Why Intellectuals Hate Capitalism
Whole Foods CEO John Mackey on entrepreneurship, snobbery, and the minimum wage
"Intellectuals have always disdained commerce," says Whole Foods Market co-founder John Mackey. They "have always sided with the aristocrats to maintain a society where the businesspeople were kept down." Having helped create the global grocery chain intellectuals arguably like best, Mackey has evolved into one of capitalism's most persuasive champions, making the moral, practical, and even spiritual case that free exchange ennobles all who participate.
More than any other retailer, Whole Foods has reconfigured what and how America eats. Since opening its first store in Austin, Texas, in 1980, the company has helped its customers develop a taste for high-quality meats, produce, cheeses, and wines, as well as for information about where all the stuff gets sourced. Mackey, 62, continues to set the pace for what's expected in organic and sustainably harvested food.
Because of Whole Foods' educated customer base and because Mackey is himself a vegan and a champion of collaboration between management and workers, it's easy to mistake him for a progressive left-winger. Indeed, an early version of Jonah Goldberg's bestselling 2008 book Liberal Fascism even bore the subtitle "The Totalitarian Temptation from Hegel to Whole Foods."
Yet that misses the radical vision of capitalism at the heart of Mackey's thought. A high-profile critic of the minimum wage, Obamacare, and the regulatory state, Mackey believes that free markets are the best way not only to raise living standards but to create meaning for individuals, communities, and society. At the same time, he challenges a number of libertarian dogmas, including the notion that publicly traded companies should always seek to exclusively maximize shareholder value. Conscious Capitalism, the 2013 book he co-authored with Rajendra Sisodia, lays out a detailed vision for a post-industrial capitalism that addresses spiritual desire as much as physical need.
Reason TV's Nick Gillespie talked with Mackey earlier this summer at FreedomFest in Las Vegas. To see the full video, go to reason.com. (Disclosure: Whole Foods Market is a supporter of Reason Foundation, the nonprofit that publishes this magazine.)
reason: You believe capitalism is not only the greatest wealth creator but helps poor people get rich. But you see it as constantly being misrepresented, even by its champions. Why is capitalism under attack?
John Mackey: Intellectuals have always disdained commerce. That is something that tradesmen did—people that were in a lower class. Minorities oftentimes did it, like you had the Jews in the West. And when they became wealthy and successful and rose, then they were envied, they were persecuted and their wealth confiscated, and many times they were run out of country after country. Same thing happened with the Chinese in the East. They were great businesspeople as well.
So the intellectuals have always sided with the aristocrats to maintain a society where the businesspeople were kept down. You might say that capitalism was the first time that businesspeople caught a break. Because of Adam Smith and the philosophy that came along with that, the industrial revolution began this huge upward surge of prosperity.
reason: Is it a misunderstanding of what business does? Is it envy? Is it a lack of capacity to understand that what entrepreneurs do, or what innovators do, is take a bunch of things that might not be worth much separately and then they transform them? What is the root of the antagonism toward commerce?
Mackey: It's sort of where people stand in the social hierarchy. If you live in a more business-oriented society, like the United States has been, then you have these businesspeople, who [the intellectuals] don't judge to be very intelligent or well-educated, having lots of money—and they begin to buy political power with it, and they rise in the social hierarchy. Whereas the really intelligent people, the intellectuals, are less important. And I don't think they like that.
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That's one of the main reasons the intellectuals have usually disdained commerce. They haven't seen it [as a] dynamic, creative force, because they measure themselves against these people, and they think they're superior, and yet in the social hierarchy they're not seen as more important. I think that drives them crazy.
reason: A lot of the times the businesspeople are plucky upstarts—they're innovators, they're disruptive, and they're fighting against the power. But once they get to a certain point of influence or power, they often start to try and rig the market or freeze the market in their favor. Why is that?
Mackey: I don't know if it's a psychological switch so much as that they weren't necessarily grounded in the philosophy of capitalism. They weren't necessarily advocates of the free market. They were just advocates of their own advancement, their own personal enrichment. And so I think oftentimes, they don't make a distinction between when they're entrepreneurs on the way up versus when they've arrived. They're attempting to not fall, so they try to rig the game, and we have crony capitalism.
reason: We live in an age where there are an unbelievable amount of government mandates that restrict the ability of business owners and employees to really negotiate about stuff. Some are things as obvious as the minimum wage, where it says, "Under no circumstances can a business offer somebody less than this amount." How do these affect your ability to run a business in an extremely competitive market?
Mackey: The impetus behind so many of these types of regulations in the workplace is, in a sense, to shackle business again—to get it back under the control of the intellectuals. Just like commerce: If you study the history of business, you will see that most of the time in our history, commerce was controlled by the aristocrats. The merchants were kept under their thumb. And now they've escaped and we have this free-market ideology that says the market should determine all these things. They're systematically undermining that marketplace to get business back, get the genie back in the bottle.
Of course, that will stifle innovation. It'll stifle the dynamic creative destruction of capitalism. But I don't think they're thinking about it that way. They're very concerned about the motives of business, and they see it as this selfish, greedy, exploitative thing. Businesspeople can't be trusted, markets aren't just, they're not fair, so we need to intervene, we need to control this situation.
