there is a difference between spending 14 years training in the martial arts, receiving a black belt on the merits of effort and skill, and simply buying a black belt without working for it. Either way, the belts are black. Szalavitz seems to think the two are the same.

Certainly, she has a right to abstain from self-examination, just as people should be free to use drugs without penalty and without prescription. She doesn't seem to want to know how or why she is depressing herself; she refers to this as indulging oneself in meaningless pain and suffering. But understanding how a person makes herself depressed is key to changing the way she feels. Taking a drug that makes her feel good about herself is different from reaping the fruits of self examination.

Jeffrey A. Schaler
Department of Justice, Law and Society
School of Public Affairs
American University
Washington, D.C.

Maia Szalavitz argues: "Unlike in any other area of medicine, treatments that reduce pain and suffering, rather than being welcomed as miraculous breakthroughs, often are denigrated as quick fixes. They're viewed as band-aids that cover up, but do not solve, the real problem." But in other areas of medicine, sometimes treatments that could make patients feel better aren't used precisely because they could mask other problems that are potentially life-threatening.

Mike Swaim
Houston, TX

CORRECTION: The article "Antonin Scalia, Judicial Activist" (October) mistakenly referred to Supreme Court Justice Antonin Scalia as the "swing vote" in Gonzales v. Raich; the vote in that case was 6-3. The article also erroneously referred to Justice John Paul Stevens as the "sole dissenter" in Kyllo v. U.S.; he was joined in his dissent by three other justices.