Let's take the minimum wage. Let's say Tom wants to go work for Whole Foods Market, and Tom is willing to work for Whole Foods for, you know, $10 an hour. And we want to hire Tom, and we think Tom is worth about $10 an hour, so we come together, and Tom's winning. We're not forcing him to work there. He's getting benefits. He's getting opportunities to advance, learn new skills, and make more money in the future. We're gaining from it because we think he's going to be a good employee, and we think $10 is a fair wage. However, the government may not let us do that. They may say, "You can't pay Tom $10 an hour, because we're going to set a minimum wage of $15 an hour." So the government's basically saying, "We know better what's [good] for Tom, and we know better what's [good] for you, and we're not gonna let you guys freely come together and do voluntary exchange."
reason: The argument is that especially in an era where there's high unemployment and low labor-force participation, it's a buyer's market. Tom wants to work for $10, but you could probably get him for $5 or $6. So the argument is that, somebody's got to look out for Tom.
Mackey: Well, first of all, I think Tom can look out for himself. But [second], that's basically a myth. Wages in a marketplace are determined by productivity. Why should we pay Tom even $10 an hour? If we can control the wages, then why don't we just pay him 10 cents an hour? Why not? Because Tom could go get a job someplace else that would pay him better. Wages are determined through competitive marketplace dynamics. And wages will settle at the marginal level of productivity, meaning we might like to pay Tom less, but Tom's not willing to work for less, and he can get a job down the street that pays him what he thinks he's worth. So the competition between employers sets wages.
When the government sets it, it's inevitably going to screw it up. It's going to set them too high, and so a company like Whole Foods Market—let's say they say the minimum wage is $15, but Tom's only worth $10 to us. Well, what we'll do is we'll restructure our marketplace so that we'll provide less service. We're actually a very high-service supermarket, but if they make service too expensive, so our customers aren't willing to pay for it, then the rational, logical thing to do would be to cut back. Do more self-service, make people queue up in lines longer, so we can keep our labor costs under control, so we can be competitive in the marketplace.
reason: What are some of the other, less obvious regulations that really hinder the ability of business and individuals to come together, or to be flexible and innovative?
Mackey: There are hundreds of them, and most of them, as you say, are hidden. One, perhaps, that's not so hidden is Obamacare. Again, it's determining, rather than letting the marketplace determine, health care in a competitive format. They're basically saying, "You must cover this."
Let's say they mandate that you must cover in vitro fertilization, which as far as I know is not really an illness or a health condition, but [let's say] some lobbyist somewhere can jam that through. When they jammed it through in Massachusetts and forced us to cover that, we were paying an extra $750 a person for health insurance, and there's no free lunch. So if we're paying an extra $750 to cover everybody in the workplace so they can get in vitro fertilization—so someone, sometime can get it—well, the result is they're going to get $750 less in [other forms of] compensation. I think this is what people don't understand: If you mandate certain benefits then the cash compensation's going to be less. Oftentimes, you'll see studies that show that "real wages" are stuck. Well, real wages and benefits aren't stuck, but you don't necessarily see that.
reason: So it might be that the pay is stuck, but the overall compensation, the fringe benefits, etc.—
Mackey: Exactly. They're forcing us to cover more things. If you're forced to give paid time off, if you're forced to give maternity leave, you're forced to give paternity leave, you must give this many vacation days—well, those are all costs to the business. They sound good, but there's no free lunch there. So if they're raising our costs through benefits, then necessarily total cash compensation must be reduced. Then they say, "You're going to have to pay this much in cash compensation." Again, there's no free lunch. So we'll either have to cut back on labor, or we'll raise prices to our customers. And they think, incorrectly, that you can somehow or another take it out of profits. But the profit fund is too small. At a business like Whole Foods Market, we pay seven to eight times more in wages than we actually make in profits.
reason: Some of the hardest people to convince of your vision of capitalism are libertarians who believe what Milton Friedman, one of your intellectual heroes, used to talk about-that the only responsibility of a business is to increase its shareholders' values. Talk a little bit about what kind of resistance you get from people who are rock-ribbed free-marketeers, who [might disagree with] your discussion of capitalism being more broadly inclusive of not just shareholders, but also other types of stakeholders.
Mackey: I get quite a bit of resistance. And it's a shame, because if you think about what really empowers the left to put high living-wage compensation, or minimum wages, or mandates of a bunch of benefits, or additional regulations on the business, it's because they don't think business is "good." They think business exists simply to maximize shareholder value and make profits. So if that's really the motivation for business, if it's not a more inclusive philosophy, then they feel quite justified in hamstringing business. Because they're basically a bunch of psychopaths running around trying to line their own pockets; we can't trust them to do the right thing, so we're going to have to do it for them.
In a more inclusive view, business has these responsibilities to all its stakeholders, customers, employees, investors, suppliers, and the larger community. If business behaved like that, the impulse to regulate and control would be lessened.
reason: Do you think we're shifting into a mode of capitalism where the idea of "doing well by doing good" is really starting to come into focus and will start energizing the way people think about business, and for-profits and nonprofits, and how the two may not be so diametrically opposed?
Mackey: I really do. When you asked me the previous question, do I feel resistance from traditional free-marketeers and libertarians? Yeah. Old ones. But as they say, social progress is made one funeral at a time. Young people are eager for these ideas. I've oftentimes gone to business schools and talked about this, and I see the professors with their arms crossed, saying, "This is about shareholder value." But the students, the MBA students, they're lapping it up, because this is exactly what they want to believe. "Yes, I can get rich, and I can do good." That seems like a win-win strategy to them and to me.